Start fixing finances by uncoupling from the man-child

IT’S time to look at sorting out a financial mess by getting out of a marriage to a little boy who can’t be trusted with a credit card, writes Barefoot Investor.

A financial man-child will probably need bailing out again.

IT’S time to look at sorting out a financial mess by getting out of a marriage to a little boy who can’t be trusted with a credit card.

 

TAMMY ASKS: We live beyond our means — especially my husband. We have been married two years; I earn $45,000 and he earns $70,000. I bought us a house three years ago, paying a deposit of $90,000 plus another $49,000 to clear his credit card debts. I now have a credit card debt of $15,000 and he has another of $40,000. We have separate finances with a joint account for bills. The house is worth $900,000 with a $680,000 mortgage. His solution is to get a small second mortgage to pay off our debts at low rates. No pre-nup. Unstable marriage. Should I agree?

BAREFOOT REPLIES: I’m going to be honest with you. The first thing that came to my mind as I read your question was “No. No. No. No. No”. Seriously, that’s what I kept saying as I read your question. I see the problem you’re facing. On one hand, he’s your husband. On the other, he’s a financial man-child. You bailed him out once. Now he’s coming back again. The third time he comes back — and there will almost certainly be a third time — he’ll take you to the cleaners. It may take five or 10 years, but that’s where this is heading. Now, consolidating your debts via a second mortgage will save you interest. Honestly, though, that is the financial equivalent of using a surgically clean syringe to inject your heroin each day. It’s not the interest that’s the problem, it’s your out-of-control spending. Not to get too airy-fairy, guitar-strummy-strummy with you, but your financial problems are a symptom of what’s going on in your relationship. Before anything changes financially, you (both) need to. The problem is that changing is hard at the best of times, especially when you’re married to a little boy who can’t be trusted with a credit card. Obviously it is totally up to you, but if you were my sister I’d suggest you go Gwyneth Paltrow and “consciously uncouple” from your husband until he can start acting like a responsible adult — giving you space to focus on digging yourself out of this mess.

YOU CAN DO IT, TIM

TIM ASKS: I am a recovering gambling addict. I got hooked at a young age, but I have not gambled in 18 months. Now I am in my late 20s and have ruined my credit rating by taking out credit, loans and payday lending to fund my gambling. My credit score is 458 and I can’t even get a phone plan. I am now 100 per cent debt free, and I earn $85,000. How can I fix my credit score — get a credit card? I want to fix it so one day I can buy a house.

BAREFOOT REPLIES: You’ve got my respect, mate. It takes a lot of courage and determination to face up to and tackle your addiction, especially given the gambling industry actively targets recovering gambling addicts (hello Sportsbet). OK, so let’s lay down a strategy to wipe your credit file clean and get you into your home. You don’t need to get a credit card, and for god’s sake stay away from those credit repair (spray-on-hair) spruikers. Those creeps are almost as bad as Sportsbet. (Almost.) All you need to do is open up a savings account and deposit money each payday for the next five years. That’s how long the information on your credit file lasts legally. And that’s also how long it’ll take you to save up a very safe deposit. Here’s the thing, Tim. Most people totally over-estimate what they can do in one year, but totally underestimate the mountains they can move in five years. Then again, most people don’t have your guts. You’ve got this.

 

A QUESTION OF TRUST

KEVAL ASKS: My accountant told me that a family trust is not the “tax haven” it used to be a few years ago. Is that true? We were thinking about establishing one for our family (we have two kids — one aged four and the other two months). Our combined income is $190,000 before tax.

BAREFOOT REPLIES: Your accountant is my kind of guy (or gal). Family trusts can be tax havens if you have adult kids (at university, say). You can distribute income from the trust and take advantage of their tax-free threshold (the first $18,200 earned is tax free). But your kids are minors. And the government doesn’t like rich people using their children (under 18) as a tax dodge, so it whacks them with a tax rate as high as 66 per cent on unearned income! I’d suggest building up your mojo, maxing out your pre-tax contributions, knocking out your mortgage, then investing in shares — possibly through a trust. One day your kids will be adults! Any accountant who talks a client out of giving him more fees deserves a pat on the back. He’s looking out for your best interests.

 

A BLATANT FREE PLUG

WENDY WRITES: I have followed you for years, and treated your first book like a bible since a good friend of mine gave it to me in 2010 — when my husband died. At that time I could not afford my mortgage repayments, and I had a six-month-old baby. Since then I have tripled my super and am saving and working towards being financially independent. Thank you.

BAREFOOT REPLIES: A note to readers: You (along with my long-suffering editor) are probably thinking, “Hey, this isn’t a finance question; it’s a blatant self-serving plug for Scott’s new book”. And you know what? You’re absolutely right. Truth is, my first book (published over a decade ago) helped a lot of people — mainly because readers shared it with their loved ones, including Wendy. My new book, The Only Money Guide You’ll Ever Need, was launched this week, and I’m confident it will help a whole lot more people.

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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

 

Buy The Barefoot Investor, The Only Money Guide You’ll Ever Need, by Scott Pape for $27.95 including delivery. Order online at heraldsun.com.au/shop or call 1300 306 107

Originally published as Start fixing finances by uncoupling from the man-child