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Help with managing money

My son, who has just had his 21st birthday, asked me what he should do to ensure that he ends up having what I have got — a house I own, a holiday home on the South Coast of New South Wales and a super fund which is heading to a million dollars when I retire in five years. Also my wife will have close to $500,000 in her super but we lived through a lucky time. We both were public servants. Houses were a lot cheaper when we were young and the world was less expensive. Hope you can help.

You are right. The world is much more expensive for young people. They drive new cars, wear better clothing, have mobile phone bills, take overseas holidays, and homes in city areas where people really want to live are very expensive. That said, I reckon given what you have achieved, you could give your son great advice about saving, that is, not over-spending and living within your means. But I know it’s hard to tell young people to be a nerd or a dag. The starting point is to tell him to write down his goals. Where does he want to live? What will it cost? How will he get to those goals? Make sure he costs them and get him to work out how his income will grow. If he was a teacher he could look at his incremental wage increases, but he will have to do some estimation if it’s not easy to see an income path. Once he knows what he wants, he has to do a budget to see where he earns and spends his money. This might show him that he has to study more to get a better job or that he has to work two jobs or even start a business to get the income to make his dreams come true. Then get him to talk to an accountant or go to the internet and learn about using the tax system to help him build wealth. Some young people become landlords or property investors by buying a very rentable home unit and then getting the tax deductions to help pay it off. Some smarties buy where they want to live and so when their income rises or they get married, the two incomes mean they can move into their rented apartment. Often the really forward thinking young people put together a portfolio of blue chip shares that pay good dividends and even borrow to pump up their share portfolio. For example, they might borrow $100,000, which could cost them $8000 in interest, but this could be reduced in total hip pocket effect via tax deductions. This could be a good time for a five-year exposure to the stock market, which could help him pump up his savings before buying a home down the track. That might a good start!

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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. 

Published on: Tuesday, April 20, 2010

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