Newbie's Cry for Help!!

Hi All,

So I am a total novice when it come to investing. I need some directions with regards to investments.
Our situation:
We're in the 35-40 age bracket and between the wife and myself we earn around 200k a year.
Due to some ill-advised financial transactions we currently have NIL investments, 150k in Super, 20K in savings @ 6%, 2k credit cards and about 60k in personal loans and a company that I set up 12 months ago which is not doing anything as I am in full-time work.

If we tried, we can probably come up with 3-5k a month "spare" cash after meeting all our expenses. What I am currently trying to work out is:
1. Whether to concentrate on paying off our personal loans first.
2. Go into shares - via Commsec? if yes, then should I use my company, set up a trust (which?) or trade under my name (for asset protection etc...)
3. Go into property investment

Also, should I perhaps talk to a (proper) accountant? I only see mine (tax accountant) once a year and our relationship is such that we forget each others names the moment I walk out the door.

I came about this site a few weeks ago and am quite impressed.

All help appreciated

A Happy and Prosperous 2008 to you all

Mike

 

Thats an easy choice for me
Pay off all personal loans first
that way you are getting a return on 15-20% after tax on the money you put in - and thats guaranteed
Maybe keep a little as cash to save as a emergency fund or possibly a deposit
but aim for getting the personal loan down as quick as possible

If you have a house - refinance the personal loan to a home loan too - for lower interest rates - but it wont be tax deductable

Umm if you earn 200k and can only find 5k after expenses
Then you need to curb your expenses and you attitudes before u start investing
Go have a read of the millionaire next door.

 

You and your spouse earn 200K combined ? Wow, I wish we have that here.

I would pay off the personal loans first quickly, and perhaps cut back on your monthly expenses. If you have 2 cars, maybe sell the other one and just keep one. Sell anything that you don't need.

 

I've been very slack with the finances. I know we're in a fortunate situation income-wise but unfortunately; thats where it stops.

I got given "How to Legally Reduce Your Tax …without losing any money by Tony Melvin and Ed Chan" for Christmas. Then I bought another book (Making Money made Simple! by Noel Whittaker) and here I am.

I've been reading this forum almost on a daily basis for the last few weeks and my hats off to you all for contributions. If nothing, its inspires people like me to get off our a$$e$ and do something with our finances.

All the best to you all for this year and hopefully in 6 - 8 months I can update this thread with a post saying we're out of debt and well into a financially sound future....

Cheers

Mike

 

36-60k pa is a fairly amount. Its nearly 30% of gross income. Considering tax your effective tax rate would be about 30% and considering the average rent would be 20k a year so theres another 10%. But yes i agree get rid of that personal debt as a priority..

 

Don't cry noobie...all will be well.

Always try to pay off something first. This will show you that your saving plan actually works and will give you some short term gratification. Following this, its up to you how to proceed, but increasingly I am a fan of diversifying... I'm about to go into shares, and I think perhaps its the wisest move atm....however, I am waiting a little to see what happens with this US "crisis"...

 

Take that first $3k - $5k per month you can save and load up on education.
That will get you a hell of a lot of books on every money management, home finance, and investing topic imagineable.
Read as many different ideas as you can, and implement the ones that make sense to you to make your own strategy. Buy general investing books to get the principles (Whittaker, Clitheroe, Kohler etc), buy property specific books (Yardney, Lomas, Spann, Chan, etc), buy equity market specific books (Bogle, Buffet-related stuff, Van Tharp, etc), and even some of the more mindset related stuff (Rich dad poor dad, Millionaire Next Door, anything by Jim Rohn - give The Twelve Pillars by Rohn a go, and use the booklist in there are a reference).
While you are reading them, get rid of your personal debt, as DKMC suggests that is likely to be the best return for your money (particularly in the current share market), and it is guaranteed.
On that income there is no reason you cant set yourself up exceptionally well in the next 5 - 10 years, even starting from no asset base.

