Paul’s ver­dict

Money Magazine Australia - - CON­TENTS - Paul Clitheroe

I'm 34 and earn $100,000 a year. We cur­rently have a one-year-old baby and my wife (30) is a full-time mum. We have com­bined super of $160,000 and cur­rently owe $440,000 on our mort­gage (two years into re­pay­ments) with the house be­ing val­ued at around $700,000, leav­ing us $260,000 eq­uity with min­i­mal sav­ings (and no other debt). My wife is look­ing to go back to work, where she would earn about $70,000pa.

We are just won­der­ing what our next best move would be at this stage. We are look­ing at the op­tions: buy­ing shares, or should we pri­ori­tise the mort­gage, or place cash aside for the baby's fu­ture ex­penses? Would a self-man­aged super fund be a sen­si­ble op­tion? David

Con­grat­u­la­tions on the birth of your first child. En­joy ev­ery mo­ment. One of the best pieces of ad­vice I have ever re­ceived is that time with the kids goes in a flash. When I was given this ad­vice, Vicki and I had a new baby, a four-year-old and a six-year-old and I thought it was non­sense. But as I re­cently went to my youngest daugh­ter's grad­u­a­tion from a four-year de­gree and we look for­ward to our 30-year-old son's mar­riage at the end of the year, I re­alise that the ad­vice I was given was spot on.

In line with this, it is ter­rific that you are look­ing for­ward in terms of your fi­nan­cial se­cu­rity. Money miracles are not some­thing I be­lieve in – in fact, they are al­ways a scam. But I do be­lieve in reg­u­lar sav­ing, in­vest­ing and com­pound in­ter­est over time.

Clearly, your wife's re­turn to work is the key fac­tor here. A new baby does in­volve ex­pense, and I ex­pect there is not a lot of sur­plus in your bud­get.

The key money is­sue for you and your wife is around your fam­ily plans. If you are think­ing about an­other child in a year or two and your wife would then stop work again, it would be silly of me to pro­pose an in­vest­ment plan that in­volved gear­ing if your wife's salary was the source of in­come to meet gear­ing costs.

At your age, I do think that debt used sen­si­bly to buy ei­ther prop­erty or shares is tech­ni­cally a good plan. You prob­a­bly have some 30 years in the work­force to cre­ate wealth, and while I have no idea what share or prop­erty prices will do in the short term, it would be a pretty un­usual pre­dic­tion to say that prices of ei­ther would be lower in a few decades. Vicki and I look back at our first prop­erty pur­chase with fond­ness. We bought a small semi on a busy road in the Syd­ney sub­urb of Ar­tar­mon for $90,500 in 1983. It was more money than we could imag­ine and our mort­gage felt ter­ri­fy­ingly high.

But as our sec­ond child came along it had risen in value. We took our eq­uity and bought a three-bed­room house in the same sub­urb for $356,000 and then a few years later, as our third child was due, we moved to a four-bed­room house, which we paid $535,000 for in 1993.

Once all the kids were at school, we bought a house closer to the school. The num­bers seemed scary back then but I sus­pect that the $535,000 house we bought in 1993 would now sell for some $3.5 mil­lion. Such is pop­u­la­tion growth and in­fla­tion!

But back to you. Right now I would not go with the DIY super fund. Ad­vis­ers love set­ting these up be­cause they gen­er­ate very juicy fees ev­ery year. When your super bal­ances grow to, say, $300,000 or more I would be OK with it, but right now so many of our huge re­tail and in­dus­try funds of­fer some ex­cel­lent, super-cheap op­tions. You will find that you can in­vest in growth op­tions with global ex­po­sure for next to noth­ing. I would go that way un­til you build your super bal­ance.

In terms of in­vest­ment, while it is pretty dull I re­ally would sug­gest you look at pop­ping any ex­cess into an off­set ac­count at­tached to your mort­gage. That way you are build­ing funds to make a move once your fam­ily is a bit more es­tab­lished. I know you could do a tight bud­get and stretch your­selves into a geared prop­erty or share port­fo­lio, and even have a con­ver­sa­tion about de­fer­ring a sec­ond child to keep your wife's in­come, but I hope you don't.

Money is good to have as it brings choice, but that is about it. You are young and have decades in front of you. You al­ready have a home with ex­cel­lent eq­uity, a very good base in su­per­an­nu­a­tion, a good in­come and a long time in the work­force. Your base is there. My ad­vice is to be con­ser­va­tive, build cash re­serves to make fu­ture in­vest­ment de­ci­sions and re­ally en­joy the won­der­ful stage of life you are now in.

My very best wishes to you both and, of course, your young child.

Paul’s ver­dict: Don’t stretch your­selves – just en­joy this won­der­ful stage of life Build cash re­serves for mak­ing fu­ture fi­nan­cial de­ci­sions

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.