Scott Pape: Sharing finances when you're in love can lead to dumb decisions
JUST because love is all around you, don’t jump into joint finances too quickly. Take your time to see how the partnership develops, writes Barefoot Investor.
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JUST because love is all around you, don’t jump into joint finances too quickly. Take your time to see how the partnership develops.
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MELANIE ASKS: I’m in love! I met a guy six months ago, and he’s now moving into my house and wants to put his income into paying down my mortgage while we use my income to live on. I am on $105,000 and he is on a $90,000 base (more with overtime). He has no debt, while I owe $330,000 on my home, $250,000 on an investment property (barely breaking even), and $20,000 on my credit card (from a holiday). We are going to get married eventually, but the plan is to live together and pay down my mortgage for a couple of years until we need more space for kids. The trouble is, I do not want him taking on my debt, so should I sell and start again together?
BAREFOOT REPLIES: “I feel it in my fingers, I feel it in my toes, when love is all around me” … … you’ll probably make dumb money decisions. Seriously, I’ve had little lambs last longer than you’ve known this bloke. (And you know what eventually happens to them, don’t you?) A few things: First, keep everything separate until he puts a ring on it. If you want to live in sin (as my grandmother calls it), charge him rent, and pay that straight off your mortgage. Easy. Second, get rid of the credit card debt pronto. (Seriously? On a holiday? WTF?) Do the sums on your investment property and then ask yourself the ultimate question: would I buy this property again today? If not, get rid of it. Now is the time to get on top of your debts. But don’t do it for him. Do it for you. Repeat after me: “This man isn’t my financial plan.” Finally, it sounds like you’ve fallen hard for this bloke. The best way to see if he is as committed to your future as you are (other than checking his phone) is to sit back and watch what he does for the next 12 months. If he’s serious he’ll be working and saving like a man possessed ... “come on and let it show!”
CLEAN SWEEPER
DES ASKS: I read a book about property investing by Konrad Bobilak and there is a chapter on how to pay your house off in 10 years with no extra payments. The deal is using a 55-day credit card, keeping all your earnings in an offset home loan account, using your credit card daily, and setting up an automatic transfer before 55 days to pay back from the offset to the credit card. But in your book you don’t mention this. I am confused — what should I do to pay my mortgage quicker?
BAREFOOT REPLIES: What you’re referring to is a “sweeper strategy”: parking your salary in your offset account, spending everything on a credit card, and then sweeping your entire credit card balance clean before your repayment is due. It looks awesome on a spreadsheet, but I’ve seen it harm more people than it helps. The reason is most people end up spending too much on the credit card and get whacked with a backdated interest bill. Then, instead of saving interest you’re paying it. Here’s you: “I won’t miss a repayment … ever.” Here’s me: “You probably will at some stage. The Australian Bureau of Statistics suggests about two-thirds of credit card holders miss a repayment at least once a year.” My advice? Get an ultra low-cost variable home loan, forget the credit cards, and focus on making extra repayments each month.
WORKING FOR
HUBBY
DANIELLE ASKS: I am returning to work after having my children. I recently started looking for a part-time job, during which time my husband asked me to do his books and admin work. I am legitimately doing two days’ work a week. When we visited an accountant my husband suggested paying me a wage, but the accountant said this was not possible under PSI tax rules (an associate for non-principal work). Is this true?
BAREFOOT REPLIES: He can pay you … he just can’t claim a tax deduction for it under the PSI taxation rules. (Danielle is not talking about tyre pressure — PSI means personal services income). Simply put, your husband can’t claim a deduction for the salary he pays you, because you’re not involved in the principal work. Sounds like you have a good accountant.
RESTART OR
CHIP AT IT
KELLY ASKS: I am loving your book and have one (probably silly) question. My husband and I, both 40, are tackling a $45,000 credit card debt on a $70,000-a-year combined income. Most of it is business credit card expenses — his small business has had a very quiet start to the year. Do we redraw this amount from our mortgage (we have $300,000 in equity), pay off the credit card and start again, or keep chipping away?
BAREFOOT REPLIES: Yes, you can refinance the debt on to your mortgage to get a lower rate. But there are a few things to remember: First, it’s no magic wand. You’re eating into your family home, and there are only so many times you can do this. Second, you’re turning a short-term debt into a long-term debt. Third, you’re putting a Band-Aid on a deep gushing wound caused by your husband’s flailing business. Paper-shuffling your debts doesn’t mean it won’t happen again, so I’d sit down with your husband and have what comedian Tom Gleeson calls a “hard chat”. If the business doesn’t improve by Christmas, it’s time for hubby to get a job.
RED ‘N’ RANDY?
HUH?
YU ASKS: I enjoyed your book. However, as a non-native speaker, there were things that confused me. Could you please explain what “Paint me red and call me Randy” means?
BAREFOOT REPLIES: I have no idea what it means either.
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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: Sharing finances when you're in love can lead to dumb decisions
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