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Ask Paul: How can we manage money with son's disability?

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Q. I am 30 and have always been pretty good with money. My husband and I bring in over $100,000 a year and I am currently working part time.

We have a Sydney home worth about $900,000 with a loan of $330,000.

We own a positively geared house in Queensland which should provide us a nice passive income in our retirement. We have no credit card debt or personal loans and a combined super balance of about $250,000.

financial goals

Last year our three-year-old was diagnosed with a lifelong disability and since then our financial goals have taken a back seat as we try to do what's best for our son.

We are considering downsizing to a property in south-western Sydney for about $600,000 and ultimately having little to no mortgage so that I can quit my job and be there for my son.

When you can plan financially but can't plan for health, what approach is best to ensure we don't unravel all our hard work?

A. Hi Lyndal. Life is so unpredictable and it has thrown you a curve ball. You are absolutely right: you can plan your money but not your health. This is a really challenging area for all of us. In your case it is the health of your son; for others it is their own health or the health of grandchildren. So I am in full agreement that health is everything and money is secondary.

The reality is that most first-world citizens die too rich and I am really interested in those who turn their back on money and make different life choices. Frankly, I admire their approach but it would not suit me or, I suspect, most Money readers.

Where money does play a valuable role is with life choices. Whether you choose to be mainstream and plough away with work for 40 years or so or take a different path is your call. Money gives you options. As the old saying goes, you reap what you sow, and your being "pretty good with money" is now about to pay off big time. You have done a fantastic job. You have total assets of around $820,000, with equity of $570,000 in your house and $250,000 in super, plus the equity in the positively geared Queensland house. All this hard work will allow you to be there for your son. Your plan to downsize is the issue we should focus on.

Your future wealth looks sound thanks to the $250,000 in super and the investment property. Your husband's employer will continue to add to his super and it will grow very nicely. The investment property will have growing rent and this, along with long-term growth in value, will eat away at the real amount of your mortgage. These two assets will form the base you need in 30 years or so.

If you stay where you are, the mortgage of $330,000 would cost you around $14,000 in interest. If I assume your join income is evenly split, $50,000 will be coming in once you stop work. Here we turn to your budget. Could you live on your husband's earnings, plus a little from your Queensland property?

The cost of moving is very high. With agent's and legal fees, moving costs, plus stamp duty on your new home, I reckon you could easily spend $50,000. Stamp duty on a $600,000 new home will be some $23,000.

Your home is just so critical, in particular if you will be there full time with your son. I am not convinced you need to move. If, in fact, a new home were better located in terms of care, schooling and so on, fair enough. But I think you are, quite sensibly, worried about reducing costs. Your future financial situation is quite under control and I do think you are able to stay in your current home if that suits you better. Remember that a $900,000 house will in all likelihood grow in value at the same rate as a $600,000 house and a bigger home will give you a bigger pool of assets in the long run.

You are very good at managing cash flow, so you can make this call. But I think you'll find you will be able to stay where you are if that suits your plans. I would not rush this decision. I and the team at Money wish you, your husband and your son all the best for the future.

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Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
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