Once you hit gold, it’s time to start relaxing

IF you’ve got a burning money question, or simply want to win an argument with your husband, write to the Barefoot Investor with all your money questions.

Young couple posing indoors

Q My wife and I have been Barefooters for years. We are both 36 and paid off our home last month. We’ve been very boring, for a very long time! Now it’s paid off, we want to really get ahead and make some serious money, by redrawing on our home and investing in shares. What are your thoughts?

Greg

A I don’t know what “serious money” is to you, but I’m sure it’s less than James Packer dropped down the back of his couch last weekend. But seriously, serious money for most people is not having to have too many serious conversations about the lack of it — and you’ve achieved that already.

You’re on the downhill run now, financially speaking. And here’s the thing: you’re only a third of the way through your life — you’ve (probably) got 30 years until you retire, and (hopefully) another 30 years in sandals and socks.

So, there’s no need to rush. But I don’t recommend borrowing against your home to buy shares — most people don’t have the ticker to ride out a downturn with borrowed money. Just keep ploughing your mortgage repayments into buying shares.

TURBO OPTION

Q You always talk sense! I am a single woman, aged 66, and hope to work until 70. I have a salary of $52,000 per year, I own my own home (worth $1.2 million) and I have $260,000 in superannuation. Should I buy an investment unit for $500,000 to rent out until I retire? Is property better than cash in superannuation?

Tania

A Don’t buy the investment property.

Instead start a ‘transition to retirement strategy. Basically it involves you salary-sacrificing as much as you’re allowed into super ($35,000 per annum — and that includes your employer’s contributions), and then drawing down a pension from your super. You’ll have the same take-home pay, but save a fortune in tax.

If you really want to turbocharge your retirement plan, I’d look at downsizing your home and whacking the surplus into super. But if you do this, wait until you’re on the aged pension so you can get the stamp duty savings that come with the pension concession card.

GREAT LESSON

Q Our daughter is 14 and has had a casual job for about six months. She only does one or two shifts a week. We’ve made a deal with her: she must save 50 per cent of what she earns each week in an online savings account. Just last week she reached her first $1000 in savings. We have heard about a concept whereby you invest 10 per cent of your wage. Can you please explain how this works and if it’s viable?

Tim

A You’re talking about the time-tested rule of wealth: pay yourself first, and ride the power of compound interest and it works. There are plenty of books about it, but most of them will bore your daughter to death, so instead get her to do these three things:

FIRST, let her choose her first share investment. It should be a company that she already deals with (Woolies? The banks? Apple?). It doesn’t matter too much what company she chooses — the key is to engage her in the process. This, my friend, is a teachable moment.

SECOND, once she’s bought the shares (purchase them in your name, and designate your daughter as the owner), make her feel like an owner of the business. Send her interesting news articles on the company and discuss them, and ask her what she think.

THIRD, have her check out the moneysmart.gov.au compound interest calculator, and get her to plug in different savings amounts.

Here’s the key: don’t explain the returns as “interest” or “capital growth”. That’s boring. Convert her dollar returns into something she understands — her wage.

Originally published as Once you hit gold, it’s time to start relaxing