So Sick of Debt

Well, I certainly wouldn’t want to be retiring this week. Another $260 billion was wiped off Australian share markets today, on the 11th straight day of losses. This has not occurred since 1982. It can now officially be called a `crash’, according to analysts. The market had already dropped more than 15 per cent in the past two weeks (and that was before today’s results). Yikes!

Of course, for someone like me, years from retirement, it is a good thing, especially because one of my $500 pension plan contributions was being allocated today. That money willl buy a lot more units than it would have 6 weeks ago. Similarly, units in the managed fund for my son’s investment were being purchased this week, so we should get them for a good unit price. Hopefully the market doesn’t keep falling but we don’t plan to touch the money for years anyway, so we can’t be concerned if it does.

Wonderfully, my hubby is getting really interested in personal finance too. His first words (when the stock market crash stories came on the news) were `We should find some money to invest a bit more right now’. I don’t think we can stretch things any further but I was proud and pleased to see his newfound interest.  

 I don’t know what I’d feel if I was retiring in the coming month or two. I guess it would depend on whether I felt I still had enough invested to keep me living comfortably off the income. However, I guess another way to look at it is that, even though the market has fallen 15 per cent in the past two weeks, this probably really only represents the rise in the general market since last year alone. Investors do, unfortunately, have to take the good with the bad.

I’ve decided, though it pains me to do so, that I need to put car payments on hold for two weeks so I can save $1000. I won’ be able to touch this $1000 for 30 years, so why would I put my debt-free existence on hold - even momentarily - to do this?
Well, it just occurred to me how stupid I was last year, when amid all the efforts I put into debt repayment, I didn’t scrounge together $1000 as a voluntary contribution to my superannuation (as we call pension plans in Oz).

That’s because for people on my income level, for every $1000 they voluntarily contribute in to their retirement account, the government will add $1500 cold hard cash as well.  That’s an immediate 150% return, people!

I may never qualify for this again, so  I figure I’m going to make the most out of it. So as well as the regular employer contributions that go in each week, my pension plan will get a $2500 boost this year, besides any investment return that is achieved.

I should probably get that money in quick smart too. I read in the paper this morning that $37 billion (yes, billion!) was wiped off the Australian share market yesterday! Apparently we are being hit by `weak investor confidence’ in the wake of `the US subprime fiasco’. A lot of our banks borrow from US lenders, so it is hitting us here despite our strong property market.

Anyway, that probably means my $2500 will buy more units in the pension fund than it normally would, so that’s got to be a bonus!

 Meanwhile, my hubby and I spoke to a financial planner (someone in our family) yesterday and organised the managed fund for the investment we are setting up for our son. As I’ve said previously, we have $1000 in birthday and Christmas money saved, and we aim to add $100 a month. The planner recommended a moderately aggressive approach because we don’t aim to access the money for such a long time. He said that over the long haul, we could probably expect about a 10% return a year on the investment (shorter term, the figures may be better but there may also be some years where there is no or negative growth, so that has to be factored in). We are happy with this, and feel glad we are in a position to do this at all.

Well, I was going through the Christmas aftermath and found that our spending was well down on the expected amounts. While our `gifts’ column went $20 over budget to $545 (still good!), food was one category where I over-budgeted. This was especially so, given that my workplace gave us all a free ham for Christmas and my relatives supplied the seafood. Alcohol was still a big expense area, and though I woke to champagne and orange juice with breakfast (a very special treat!), we didn’t go overboard and there’s plenty left to enjoy at functions over the coming months.

Anyway, we have had an unexpected financial surprise. Some of our relatives didn’t know what to give my son, so they asked if we wanted cash to `put away’ for him. They knew I didn’t want him to be overwhelmed with gifts at this tender age, and though I told them not to get him anything, they wanted to know what else they could do for him.

(In the end my son had three gifts under the tree anyway, plus two more to open at friends’ and relatives home as we visited. I loved that he took 15 minutes to play with each item before moving on to open the next. It showed that he valued them, and I hope that continues as he gets older. He has played with them almost constantly since then, but I think he has enjoyed having his cousins stay with us for the holiday season more than any specific gift!)

Anyway, these relatives ended up giving me cash for my son. As I was putting this somewhere safe, I opened a drawer and found two $100 cheques for him in the drawer. These were from his grandfather: one was a gift to mark his birth and another was for his first birthday. We never cashed these because we didn’t have an account for him, so they had been sitting in the drawer for some time. His grandfather was hassling me only last week to finally `do something’ with them.

In the end, we checked with his grandfather to see if we could swap the cheques for cash. Once this was added to the cash gifts from the other side of the family, I realised we now had $350 in total. Then, when I checked my accounts, it seemed like a Christmas miracle when I noted that I got paid more than I expected for doing an extra shift last week (I expected to be taxed more). Suddenly I wondered if we would have enough to open an investment for my son, something we have been considering for some time. With a bit of adjusting here and there to our budget, my husband and I managed to find the extra $650 we need to invest in a managed fund that hubby’s brother (a financial planner) had suggested would be best for a child.

Needless to say I am really excited about being able to do this. I still want to do some research to ensure this is the best way to go with the money. I need to know more about the fee structure and projected returns over time. And we also have to decide how much to contribute to this investment each month. We would like to put in $100 a month, but we might start with $50 as this is an extra item that I hadn’t included in my budgets going forward. Also, we still have our own debt to get rid of, before we get some investments of our own going, so this is another priority for us.

It just feels good to finally get started. I’m aware that the magic of compounding will make a great difference to the total, even if we are only investing a small amount early on. And I hope this will make certain parts of his life easier. I’ll work hard to educate him about debt and investment, and hopefully it can be used for a home deposit or some other goal a LOONG time in the future.