Mum, you’re in top shape
IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.
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QUESTION: I’m a 30-year-old single mum with a son starting prep this year. I live with my parents and study full-time, (two years left on an engineering degree), so only work during the summer holidays and live off the pension for the rest of the year. (Just under $1000 per fortnight.) I have no debt, but no assets either, except a 10-year-old hatchback. I have a tiny share portfolio of $6000 and a Mojo account of $2000. My expenses are modest, but I just don’t know what to do going forward. Can you help?
Tracey
ANSWER: You’re clearly bound for bigger and better things. It’s only a matter of time, and with your son off at school, that time starts now. Don’t for a minute think that being a young single mum is a disadvantage. It’s actually one of your greatest strengths. The Unique Selling Proposition that will separate you from every other graduate is your maturity and life experience. you’re not a kid — you’ve got a kid. While you’re living with your parents you can afford to be strategic. I’d recommend that you start stalking the top graduate jobs that you’ll be applying for next year, and see if there’s an opportunity to do any internships this year (paid or unpaid). Congratulations on having a better financial plan than most couples. Right now, don’t put any more money into shares until you get a full-time job. You’re already investing in yourself and your career, and that’s going to pay you huge dividends. Instead, focus solely on building up your Mojo for the next two years; as a single parent, you’ll need it.
WEIGHING THE WORTH OF KIDS’ EDUCATION
Q: We’re a family of five, (plus an au pair). My husband and I earn a combined income of $230,000. Our home is worth $520,000, and we have a mortgage of $400,000 plus one credit card at $3000. Here’s the problem: our home is in a low socio-economic area, so we’re sending the kids to a private school at a cost of $12,000 per year each. Should we continue to pay private school fees or move to an area where we’d be more confident in sending the kids to a local government school, and have a higher mortgage instead?
Carol
A: You’re in a fortunate position — so long as you maintain your current income, you can afford either option. The question that only you can answer is this: if you believe your kids will get exactly the same education at a public school, then it makes sense to move and put the savings on to your (slightly higher) mortgage. Three kids in private school will cost you $432,000 until they’ve all finish high school. (Actually, it’ll end up being much more than that, given the cost of education in Australia has risen by more than double the rate of inflation in the past decade). Then again, what’s money ultimately for?
INSURANCE HAS GOT YOUR BACK
Q: I recently checked my superannuation statement and realised I am getting charged a huge amount of fees for insurance — disability and income protection. I have opted out of this insurance and I was wondering whether this was a good choice or not. Is this sort of insurance really worth it?
Brenton
A: It’s a complete waste of money … so long as you don’t get sick. Income and disability insurance comes in handy if the grim reaper touches you up, but doesn’t finish you off. What happens if you have a stroke, and live in a disabled state for the next 30 years? How do you pay the bills? That’s why you need to read the fine print of any insurance contract (whether it’s in your superannuation or not). Some income protection in super funds will only cover you for two years of payments, but for my money, I’d want to be covered up until I can access my superannuation. Bottom line, by all means save money by eating a meal deal at Maccas, but don’t scrimp on your insurance.
TAKE CONTROL, OR BE CONTROLLED
Q: I feel like I have landed in hot water — trying to provide for my son, only to wind up being in debt beyond my means. I owe $4000 on a GE credit card, $9000 on a bank loan and $23,000 on a car loan. I’m earning $45,000 and am struggling just to pay the rent. I’m applying for jobs to increase my income, but where do I go from here? I want to get out of this mess.
Natasha
A: Here’s the first step: stand in front of a mirror. Own your problem. Don’t blame your son for
your mess — unless he put a gun to your head and forced you to take out a $23,000
car loan. Second step: do something about it. Pay the minimums on all the debts, while you scrounge up $2000 into your Mojo online savings account, as quickly as you can — preferably by selling stuff you don’t need, and taking extra shifts at work. Third step: talk to your finance company about selling the car and paying down some of the debt. Buy a second-hand Corolla, or a Camry that you can afford. Drive it with pride. Final step: radically increase your income and pay off the rest of your debts. You can do that the easy way (pinpointing your passions, educating yourself, and going for it), or the hard way (working two entry-level jobs). Here’s the thing: none of this is complicated. It’s all commonsense stuff. The real secret is that personal finance is about YOU. If you don’t get in control of your money right now, the lack of it will control you forever.
Originally published as Mum, you’re in top shape