Staying put makes more sense financially

IF you’ve got a burning money question or just want to win a fight with your hubby, shoot over to barefootinvestor.com.au and ask Scott Pape a question.

Staying put makes more sense

Q I’ve just returned to work after having two children. I earn $28,000 a year and my hubby earns $65,000.

We have a $285,000 mortgage (on a home valued at $550,000), but no other debt. We want to move to a good public school zone, but our mortgage broker says we can’t afford an $800,000 home. Should we wait for the housing bust, or invest in shares, or both?

My father-in-law ran from creditors, my mother-in-law went bankrupt, and my single mum relies on the pension. I want better for our family.

Tania

A Hi Tania,

I agree with your mortgage broker — you can’t afford to take on more debt right now.

You could rent out your principal place of residence and rent a home within the school zone, so long as the out-of-pockets on the increased rent are within your budget. But I recommend you stay put. Focus your efforts on paying down your mortgage, building up your Mojo and increasing your income (the fastest way to do this is to become very good at selling).

The best life lessons your kids will learn is watching you two live a life based on savings, thrift and giving back. That’s how you change your family tree.

THREE BEDROOMS ARE PLENTY

Q We bought our three-bedroom house 15 months ago for $630,000, with a Barefoot-recommended 20 per cent deposit.

We pay double the minimum repayments and owe about $470,000 (and with the work we’ve done we estimate the property would sell for $700,000).

We want to start a family soon. But to make our house a long-term option we’d need to add another storey, or we could buy the perfect house down the road for about $1.1 million without having to spend a dime on it. We can afford it, as long as my partner’s job is safe. What would you do?

Michael and Sue

A Hey guys,

I think I just popped a blood vessel. Since when has a three-bedroom house been too small for a couple and a baby?

Or are you planning on having quadruplets?

If you sell now you’re going to be hit with selling and moving costs, and a double shot of stamp duty. It just doesn’t make sense.

My advice would be to stay put and continue your rapid repayments, which will see you debt-free in about 10 years.

Remember, it’s not child abuse to have kids share a room for a while. Then you can tackle your renovations later, debt-free.

STICK WITH WHAT YOU’VE GOT

Q As a retiree I read your column each week with interest.

For income I rely mainly on a part-pension plus dividends from $650,000 in AFIC, Argo and bank shares (and some Mojo).

After a number of phone calls and a plausible sales pitch from a shareholder outfit, I invested $5000 with them as an establishment fee and a further $25,000 in CFDs (contracts for difference).

I accept there was “some risk”. Yet after 17 months, my $30,000 is now worth $17,800. Should I cut and run from this company?

Gerald

A Hi Gerald,

I wouldn’t run from them, I’d sprint (and then reinvest your money somewhere safe, like AFIC). Australia’s $2 trillion pot of super is like a moth to a flame for every two-bit huckster.

However, I’d count yourself lucky — you got off lightly. CFDs have ruined a lot of people. You’ve got a solid portfolio. Stick with it.

60-20-20 PLAN WORKS FOR TAMMY

Q It has been more than three years since we last wrote, and since then we have turned things around hugely.

We now have no credit card debt, an annual combined income of $130,000, a mortgage of $437,000, and $7000 in Mojo. We have been following your 60-20-20 plan faithfully since January. Should we look at investing in some shares from our Mojo money (say $2000) or just keep going as we are?

Tammy

A Hi Tammy,

You rock! Keep going (I’d want to see a Mojo of $20,000 before you get into shares).

For people reading this who wonder what the hell my 60-20-20 Plan is, it’s how I managed my money when I first started out. It involves splitting your take-home three ways: 60 per cent for safety (food, shelter and basic bills), 20 per cent for Mojo, and 20 per cent for splurging on whatever puts a smile on your dial. It can be tough at the start, but it’s one of the simplest ways to manage your money. And the people — like Tammy — who stick with it, win.

STRAIGHT TALKING ON FINANCIAL ABUSE

Q Last week you answered a question from someone who was being financially abused by her husband.

I just want to thank you for pointing out that this is a form of abuse.

We hear so much in the news about physical abuse, but nothing about other forms of abuse. You are brilliant for just saying it as it is.

I was married to a man who was totally abusive (in all forms), but after 13 years I left with my two children. That was more than 25 years ago.

Denise

A Hi Denise,

I’ve received a lot of emails about last week’s question. I know there are many people who feel trapped in abusive relationships because of their financial situation, and obligations to look after their young kids.

It takes guts, a caring community and a social safety net to enable brave people like you to escape.

Always remember that there are people who can help: call a caring, community-based financial counsellor on 1800 007 007, or for personal counselling call 1800 RESPECT (1800 737 732).

Originally published as Staying put makes more sense financially