Scott Pape: A smart saver needs to see if her big spender boyfriend can become debt free
WHEN a saver ponders a serious relationship with a spender, she needs to set some ground rules about him getting debt free for starters, writes Barefoot Investor.
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WHEN a saver ponders a serious relationship with a spender, she needs to set some ground rules about him getting debt free for starters.
NATALIE ASKS: I am 22 and have independently bought my home ($207,000 owing), have $5000 in Mojo, have $7000 in other savings, and have no debt besides HECS and the mortgage. My (fairly new) boyfriend earns $53,000 and has a car loan of $25,000 and few savings. He is kind and generous but a spender, whereas I am a saver. As the relationship gets more serious, how can I protect my assets and encourage him to develop healthier financial habits? To reverse your saying, a woman is not a financial plan!
BAREFOOT REPLIES: If you end up shacking up with him, you could protect yourself by having him sign a cohabitation agreement. Though that would be kind of weird — don’t you think? It’s a bit like buying a dog that you’re secretly worried will one day go feral and bite your hand off. Better to just not sleep with dogs. Still, let’s give the bloke a break. He could just be young, dumb, and full of credit. He wouldn’t be the first fella to fall into the trap of trying to impress a young filly by flashing his (borrowed) cash. So, explain to him that this approach may work with girls — but it doesn’t wash with a confident woman like you. If he really wants to impress you, tell him he can start by becoming debt free. And if it works out you can’t teach an old dog new tricks, drop him off at the pound. Now, if you’ve got to the bottom of my answer, and you’re thinking to yourself, “you’re being a bit of a hardarse, Barefoot”, read the next question.
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AT END OF TETHER
NIKKI ASKS: I am at my wits’ end. My husband is a spender who leaves me to pay all the bills, including a car loan of $17,000, a mortgage of $239,000, and an ever-spiralling credit card debt — currently $38,000. Actually that’s not quite right. I have just discovered he has another credit card on which he owes $20,000! Of course I asked him how we can possibly pay this back, but I still have not heard an answer.
BAREFOOT REPLIES: He’s cheating on you. Financially, he’s cheating on you. You haven’t given me enough information on your financial situation, but experience tells me he’s addicted to something — most likely gambling. So, I want you to do three things: First, go to the bank, and put a stop on all the credit cards (ask him if there are any others), and request detailed account statements. Second, sit down with your husband. Don’t bother asking him how he’s going to pay the money back — he has no freaking idea — if he did, he wouldn’t have racked up a $58,000 debt in the first place. Instead, just go through the statements, and work out where he’s spending the money, and why. Finally, and based on how the chat goes, you should book in to see either a gambling counsellor (1800 858 858) or a financial counsellor (1800 007 007), and definitely a relationship counsellor (1300 364 277).
IN A PROPERTY PICKLE
ANITA ASKS: My boyfriend bought a one-bedroom apartment in Brisbane’s inner city three years ago for $404,000. We are in desperate need of more space and would like to sell, but a recent valuation has put it at $320,000. With $350,000 still owing on the mortgage and only $20,000 in savings, this puts us in a pickle. Renting the place out will not cover the mortgage, and by the look of Brisbane’s property market the value may continue to decrease. What is the best way to deal with this situation?
BAREFOOT REPLIES: The way you’ve written your question tells me you want to sell: you’re “desperate” for more space, renting the place isn’t an option, and you’re worried the apartment will drop further in price. All of these things may well be true, and if they are, you should save up the shortfall and sell. However, it was only three years ago that your boyfriend bought this joint. So before you crystallise the significant loss, I’d want to understand why he bought it in the first place. What was his plan at the time?
DEBTS AFTER DEATH
HARRY ASKS: In your book you mentioned that HECS debt dies with you. My wife passed away in 2011 — and the $15,000 she owed rocked up bang on settlement of her estate. So I paid it, on advice from my lawyer. Is there any way to get this back if I paid it unnecessarily?
BAREFOOT REPLIES: The executor of your wife’s estate was legally required to lodge a tax return up to the date of her death, which would have included the compulsory HECS-HELP debt repayments up to that date. The balance of her HECS-HELP debt would then have officially been written off by a (weeping) ScoMo. If your lawyer instructed you to pay off the entire debt, you got the wrong advice. I’d be calling the lawyer and explaining the situation, and asking them to lodge an objection with the Australian Taxation Office so you can have the funds returned. I’d expect the lawyer to do it gratis.
STRESSED STUDENT
HOLLY ASKS: At 17 I am currently completing my VCE, but will soon have to make my way in the world. I have $7000 in savings and was hoping you would be able to help me find the right way to invest it so I do not just burn through it after graduation. I am anxious I will not have enough money to do all that I want, namely paying for living expenses, travel and study.
BAREFOOT REPLIES: Where were girls like you when I was 17? I would have dated you in a heartbeat! Keep at least $5000 in an online saver account (which Barefooters call Mojo). The return you’ll get on your Mojo is peace of mind. When you graduate, look at getting a fulltime job over the summer — preferably one that you can continue when you go to university. If you’re living at home, you should be able to save up a few thousand dollars for your upfront expenses next year. Depending on your parents’ income, there’s also a chance you could get youth allowance. My final tip is a strange one. In fact, you’re probably going to think I’m completely bonkers, but think about doing it anyway: go to kiva.org/team/thebarefootinvestor and lend some money (as little as $25) to a struggling businesswoman in the third world. There is no need for you to be constantly anxious. You’re not only well ahead of most girls your age, you’re also one of the wealthiest women on the planet. You’ve got this.
Don’t take on long term debt by marrying into a family in denial
Teach your teen money management
Love can lead to a dumb call on shared finances
Learn to live with a HECS debt and direct cash elsewhere
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice
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