Hi Moustachians!
My husband and I grew up in comparatively poor families here in Australia. His folks had jobs but lived week to week, spending everything they ever got.
As for my folks, my dad was a preacher man in a very small country town, so made very little money. I really was raised in a MMM kind of way, partially by necessity, although my folks did work hard to better themselves(they built the family home, DIY-ing everything, and own their house outright). My dad would re-use no name brand tea bags to save money! Ah, the stories I could tell of my family's MMM ways...
That upbringing has really done me better than other people I know who grew up in households with more money, but a lack of wisdom in spending it. I was fortunate.
The Man and I have been married 10 years, and have 4 children. We have never had CCs, have never had a loan on a car, and have always bought the cheapest cars to run we could. For 4 years, the Man rode to work, and we had one car, till last year he took a job half an hour drive away, and we had no option. So he made a spreadsheet to determine what the cheapest kind of car to get was(we got a little four cylinder Excel for $1200, and it uses half the fuel of the people mover we had to get because we have more than 3 kids).
(I also made a spreadsheet to work out how much home produced eggs cost- its about $1.10 per dozen! So we have 14 chooks... and eat every egg they produce)
We have two investment properties, the first we bought about 7 years ago, and the second was two years ago. We purchased our own home only last year. We borrowed money from family to save LMI(which I hated), but we paid it off with interest in one year. Ah the relief! We actually paid $37,000 total in debt off last year, which I'm very chuffed with. This year's budget is a bit more inflated, though.
Anyways, we are pretty proud of ourselves and our life choices, and it's easy to get cocky about them. I discovered this site a week ago and have realised that it's easy to stand out when the people around you are sitting down.
Anyway, sorry if this is all too much information...
I am putting up my case study because I want to hear from people who are already where we want to be in ten years. We desperately don't want to be stuck in the financial situations we see everyone around us in, and we want to learn from people who have more wisdom and experience than us. We have a couple of specific questions that you might be able to help us to sort through:
Life Situation:
Four children, 8, 7, 5, and 3.
The Man and I are both 30 years old. He is an electrician by trade, full time, with a government owned company. His income is likely to go up bit by bit for the next few years. I am a stay at homer.
Gross Salary/Wages(all items by month):
the Man's work 4,615
Some church admin 433
FTB 1,278
total 6,326(net of tax)
Other Ordinary Income: rent on granny flat out the back of PPOR: 720
Adjusted Gross Income: 7,046
Taxes: The Man's work is PAYG'd(pay as you go- auto deducted from his pay). other income is in my name, so untaxed(I am below tax threshold).
Current expenses:
groceries 1000 (scratch cooking, I buy bulk meat, produce our own eggs, buy at farmers markets. I try really hard to get this amount down but struggle greatly to.)
fuel 325
leisure 110
The Man's discretionary 54(have only just added this amount in as he was feeling scarce- he will probs spend this on tools)
my discretionary 54
mortgage 1550
house insurance 80
home maintenance, projects 290(have only just moved into PPOR so setting up fruit trees, irrigation, gardens, shed, small home projects)
rates 183
electricity 281(this cost is actually a bit less than this but we allow it in case. We have one fridge, a small chest freezer, and way too many air conditioners which we try to hardly use)
phones 140
car bills 325 (rego and insurance and maintenance for both cars)
child sponsorship 129
health acc. 260 (we don't have health insurance, but we have a sub account which we put money into for dental trips, etc.)
clothes and shoes 84 (mostly op shopping)
xmas and gifts 195
holiday 104
schooling 130 (we homeschool, so this is cost of curriculum, plus martial arts)
tithes 632 (non negotiable)
total income: 7,046
total expenses: 5,926
savings: 1,120 per month
every year, we also get lump sums, mostly from Tax Return time:
his tax return of about 5,000(for some reason they deduct way too much tax throughout the year)
FTB sups of about 3,000
over time and extra pay for him of about 5,000
and some on the side money he makes from hobbies 1,200
also, his employer adds 9.5% of his income into a super account, about $8,000
So total savings per year is $35,640, or about 39% of income
Assets:
IP 1: value $170,000
liability 155,600(91.5% LVR, 4.5% rate)
equity 14,400
earns $255 p/w in rent, is cash flow positive by $1,000 p/a, inc dep.(interest only loan)
In a regional NSW town, not likely to see much CG.
IP2: value $300,000(as at 10/2015, this has probably gone up in value since)
liability 263,960 (88% LVR, 4.5% rate)
equity 36,000
earns $365 p/w, is cash flow neutral, but $3,000 cash flow negative p/a with dep(interest only loan)
In Logan Central, in Brisbane.
PPOR: value $350,000
liability 294,490(4.1% rate)
equity 55,510
earns $170 p/w from granny flat, so mortgage+rates+insurance-rent income= $930 per mo.
PPOR is on a 30 year loan, we are nearly one year into that term now.
In a regional QLD town.
Superannuation:
$40,500
Net Worth;
IP1 14,400
IP2 36,000
PPOR 55,500
Super 40,400
Total: $146,300
IP2 has probably gone up about about 20,000(Need to get it valued)
Specific Question(s):
First of all; with IP2, we have an option to build a granny flat out the back of it and rent it out. Theoretically, this would improve its cash flow substantially, but it might not improve CG by more than the build cost(likely to be about $135,000). This would only really be possible if the IP's value has gone up enough to pay for itself.
My concern with that, is that our overall LVR is quite high, and I don't like our exposure.
Secondly; We want to pay off our mortgage ASAP. At our current rate of savings, we could expect to do that in about 8 years.
Is that a good goal at this point?
Thirdly: The Man could set up an off the grid power system for about $20,000, which would save over $3,000 per year(at current rates- and electricity is only going to go up). Is it a better idea to pay off the house first, or set up the off grid system so we can pay more off?
Eventually, we want to;
- own our home outright, with an off grid system and fruit trees and vege gardens to lower costs
- have income producing assets. At this point, we have our granny flat, and two IPs. Whether we just pay off the existing IPs, or invest in more to eventually downsize again to have them pay themselves off, we don't know. And that uncertainty is what is killing me. I thrive on really well defined goals, and not knowing is the worst thing for my mind.
Any suggestions or clarifications(or simplifications)?
