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Our family of six is struggling to get ahead

Anthony: I am 45 and my wife is 41. We have four children under 13. I earn $125,000pa.

My wife hasn’t worked for about 10 years while raising the kids. She is just starting to join the workforce again but it is on a casual basis and not very dependable at this stage.

I have super of $625,000 (defined benefit scheme) and my wife has $95,000. We have a mortgage of $250,000 (the house is valued at $625,000).

For some time we have been paying interest only on this loan, with the view of paying principal and interest when my wife goes back to work. Our credit card balance is $1900. We also have personal loan of $8600.

Seven years ago we purchased an investment property for $435,000. As we can’t fund the monthly shortfall from the property, we capitalise the interest and expenses into the loan. We now have a loan balance of $515,000.

The property was just valued at $415,000-$455,000, which is very disappointing.

I record all our expenses and we basically break even every year. We are living from week to week, which I’m not happy about.

With food, school fees, petrol, insurances etc, I can’t see how to create a surplus.

How do we build a buffer, pay off some debt and move forward? And what to do with the investment property?

Paul: Goodness Anthony, where did you buy the property? Presumably in a resources area where prices have gone backwards or are just flat?

I doubt it was on the east coast but I would be interested to know.

Anyway, while that is bad news, there is plenty of good news. You are going forward thanks to compulsory super contributions.

You have $720,000 in super between you and $375,000 equity in your home. If we assume the investment property is worth $415,000, you have negative $100,000 there but still you have total assets of close to $1 million.

Right now, with three young kids and your wife only just heading back into work, I think the investment property is your only big decision. Here you will need to seek local advice. If it is in a population growth area it may make sense to hang on. If not, cutting your losses makes a lot of sense.

In terms of your cash flow, as you do a budget and obviously monitor your spending, there is not really a lot you can do to reduce spending.

Kids are expensive! I think this is the time in your lives when you just hang on until the kids grow and your wife gets more reliable work.

Equally, you are moving into your peak earning years. With a good amount of money in your home and super and a couple of decades of working life, I would not be too stressed.

 

Written by Paul Clitheroe

Paul Clitheroe

Paul Clitheroe AM is a respected financial adviser and Money’s chairman and chief commentator. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books which have sold more than 600,000 copies. Email Paul your question (must be 150 words or less).

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  1. The simplest thing here would be to refinance the two home loans onto lower rates and take the repayments over 30 years again. Pay off the credit card debt and personal loan with the refinance.

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