Ask Paul: Should we upgrade our home or enjoy life in our 40s?

Mid-40s, strong income, solid equity - should Violet and her husband push for a bigger home or start enjoying life now? 

Reader question

Hi Paul, I'm new to thinking about creating wealth.

My parents both grew up in humble times in the UK and their philosophy when we were growing up was to enjoy life, buy a house and go on holidays.

They never considered wealth creation even though my dad had a well-paid job - hence my lack of knowledge. I moved to Australia in my 30s and so I met my husband a bit later in life and have one child.

We bought a unit (paid lenders mortgage insurance), then upgraded a few years later once we'd built a little more equity. Our townhouse is now worth about $1.65 million with about $900,000 equity.

We have close to $200,000 in super between us (husband was self-employed). We both earn a stable income of around $260,000 gross per year - it can be more with husband's overtime.

We are now in our mid 40s and my question is do we sit back a bit, go on nice holidays and live comfortably or do we push for a house (no strata)? Repayments would be 30% or a little more of our income. I've read that 30% is mortgage stress. Is a financial planner worth paying for?

Can you tell I'm an absolute beginner? - Violet

Paul's response

For a beginner you are doing well with your money, Violet. I am interested in what we learn about money from our parents. Your parents were not too far off being decent money managers. Sure, they were not great wealth builders, but they did get the key to financial independence right, they bought a house.

It would have been easier for them if they had built investments outside of the home later in life, but a home and a pension is a pretty good result.

In your case you are making good progress in building equity in your townhouse and you are also building your super. The idea that 30% of income in repayments means you are in mortgage stress is a bit general.

It is a good measure if you and your husband were on an average household income, which is around $95,000. You have $260,000, so your remaining income after 30% goes into a mortgage, is still a lot of money. I doubt you would be stressed.

The very best thing you can do, Violet,is create a budget. This will show you how much income you have after tax and what you spend. The surplus is what interests me. Once you establish this amount, then you and your husband can have a good conversation.

Personally, I don't think you need a financial planner to do the basic money planning yourself.

This planning will allow you to come up with a sensible balance between saving and spending. I don't think the answer will be to 'spend everything' on lifestyle or 'spend nothing' and save like crazy. I suspect the right answer lies somewhere in between.

I think your budget will show surplus income. This then tells you whether pushing for a bigger mortgage and a house makes sense and the flexibility you have to go for both, with a focus on owning a freestanding home while enjoying your lifestyle.

In your mid-40s, planning to own a house while enjoying a fun lifestyle is quite possible.

The trick for you two is to get your basic facts together and decide on your own plan. You have ample time and a very good family income. With a couple of decades of working and generating income in front of you. I think you can own a home and build wealth, while not sacrificing lifestyle... just don't plan to own a Learjet!

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