 

Perhaps you should start tracking expenses
When you dont know what your spending things on this is a useful exercise
Automatically deduct a set amout to pay your debts off
Automatically deduct a certain amount for savings
spend whats left over

Use a spreadsheet or something like quicken or ms money or some shareware programs

Look at your monthly expenses like mobilephone, phone bill, internet, foxtel, gym, gardener etc - cut some to a lower plan or eliminate all together
Do you really need it
Cutting recurring expenses makes a big difference
Do you really need to buy a new car if you are thinking about it
- thats probably where a lot of people stuff up
keep upgrading cars - a depreciating asset

 

Some top-shelf advice from DKMC!

I'm a bit skeptical of management gurus, but Peter Drucker says "what gets measured gets managed". That is absolutely true of expenses. If you don't know where the money goes then you'll never find the free cash flow which is the foundation of investment.

Cheers
N.

 

Why do you have $20k in savings earning 6% when you have a personal loan of $60k that is probably costing you 12%??

Mike, throw every single spare dollar you have on the personal loan. With the $20k and your savings of $4k per month that's 10 months of repayments.

Report back when you've got the job done.

 

And bugger, the interest on the savings is taxed, whilst the personal loan is not deductible!

 

Even better than spending $5000 on books....

Join your local library for FREE

I bet they have 90% of the excellent books previously recommended for your reading pleasure

 

I agree, pay down your debts, dont spend 5k on book, pay it off your debts, do a budget in excel where your debts are the first thing that gets a payment on your pay day. Get your knowledge off these forums, (perhaps buying one or two paperback investment education books per month). I was busting to invest big time... but my motorbike loan gets the big bucks before investing in funds or shares or saving for the next house.

 

does anyone want to ask if the personal loan was used for the investing decisions which went back. Maybe he could be still deducting it if it was capital losses...

However doesnt matter, regardless need to pay of asap in my opnion

 

No, because he says they have nil investments and he puts the icon after his statement I guess.

First thing I would do is get at least 7% for your 20K IF you intend to keep that money for emergencies. If not, use it to pay off the 60k debt.

To pay off the debt as fast as possible get yourself a copy of "Money Secrets of the Rich" by John Burley and go to page 300 and follow the Debt Elimination Plan. If you can't find the book anywhere, you can contact Pow Wow Events International. They distribute it.

(I would write it out but I think it could be a breach of copyright. Plus, it would take me far to long to write the plan out.)

That should keep you busy for 2008 I think.

 

I think you're cool if you only do 10% of the copyrighted text - but IANAL.

 

what does IANAL mean ??

I am not a lawyer???

 

I recon he should pay down non-deductable debt first (excluding PPOR).

Then invest the $5k a month into a portfolio of quality managed funds. I suggest he pays the $3000 to a financial planner and gets a proper plan done.

To suggest he reads books etc, is good, but he wont have the experience to make correct decisions at the start, and since the OP is getting on in age, he can't afford to get it wrong.

He should attend a 'welcome to wealth' seminar from Freeman Fox. Its usually free, or changed at $48. I believe they will send it to you on DVD as well.

With such a large income, it might be worth while to buy a property to get the negative gearing benefits, and get him into the market straight away with a decent sum of money.

Property to buy, would be a house as close to the city as possible. but don't over extend, so some cash flow is left over for shares investment.

 

Hi Mike and welcome to the forumm

Some great advice from those already here- and I second the opinion to reduce your personal debt as a priority and track your spending. Quicken is a wonderful software programme for doing this- we've used it for years and it's scary when you read the reports and see how much you've spent on what. When we were budgeting we were amazed (and disgusted at times!) on how much we spent in certain categories... it's so true that the more you earn the more you tend to spend on your general lifestyle.

I also commend your awakening to want to invest at this point in your life- the time to begin is when your income is high and your expenses generally lowest. Pay yourself first and live within your means. Once you begin investing and are on track to increasing your asset base through growth, there's no turning back- it's addictive

 

Thanks everyone for the replies - a lot of good pointers.

I aim to get one or 2 books a month and get on from there. My excel is working overtime; am aiming to clear everything off in 8 months, sell off my "spare" car and try and get sorted out soon.

My 20k is currently sitting at 6%, might use 10 of that to reduce debt and leave the rest for emergencies.

As suggested by The Stig, I have already ordered "Money Secrets of the Rich" by John Burley.

Thanks all


Cheers
Mike