Right choice for fam­ily’s fu­ture

Sarah is driv­ing her­self crazy try­ing to make the ...

Money Magazine Australia - - Q&A | ASK PAUL -

QI am a sin­gle mother, 41, with two chil­dren, aged 5 and 7. I earn about $71,000 a year af­ter tax. My liv­ing ex­penses are about $45,000 a year, in­clud­ing the kids’ costs, of which I pay half. I save $350 each fort­night, and $100 a fort­night for each child.

I have $200,000 to in­vest and about $75,000 in an emer­gency fund. I have about $130,000 in su­per.

I’m ca­pa­ble of man­ag­ing my bud­get but I’d love some ad­vice on in­vest­ing, su­per­an­nu­a­tion and in­sur­ance.

The prob­lem is that af­ter the re­cent bank­ing royal com­mis­sion hear­ings I’m ter­ri­fied to com­mit. I have so far talked to five ad­vis­ers and paid $1650 for a state­ment of ad­vice that I’m un­happy with.

It has made me aware, though, that I could be in a lower-cost su­per­an­nu­a­tion fund, with bet­ter in­come pro­tec­tion, life and TPD in­sur­ance. (I’m cur­rently with my em­ployer’s Mercer fund.)

I’m will­ing to pay some fees but don’t want com­mis­sions to in­flu­ence any ad­vice. Should I spend less time look­ing for an ad­viser and more time sort­ing it out my­self? I’m driv­ing my­self crazy won­der­ing what is the right choice for my fam­ily’s fu­ture. Is it worth pay­ing some fees to have some­one mon­i­tor­ing my money?

In­ter­est­ing ques­tion, Sarah. The royal com­mis­sion has rat­tled most of us, so let’s see what you can do your­self.

First, I agree that a low-cost su­per fund is re­ally im­por­tant. The big funds such as Aus­tralianSu­per and Host­plus, for ex­am­ple, have re­ally low fees – for some op­tions they are un­der 0.1% Do ask your cur­rent fund about what it has avail­able. I think you need to be in a bal­anced or growth fund, and your fund may have a lower-cost op­tion.

Then, in your shoes I would be salary sac­ri­fic­ing up to the max­i­mum $25,000 a year. That means you would pay only 15% tax on this money, which is much bet­ter than the rate you pay on it as per­sonal in­come. Which­ever fund you choose, you can also sort out your in­sur­ance. You need enough to cover you for ill­ness or in­jury and, of course, death.

I am as­sum­ing you own a home debt free. With the $200,000 I think you would ei­ther buy an in­vest­ment prop­erty or a low-fee man­aged share fund. In­dex funds run by man­agers such as Van­guard are re­ally low cost.

A prop­erty is a dif­fer­ent ket­tle of fish – it’s more labour in­ten­sive – but this re­ally is a choice only you can make. I am not sure an ad­viser would help you here.

Both are per­fectly sen­si­ble ideas, so do what works for you.

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