A ‘souper’ long-term strat­egy

Sunday Herald Sun - - Finance -

RICK ASKS: : I’ve just turned 28, and af­ter read­ing your book I came to the re­al­i­sa­tion that hat my sav­ings have been sit­tingt­ing in my bank ac­count t for sev­eral years do­ing noth­ing.

I have no in­vest­ments what­so­ever, but I do have $10,0000 I could in­vest. Based on your pre­vi­ous ad­vice, ice, I am look­ing to in­vestvest $5000 into AFIC FIC and $5000 into Argo. rgo. Is this a good idea, dea, think­ing aboutut the long term m (30-40 years)? And if I con­tinue to add to them over time,me, is that bet­ter than adding dding the money to my y su­per? BAREFOOTT WRITES: If you’ve read my book, you’ll see that I set out a time-testedi d plan: do a monthly date night (Step 1), set up your buck­ets (Step 2), domino your debts (Step 3), then start sav­ing a 20 per cent de­posit for a home (Step 4). Step 4 is where you’re up to at the mo­ment.

So right now you have $10,000 sit­ting in a bank ac­count. I want you to give that ac­count a nick­name, call it “my house de­posit”.

I know it sounds like I’m mak­ing you suck pea and ham soup, but make no mis­take, the act of nam­ing some­thing is pow­er­ful. It gives you clar­ity and pur­pose.

If you’ve been read­ing Bare­foot for a while, you’ll know that I love AFIC and Argo as in­vest­ments, but ev­ery­thing at the right time.

Now, af­ter you buy your home, you’re on to Step 5, where you boost your pre-tax su­per con­tri­bu­tions from the stan­dard 9.5 per cent to 15 per cent (or up to the an­nual cap of $25,000). If you can do that be­fore you’re 35, your re­tire­ment will be soupy.

HEART­BREAK­ING

TOM ASKS: It is with a heavy heart that I write for ad­vice.

Last week, my best mate of many years sud­denly de­cided to end his life, leav­ing be­hind a young wife and two pri­mary school-aged kids.

He also left be­hind a fi­nan­cial mess.

I have told his wife to call and get ev­ery­thing “frozen” while she comes to grips with it all, but is there any other ad­vice you can give her? BARE­FOOT REPLIES: What a heart­break­ingly sad sit­u­a­tion. I’m so sorry for your loss. The ad­min that’s re­quired af­ter some­one dies can be over­whelm­ing … es­pe­cially if you’re griev­ing.

How­ever, the first thing she should do is con­tact her hus­band’s su­per fund.

The fi­nal pay­out is called a death ben­e­fit, and it’s a com­bi­na­tion of his fi­nal bal­ance and any in­sur­ance held a at the time of his deat death. T To get the ball ro rolling, she’ll need h his death ce cer­tifi­cate (or, if that that’s not yet avail avail­able, the in­terim death cer­tifi­cate), his passpo pass­port, his driver’s l li­cence ( (or b birth cer­tifi­cate), a copy of his will (if there is one) and let­ters of ad­min­is­tra­tion (if ap­pli­ca­ble). Gen­er­ally, banks and other fi­nan­cial in­sti­tu­tions will need a death cer­tifi­cate be­fore they can start the process of set­tling ac­counts. From ex­pe­ri­ence, she (un­der­stand­ably) won’t be in any state to make ra­tio­nal fi­nan­cial de­ci­sions for at least a few months. What she needs is some­one who can help her get a clearer pic­ture of her fi­nan­cial sit­u­a­tion. And that’s the job of a best mate. Note to the reader: I’ve of­fered to help them through this process.

A TER­RI­BLE IDEA

SALLY WRITES: We have $300,000 in the bank, and owe $42,000 on our mort­gage. We have two kids (ages 6 and 7), but our mar­riage is shaky.

If it fails, I want to keep the fam­ily home with my hus­band, and I would move, then we would split time with the kids equally.

We are con­sid­er­ing buy­ing a block one minute’s walk from the fam­ily home, and build­ing there.

If our mar­riage works out, the home would be an in­vest­ment. If not, it would be my home, be­cause be­ing close would be im­por­tant for me.

I am wor­ried that if we do not buy now, we might not be able to af­ford to do so later if we do need two homes. What do you think? BARE­FOOT REPLIES: Now I could be wrong, but here’s my the­ory on what’s prompted this: your mar­riage was al­ready on the rocks, but you’ve in­her­ited $300k.

How else do you get to have $300k in the bank and $42k still ow­ing on your mort­gage?

That makes about as much sense as your plan: your mar­riage is shaky … but you’re con­tem­plat­ing build­ing a brand new house to­gether?

This is ter­ri­ble idea. (If my ed­i­tor al­lowed me to write in all caps I would, but he doesn’t, so I’ll stick with the italics, but just know that my left eye is twitch­ing un­con­trol­lably at the mo­ment).

Af­ter all, if you ac­tu­ally sep­a­rate — and I think you al­ready know you’re go­ing to — who’s to say he’ll fol­low the plan?

My ad­vice is to sort your re­la­tion­ship out first — be­fore you com­mit to this big, messy pur­chase. The best in­vest­ment you could make right now is re­la­tion­ship coun­selling.

I’VE BEEN EX­POSED

NINA WRITES: I am a fi­nan­cial coun­sel­lor and I col­lect cloth­ing for the home­less, par­tic­u­larly

un­der­wear.

Given the many sets of undies you’ve re­ceived re­cently (last week’s col­umn), and given that you seem to love us fi­nan­cial coun­sel­lors (many col­umns in the past), I thought you might want to hand them over to those in need — what do you say?

BARE­FOOT REPLIES:

You’re right, I do love not-for­profit fi­nan­cial coun­sel­lors, so I’m more than happy to swing by and drop my dacks. Sorry, drop off my dacks.

IF YOU OR SOME­ONE YOU KNOW NEEDS HELP, CALL LIFE­LINE ON 13 11 14 OR GO TO LIFE­LINE.ORG.AU

The Bare­foot In­vestor holds an Aus­tralian Fi­nan­cial Ser­vices Li­cence (302081). This is gen­eral ad­vice only. It should not re­place in­di­vid­ual, in­de­pen­dent, per­sonal fi­nan­cial ad­vice.

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