Ask Paul: I'm a single mum - how can I secure our future?


Q. I have been a fan of your advice for years. It's also interesting to read in the articles how others carve out their living.

I'm a 43-year-old immigrant single mum who works part time.

I have one slightly positively geared investment property worth $270,000 with a mortgage of $140,000.

sherry single mum daughter mortgage debt consolidate paul clitheroe

I have a home loan debt of $315,000 on a property with the same market value, shares as an emergency fund, nearly $100,000 in super and a credit card debt of nearly $25,000.

I pay around $27,000pa into the mortgages.

I'm concerned about my economic health and about how expensive things will be for my daughter. I want to do what's best for us both in the long run.

I plan to pay off the credit card by restructuring the home loan, as it has a 0% on the balance transfer for 12 months.

If I were to set up a superannuation account for my daughter, can I salary sacrifice pre-tax into that fund?

Or would I be better off buying another investment property and applying for the fortnightly tax rebate to help with the bills, as we live on a rather meagre real income. - Sherry

A. Thanks for the positive feedback Sherry, I do appreciate it.

I generally have serious reservations about zero-interest or low-interest balance transfers.

What normally happens is that a well-meaning person transfers the debt on their current card to a low- or zero-interest card planning to pay it off. All too often it does not get paid off in the interest-free period.

Even worse, the initial card is not cut up and after a year or so no progress has been made with the new card and the old card has been used and it is maxed out again.

So, in my experience, in most cases a balance transfer is an unmitigated disaster. But in your case I do think it will work as you have clearly done a budget and have your money under control, but please monitor it closely.

You are right to be concerned about future costs for your daughter but there are plenty of opportunities for young people in our rapidly changing economy. So the best way you can assist her is through education and, of course, your loving support.

I am not keen on you using super for her. You can't do pre-tax salary contributions - she has to be employed to do this. You could put your own after-tax money into super for her but she may not be able to access it for 60 or 70 years.

Your best plan is to make good decisions with your money.

You can make pre-tax contributions to super up to $25,000 a year (from July 1). The higher your tax rate the more powerful this strategy is.

Do remember you won't be able to access the money until at least age 58. Mind you, salary sacrifice is a very powerful wealth-creation plan.

You have a home worth around $315,000 with a mortgage of the same amount.

Then you have an investment property worth around $270,000 with a mortgage of $140,000. Your total debts are $585,000 plus the $25,000 on the credit card.

What really concerns me is your "rather meagre income". In this case I just don't see how another property can be in your plans right now.

I'd really like you to go back over your budget and see what your savings capacity is.

The critical issue is to get that $25,000 credit card paid off. If you can do this in a year to 18 months, that would be great. I know you have your shares as emergency money but unless this is a large amount more debt looks like a bad idea.

It seems to me that once the credit card debt is gone, that is the time to look at building a deposit before you even think about another property. In fact, once the credit card debt is gone, I would prefer you to pay down your home mortgage for a while, via an offset account, where your money is available to you.

I appreciate that you want to get ahead quickly, which will benefit you and your daughter.

But with what seems like a fairly low income and quite a lot of debt, I am worried that more debt could end up being a disaster, in particular if and when interest rates rise further.

A step-by-step plan will work a lot better. First, go back to your budget and see what savings capacity you have.

Use this to get rid of the card debt. Then consider salary sacrificing into super, or reducing your home loan via an offset account, which is available to you if you do decide to buy another property.

Don't be impatient. You are likely to have a couple of decades in the workplace, you have good super already and two properties.

My advice is to consolidate your position for a couple of years and then look at your options.


Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the television show Money, radio, and most notably this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is Chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
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