Future looks bright if you budget, work and save

Q I’ve recently become engaged and my fiance and I want to finally get our money situation sorted, to plan for our future.

We’re terrible. We’ve got a GE credit card with $6500, a car loan with $14,000 owing (three years left), and a heap of unpaid bills, some of which are with debt collectors that hassle us. I’ve been researching our options and I have come across My Budget, which teaches you how to budget and control everything while we get back on track. Do you recommend them?

Vanessa

A Hi Vanessa,

Don’t go anywhere near them.

They often charge more than a thousand dollars to set up a plan, and then whack you too much in ongoing service fees. Think about it. You’re going to a service to get out of debt, and you’re effectively getting yourself into a lot more debt. It just doesn’t make any freaking sense.

Instead, I want you to go and see a community-based, not-for-profit financial counsellor in your area (contact them on 1800 007 007). They’re the best people to independently guide you through your options. Their only downside is they don’t offer magic wands.

Seriously, the only people who can get you out of the financial hole you’re in right now, is you and your fiancé.

Your first step is to stop digging (which is why you should stay away from a mob like My Budget), and your second step is to sit down together and get angry enough about your situation to jolt you into action.

Work on a simple plan that involves the two of you radically reducing your spending, increasing your income (taking a second job), and dumping debt like a well-oiled machine.

LOOK THEN LEAP

Q I am 54 years old, debt-free, and have inherited $450,000 from my late father’s estate.

The money has been rolling over in a term deposit for three years because it was easier than making a decision! I have finally decided to take the plunge into the stock market.

Should I invest it in one hit, or spread it out?

Paul

A Hi Paul,

First of all, the most tax-effective place to invest the money is through your superannuation.

That doesn’t mean that you need to invest it all into the share market in one hit, though — you can “invest it” in a short-term cash account.

My advice would be to consider investing a third of the money now, and then drip feed the rest of the money out in equal amounts over the next twelve months.

If the share market roars, it could cost you money, but it will smooth out the short-term bumps of the market.

HOME LOAN TIPS

Q I’ve religiously followed your advice for years.

I’m now in a situation where I’ve saved up a 20 per cent deposit (with a First Home Saver Account) and I have found a couple of (tiny) apartments that are in my price range ($460,000).

As a virgin homeowner, I wanted to get your advice on what home loan I should get?

Kelly

A Hi Kelly,

Congratulations on a job well done.

All you need is a no-frills, standard low-rate variable loan. I’d take a close look at what the online banks are offering, which tend to lead the market with the lowest rates.

Here’s the thing, over a standard 25-year loan term, it’s likely the interest you’re charged on the loan will be more than the total amount you’ve borrowed. That’s why the most important thing you can do is to start making additional repayments each time you’re paid.

Remember, you’ll pay the most amount of interest in the first five years of your mortgage because that’s when your debt is the highest. Paying an extra $50 a week will slash about six years off your mortgage and save you almost $100,000 in interest.

Tread your own path!

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