So Sick of Debt

At the end of last financial year (June 2007), my retirement balance was $29,662. I was pretty pleased with that. I hadn’t paid attention to superannuation in years, and back when I was in my late teens - and my balance was only around 2K - it seemed like fees often were higher than any growth my accounts attained. Perhaps last year wasn’t the time to start watching them.

After 4-5 years of apparent fantastic growth, it seems like my retirement account might end in negative territory this year. Thanks to share market volatility, my account was down in 25K territory at one point. This is pretty much hitting everyone at the moment. Currently my balance sits at $27,992. So it seems if I do match last year’s position, it will be thanks only to the government’s co-contribution scheme. Because I have made an after-tax contribution of $1000 and I am a low income earner, the Federal Government will give me $1500 to boost my fund. This is a great system for people who will never earn big bucks, because if you can manage to find the 1K, you get a 150% return on investment. And then you have $2500 more than you would otherwise have had, and then that keeps growing. If you do this every year for 10 years, the difference could be phenomenal! I guess the only issue is finding the initial $1000. I think it probably works best for people who have higher-earning partners. But it can really help, for example if a woman works part-time for 5-10 years while she raises her kids, her final retirement balance can be massively improved.

Because there is a no-choice retirement saving system in place here in Oz, it doesn’t seem painful to save for retirement. But that doesn’t mean we will necessarily have enough. I am looking forward to putting in some extra contributions when I start earning next year. Anyway, I’m not at all worried about the balance. My access to super is preserved till age 60, so this is but a blip on the account’s overall performance. I just find it fascinating to see how these things fluctuate.

Well, Christmas approaches and of course, I am running around like crazy trying to get meaningful gifts that people actually want. The pressure is higher on my side of the family, where each person receives only one gift. The pressure is causing most of us to resort to gift cards at each person’s favourite store, but it feels really impersonal. Even my significant other wants me to get him a gift voucher! In some cases it makes sense because I know he wants to spend some cash on outdoorsy stuff, and he knows that I wouldn’t know exactly what to choose, but still …

I think part of the problem is that just about everybody in our society has enough money to buy anything they really want whenever they want it. Hence even if you do know enough about your niece or grandmother to know what they are into, you also need to be sure they don’t already have the item you can afford. It makes things a little more complicated. Add in the fact that we only spend $30 on Secret Santa, and our options do go down (though I believe this amount is more than enough!).

Anyway, while I am excited about this next tidbit of news I have to share, much of the rest of this post is going to be about superannuation, so I’m ready for a few of you to fall asleep or move on to another blog about now! This week my husband received his pension plan information for the last financial year, and between his monthly employer contributions, a small rollover amount from a previous job and the investment’s growth, the total value climbed by nearly $20,000! His account is still not huge, but it is looking a lot more respectable than it did this time last year. I added the new value to the month of December in our Net Worth chart (I keep my own record on NetworthIQ) and the huge jump dwarfs every other hard-earned gain in 2007 - even the month where a $4000 lump sum helped us cut our credit card debt to almost nil.

The best part about this is that it has made my husband excited about the benefits of such plans and he now wants to contribute $100 a week from his salary towards maxing out his pension plan. Given that he is a little older than me, this is not a bad idea and is one I would fully support, even if it affects the financial goals for 2008 that I set out in my last post. There are a few reasons why I think this is a good idea. One is that I will definitely encourage any interest in money management that he develops. I love that he is very happy for me to plan our money each month and I know he thinks I do a great job, but sometimes I want him to get more involved. The fact that he actually wants to put money away is a great step forward for him. Secondarily, under salary sacrifice arrangements he can make at work, he can put some money into his pension plan before tax, so we wouldn’t actually lose the whole $100 in net salary  - it would probably be more like a $60 drop in what actually enters our accounts. I have warned him not to expect such a great result next year - the world economy is a bit shaky and I don’t really know which way the markets are going to go in 2008 - but I figure that it never hurts to put money away.

One advantage of the mandatory pension plan system in Australia is that it is a real opportunity for young people to see compound interest at work. My super is not huge because I have taken nearly seven years off full-time work to study. But I started working casually at 16, and my pension plan has been accruing since then. In the first few years, it wasn’t much to be impressed about. I think some years the fees actually outweighed the growth and I went backwards!  But last financial year the total of my pension plan was about $25,000. Not bad for a full-time student - it even outweighs my student debt (which is interest-free). Though the last few years probably aren’t typical because the growth has been impressive, I love opening my yearly update and finding that my plan has risen by several thousand dollars. It makes me think about what I could do with shares or a managed fund. Then I remember that I still have to focus on getting rid of my consumer debt first. Given how well the markets have gone in the past few years, the opportunity cost of servicing all that debt has been great, I’m sure. Yet, in some ways I think my focus on repaying debt has taught me something important pretty early in life. I never want to do this debt repayment thing again. I want to live within my means as much as possible, and focus on living well, not living hell!

Anyway, I now have to re-enter the fray at the stores. Wish me luck!