Scott Pape: Learn to live with a HECS debt and direct cash elsewhere

IF you have a HECS debt don’t rush to pay it off. It’s the cheapest loan you’ll ever get and it’ll come out of your salary, writes Barefoot Investor.

A couple should direct their cash into saving up for a deposit on a home.

IF you have a HECS debt don’t rush to pay it off. It’s the cheapest loan you’ll ever get and it’ll come out of your salary.

TOM ASKS: I will get straight to the point. I have a crazy HECS debt to the tune of $70,000. I am getting hitched in September to the most amazing girl on the planet. What should I do?

BAREFOOT REPLIES: First, you should definitely marry her. Second, don’t bother paying any extra off your (admittedly gigantic) HECS-HELP debt. Not even a dollar. All the hoo-ha about the government’s proposed changes to the HECS-HELP rules are focused on the compulsory repayments that come out as a percentage of your salary — they’re proposing to lower the starting income threshold by almost $13,000 (to $42,000). In doing so, the government has all but given up trying to get people to make voluntary contributions — the bonus was scrapped from 1 January 2017. So why would you bother rushing to pay off the cheapest loan you’ll ever get — it simply increases with the general cost of living — when it’ll come out of your salary anyway? The answer is you shouldn’t, Tom. Forget about paying any extra and direct your cash into saving up for a deposit on a castle to share with the most amazing woman on the planet.

And one more thing for readers: I’m writing this from a hotel room in the US of A, where the average college student graduates $35,000 in debt to a financial institution that charges commercial interest rates. And it’s one of the few debts that doesn’t get wiped out in bankruptcy. We got it good.

GAMBLER RISKS IT ALL

HAYLEY ASKS: My situation is complicated and I need your advice. I am in my early 40s and have been with my fiance for seven years. We do not live together, but have bought a block of land (in his name) and are building a house (in his name) and will move into this house together. I have contributed money to this, but my issue is he has a gambling addiction that he is in denial about and he lies and deceives me. He believes it is his money and I should not say anything. I am fearful I will lose everything.

BAREFOOT REPLIES: Yes, your situation is complicated, but it has a simple — though brutal — answer: don’t marry an addicted gambler. Your fiance has a long road ahead of him, but he hasn’t even taken the first step — admitting his problem. The alarm bells should be ringing in your head: he deceives you, he believes your money is his, and you have no say over anything. It’s highly likely he’ll gamble the lot. If I were in your shoes, I’d do three things. First, lovingly and supportively explain to your fiance that he needs to get help with his addiction — or you’re leaving. Second, sit down with a financial counsellor (1800 007 007) and get their help in removing your name from any joint accounts you may have with him. Third, talk to a solicitor and see if there’s an option for getting a financial settlement … before he blows the lot.

ON CUSP OF FREEDOM

ELLA ASKS: My partner and I both turn 32 this year. By January 2018 we will have our home paid off in full, all on a combined $150,000 a year. We are already thinking “what next?” and would appreciate your advice. We think we will both put an extra 10 per cent of our wages into super, build up our Mojo and save for an overseas trip. We are also considering buying an investment property or getting into the share market. And one more thing: we intend to start a family in the next year or two. Where is the best place to put our money?

BAREFOOT REPLIES: OMG — you paid off your home in your early 30s? If you were standing in front of me, I’d give you both a big bear hug. Better yet, let your family and friends give you one — plan one hell of a par-tay for January 2018. Seriously, paying off your home is one of life’s great achievements. Celebrate it. (For anyone keeping score at home, you’ll notice that Ella gave the month she would be debt free. She’s focused on her numbers.) This didn’t happen by accident. OK, so what should you do now? Well, first, avoid the Instagram envy of thinking you have to trade up to a more expensive home. The ultimate status symbol isn’t a flashy home or car — it’s having the freedom to travel and spend quality time with your kids, when you have them. Being debt free at such a young age, you can’t help but become incredibly wealthy. I’d suggest you go through the Barefoot steps: boost your pre-tax super contributions, and build up your Mojo to cover three months of expenses, which will be much less without a mortgage. Then, I’d look at setting up a family trust and investing in low-cost share funds and consider buying an investment property when the market crashes. If you’re able to invest just $30,000 a year, you’ll be looking at a nest egg worth over $5 million by the time you retire.

LISTEN, LEARN, LIVE

PETE ASKS: How come your book does not come as an audiobook? I am sure there are many visually impaired younger people who would love to learn from you. You have podcasts available on iTunes, so where is your audiobook?

BAREFOOT REPLIES: I chose your question because it provides me with an excellent opportunity to shamelessly plug my wares. As luck would have it, I recently recorded the book for Amazon’s Audible service. (They were going to get James Earl Jones to narrate it ... but I put my foot down.) It’ll be available next month. Happy listening.

Read more Barefoot:

How garden guru Peter Cundall achieves real wealth

Revenge is coming for first home buyers

No drama that can't be sorted, not even a bankruptcy 

Who should open a first home super saver?

barefootinvestor.com

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as Scott Pape: Learn to live with a HECS debt and direct cash elsewhere