Be sure to have fun too

Money Magazine Australia - - ASK THE EXPERTS -

QI am 39, sin­gle, earn­ing $145,000 work­ing for a for­eign com­pany re­motely (no su­per is de­ducted). I own my home, worth $500,000, out­right. I have in­vest­ment prop­er­ties worth $475,000 and $360,000 against a loan of $648,000, with $407,000 in an off­set ac­count, $233,000 in su­per, shares worth $123,000 and $42,000 in Van­guard in­dexed funds. I have a $100,000 line of credit at 5.07%, ow­ing zero.

I worry about main­tain­ing my in­come and aim to have enough pas­sive in­come to main­tain a fru­gal life­style within two to three years. I save most of my in­come, and add $250 a month to Van­guard.

I have thought about ETFs but pre­fer the idea of us­ing the line of credit to con­trib­ute more to my Van­guard funds each month. Will this help my goal? I would like to con­trib­ute enough to su­per to cover in­sur­ances/fees. Can I claim a tax de­duc­tion?

Wow, I am im­pressed, Sarah. You are killing it fi­nan­cially. With a fully owned home and about $1 mil­lion in in­vest­ments I reckon you are al­ready close to be­ing able to quit work and live a fru­gal life­style. I do tend to fret about peo­ple’s def­i­ni­tion of fru­gal, but in your case I see you are sav­ing most of your in­come, so you are al­ready liv­ing fru­gally.

I am not sure about your goal of stop­ping work in a few years, mean­ing you will be in your early 40s. You may have a per­sonal pas­sion or other fac­tors driv­ing you but I find it rare for a hard­work­ing, suc­cess­ful per­son to step right away from work. That, how­ever, is your choice.

In terms of your money, I do like the idea of you putting the max­i­mum de­ductible amount of $25,000 a year into su­per. I pre­sume you are taxed here, and on your salary you would be pay­ing some 40% tax, in­clud­ing Medi­care levy, on in­come above $80,000. Given the na­ture of your work, how­ever, I want you to check this with your ac­coun­tant or an ad­viser.

Us­ing a very low-cost man­ager such as Van­guard with your money out­side su­per is a per­fectly sen­si­ble idea; you can get great global di­ver­si­fi­ca­tion at very low cost.

I do worry that you are over-sav­ing. Do have some fun along the way!

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