No super loophole for debts
MELANIE ASKS: TWO-and-a-half years ago, I was diagnosed with breast cancer.
After chemotherapy, radiotherapy and seven operations, we (my husband and I) find ourselves with our savings zapped and our credit cards bursting.
We are both 42 and earn a combined $110,000. I would love to take some money from my super to pay off some debt, but unless I am considered terminal I cannot do this.
A friend of mine, however, took money from her super just to have a gastric bypass — I don’t get it. What options do I have?
BAREFOOT REPLIES: Zero. You have zero options to raid your super.
Yes, there are a few companies out there that will “help” you to raid your super for dubious medical reasons (droopy boobs, tubby guts, or a big honker), but these companies have as much credibility as a late-night shopping infomercial.
Besides, you don’t sound like someone who takes the easy option. You’re a fighter — you beat cancer.
So after a couple of years focusing on the very short term, you can now thankfully think about the long term.
In the long term, you need to own your own home debt free and have a good amount in super.
My advice would be to domino your debts — write them down from smallest to largest and attack the smallest first — and get debt free. Don’t underestimate the self confidence you’ll build from doing this.
This is the start of the rest of your long, prosperous life.
FUND NEEDS CLARITY
CALLUM ASKS: MY partner and I are loving your book, but we have hit a roadblock in trying to set up our super.
Your benchmark of less than 0.85 per cent for total fees is super clear.
But now we are confused because you recommend Hostplus and its website says its fees are over 1 per cent.
Either they are taking advantage of your publicity and upping the rates, or I am not calculating the fees right.
What say you?
BAREFOOT REPLIES: In my book, I discussed my decision to shut down my self-managed super fund and move over to what my research shows is the lowestcost super fund in the world, the Hostplus Indexed Balanced Fund. The Hostplus Indexed Balance Fund charges just 0.02 per cent per annum, plus a member fee of $78 per year. In other words, on a balance of $50,000 I get charged just $88.
Hostplus also offers the option of choosing my own shares, which is something I’m attracted to, being the Barefoot Investor.
You did not look at this fund.
What you looked at is Hostplus’s flagship fund — the similar sounding but totally different Hostplus Balanced Fund, which charges 1.2 per cent per annum, or $678 per annum on a $50,000 balance.
Here’s the thing: the more expensive Hostplus Balanced Fund was just named the topperforming super funds over the past 12 months. Good on them! However, the truth is that most fund managers don’t outperform the market year in, year out.
As investors, the only thing we can control are the fees we pay and studies show that, over time, having the lowestcost fund can save you tens of thousands of dollars.
SUSAN ASKS: I AM 33 and desperately want to buy my first home — I am currently looking at a home and land package for about $400,000.
I earn $97,000 and have $5000 in savings, but I also have a car loan of $26,000 and a personal loan of $7000.
I am considering consolidating these two loans to decrease my interest and service fees.
Do you think this would be the right way for me to handle my situation?
BAREFOOT REPLIES: I think consolidating loans is a good way to save interest.
I also think the amount of interest you pay isn’t going to make that much of a difference. What matters is you get as focused as an angry alpaca on paying the bloody debt off quick smart.
Now, to the second part of your question: in my opinion, you can’t afford a home — yet.
Even though it’s highly likely you’ll get approved to buy a house and land package, I’m telling you can’t afford to buy a home.
Pay off your debts this year, then save up for a deposit. Then, you’ll be in a much stronger position to make the biggest purchase of your life.
HOPE DEFEATS STRESS
BRUCE WRITES: I AM 30 years old and — before I read your book — was not feeling well.
I was in debt, had no idea how to get out of it, and, in my mind, had no future.
In fact, over the past three years I have fallen into depression and was even suicidal due to the hopelessness I felt at not being able to get my act together financially.
Well, your book has provided me and my family with direction for our
finances. It has picked me up off the ground and given me a total new outlook on my life.
I cannot thank you enough for your help.
You’ve hit the nail on the head — financial stress can be suffocating and potentially devastating.
I’m glad my book gave you hope. However, the truth is it’s 80 per cent your behaviour that’s made the difference and 20 per cent the common sense strategies that I write about.
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice.
The Barefoot Investor: the only money guide you’ll ever need (Wiley $29.95). heraldsun.com.au/shop