GO FOR THE SAFE OPTION

The property market is difficult to predict. Many people view it as a safe market in that it very rarely goes backwards. This perhaps reflects Australian economic conditions and that we have not had a recession for 25 years. However, it can go backwards and certainly have long periods of not really going anywhere.

That being said, I would be cautious of staying too long out of the Sydney market (over a two- or threeyear period). It can be a real risk to your overall wealth to end up being a long-term renter, even if it allows you to live in the location that you want.

For Vanvisa and Callum, having now sold their apartment and having some money for the deposit on a new home, it is important that this money be protected and not put at risk.

So, unfortunately, a low return of probably less than 2% is all that you will receive for high-interest, at-call accounts or shortterm deposits.

I would even be hesitant to lock in a term deposit for longer than six months just in case the right property was to come along – breaking a term deposit will often result in a lower interest than at-call cash accounts.

In regards to Esme’s future educational costs, some people do like to set up a savings account and save money into this on a regular basis so that when the school fees commence there is already a large sum of savings.

However, I often recommend that if you are in a position where a large mortgage needs to be reduced, 100% of savings should be going towards the repayment of the loan.

On an after-tax basis, the repayment of non-deductible debt with an interest cost of 4% or 4.5%pa means than an investment would need to generate between 6% and 9%pa, depending on your personal tax rate, to be the better option. This is a possibility but I prefer the safer option of reducing the mortgage.

When the time then comes to pay school fees, there should be a large balance in the offset account that can be drawn down.

This approach does require some discipline as it is very easy to spend money in the offset account on lifestyle expenses, such as holidays and household goods, but this is where having a budget can assist in the cash flow planning.

You should also have a look at your personal insurances and ensure that with a young child – and soon a large mortgage as well – you have adequate cover in place, both in the event of not being able to work for a long period of time and also in case of death.