Home truths offer sense of security on buying a house

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

Confused woman

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

Q Hi Scott,

I am a Gen X-er who missed the property boom and am still renting. I have two kids, $90,000 worth of savings and no debt. I want to make the most of this money but I don't know which is the best option - property or shares?

Will the market go up or down? My bank has offered me free financial advice, which I am sceptical of after losing money in a managed fund two months before the GFC. Help!

Cheers, Lauren

A Hi Lauren,

Trying to bet on which "investment fly" will figuratively climb the wall sooner is a total waste of time.

No one knows that - not even your bank financial adviser - as you found out.

Instead, focus on what is going to build you a feeling of long-term financial security.

I'm a big believer in owning your own family home. My only conditions to you buying are the following: that you buy with a 20 per cent deposit (and that you don't spend every last cent in your Mojo account. Reason being, houses are expensive and you need savings).

And that you can not only comfortably afford the repayments at current rates, but that you also have the ability to make extra repayments while interest rates are low.

PERCENTAGE GAME

Q My husband and I earn a combined $10,600 a month.

I have listened to your advice about saving 20 per cent for a house deposit, but my husband is adamant that we should only save 10 per cent as it will take too long to save 20 per cent (even on our future wages), and we wouldn't be able to do that due to house prices increasing.

This means that by the time we get the 20 per cent it will only be worth 10 per cent anyway.

We are in our early 30s and are ready for the house and baby in the next five years.

We are not caught up on location - we just want a sound house that we can afford.

I think we should live off one wage for a year and save the other, but he's not keen on that.

What do you think about buying a house - is my husband being realistic?

Thanks, Teresa

A Teresa,

There's a couple of reasons I advocate saving up a 20 per cent deposit, though the main reason is to annoy your husband (just kidding).

Think about it this way - your husband and I are both making assumptions about the future: your husband is assuming that house prices are going up faster than he can save, so he'd rather borrow more today and buy sooner.

I'm much more cautious. Regardless of what the market is doing (or what I think it's going to do), I'd rather save money now, and avoid shelling out $10,000 for mortgage lender's insurance (which you'll have to pay if you have anything less than a 20 per cent deposit), and buy a house later without the stress - and knowing you can afford it.

Right now, in most parts of the country, house prices are falling.

And given you both have high incomes with no kids, you should be able to live off one wage.

This will give you nearly $50,000 a year as savings for a house deposit.

One of the best indicators of how your marriage will turn out is how well you work together with your money today. This sounds like your first big test.

LONG-TERM THINKING

Q Hi Scott,

My husband has about five months' long-service leave, worth about $40,000. Should he take a payout and invest this money?

Thanks, Jill

A Jill,

Most employers won't let you take it as a lump sum. That's not a bad thing - remember the taxman will want his take -  so it might be smarter to take smaller amounts over several years to reduce your tax, and avoid blowing out any Centrelink entitlements.

Then, the aim of the game is to first top up your Mojo account, then use the money to pay down any debts you may have, and then finally to invest the money into a good, low-cost superannuation fund.