Low Income, Low Savings Rate - Housing vs Early Retirement in Oz

[Crunchy Squirrel]

So my partner and I have been at this "live on practically nothing and save whatever you can" thing for about four years now. We've both been on various iterations of Centrelink benefits for most of that time. We're currently receiving Parenting Payments and Austudy, respectively; I'm looking after our toddler and building my writing business while DH is studying. So suffice to say, we haven't had much of an income to work with.

Here's a quick monthly budget breakdown:

INCOME: $2575/month

Rent      $1040  (includes water bill)
Groceries   $580   (kind of high, but DH needs various supplements for depression & I'm gluten free)
Utilities   $120
Plane      $70   (My family lives interstate and we fly up to visit once a year or so)
Gifts      $30  (mostly Christmas/birthday stuff for offspring)
Mobiles   $60  (should be halved or better shortly)
Allowance   $160  (mine & DH's fun money)
Charity   $20 
Business   $40  (expenses associated with my work. Will be tax deductible when I'm in the black)
Clothes   $20
Transport   $60 (we're car free, so this covers bus tickets & bicycle maintenance)
Internet   $60
Bike savings   $50  (currently saving for an electric conversion kit for our cargo bike)
Savings   $260

As you can see, we're currently saving a princely 10% of our income. Current savings are at $8300. (Only 50  1/2 years to go, right?)

Things *should* pick up next year, as DH will have completed his counselling diploma and will start taking clients/looking for work. I'll have more words under my belt, and (assuming things go to plan) a couple of titles to my name earning money.

However - assuming that our income only rises marginally into the future, would you aim to buy a house first, or would you stick it out for financial independence and buy a house once you're independent of government benefits?

Both would cost us about the same - $450-$500K. We can get by on $25K a year while renting. Home ownership would drop that figure a few grand. We live in Adelaide, Australia, with most of our support networks in the inner south - not the most expensive place to be, but not the cheapest either.

My blue sky plans have us end up with both, I'm just not sure which one we should aim for first. Housing first = keep throwing our savings into a high interest online account until we have a deposit. Financial independence first = open a Vanguard account and start socking into the stock market.

Ideas? Thoughts? Advice? Purple aliens filled with jam?

[happy]

The first step should be to  work on increasing your income and savings rate.

Secondly on your income with a toddler, I would set up an emergency fund next.

After that whether you rent or buy depends on the math, and whether you wish to commit longterm to a dwelling or not.

At this point personally I would not angst over where to best put the money...put it in a high interest account - at call if its emergency fund, or term deposit if its for the future. Or you could hedge your bets and put half in an index fund and half in high interest cash.

Really though, focus on earning and saving first. $3000 saving a year, representing 10% of income is not going to cut it: no matter what you need another strategy to start talking about FI or buying a house. If you only want to earn 30k, then if you can reduce and maintain your expenses at 15k a year, then you are saving 50%...and could FI in a reasonable time frame. But you probably couldn't buy a house in a capital city in the current market.

[aaronhann85]

Have a look at vaya.net.au for phone and possibly internet. I just moved from a $60 Optus plan, to the same plane but with 1.5GB data vs 2GB for $17.60 a month. And there's no contract.

They also have 3G/4G data only at $33/month for 10GB which could almost halve your internet costs.

Whilst very noble of you to donate to charity, I don't know that I would be in your position.

Good luck with your business!

[Nudelkopf]

1. How much can you earn, each, before it starts impacting your payments? As your husband is a student, no doubt you can be flexible with work hours whilst keeping one parent home with the child. Most of my friends on Austudy work while finishing uni - you'd be dumb not to, IMO.

2. I don't think anyone would expect a family on centrelink to donate to charity. You're kinda the charity case here, hun.

[Crunchy Squirrel]

Have a look at vaya.net.au for phone and possibly internet. I just moved from a $60 Optus plan, to the same plane but with 1.5GB data vs 2GB for $17.60 a month. And there's no contract.

Thanks for the link. I just halved one of the mobile bills today, but vaya look good if I don't end up using enough credit to stay on the current $15/month plan.

I can earn $62 fortnight, and DH can earn (I think) $236 before our payments are affected. We've both been looking for part-time work but haven't had any luck. Something about DH having clinical depression and being physically unable to function before 10am seems to scare potential employers off :-\ I've effectively been DH's de facto carer the last few years, hence my foray into self-employment. I want to get off benefits, badly, but not at the expense of my family's mental health.

Our emergency fund is included in the above $8K savings. One of the few benefits of being a Centrelink recipient with no debt is that practically all emergencies are covered by the system. A decent e-fund is first on the cards once we're earning wages, though.

Thanks for the feedback so far, guys. You've basically confirmed what my brain was already telling me but I didn't want to listen to. Now, time for me to go pound the keyboard and get some future potential earnings written!

[happy]

One of the inspirations in my journey was Rhonda at http://down---to---earth.blogspot.com.au. She and her husband live happily on the old age pension (30k for two) with a paid off home. That someone could live comfortably and happily "on benefits" was a complete eye-opener for me and basically life changing. She is in a different age group but tries to make her writing relevant to all age groups. You might find some tips there e.g. making your own laundry detergent, that will help you save more.

Could hubby do some evening work part-time? Not thinking of longterm career options here but casual stuff like working in restaurants, packing supermarket shelves etc.

[steveo]

My take is that you both need to be working full time. I can't see how to cut much of your budget but I would ask why you both need mobile's and why you are giving to charity. I lived without a mobile when I was earning $60k per year and now that I have a fancy smart phone I really think that these things are overrated.

I would basically be focusing on earning more money, saving as much as possible and looking then to buy a cheap house. I don't think houses are the best investments especially at the prices they are now but once you pay one off and you are living rent free things look a lot better.

[Crunchy Squirrel]

One of the inspirations in my journey was Rhonda at http://down---to---earth.blogspot.com.au. She and her husband live happily on the old age pension (30k for two) with a paid off home. That someone could live comfortably and happily "on benefits" was a complete eye-opener for me and basically life changing. She is in a different age group but tries to make her writing relevant to all age groups. You might find some tips there e.g. making your own laundry detergent, that will help you save more.

Oh my word, how did I not know about this lady before? She's going straight in my RSS feed! I've only had a small poke around her blog, but if I can turn out to be a tenth as awesome as Rhonda is when I'm her age, I'll count my life as having been very well lived indeed.

Could hubby do some evening work part-time? Not thinking of longterm career options here but casual stuff like working in restaurants, packing supermarket shelves etc.

That's something we really need to have another look at. DH has been so focussed on his studies that the job searching has taken a back seat. I'm OK with that, though, as I'd rather he focus now and pass his course than try to take on too much and burn out (it's happened in the past; depression is a manky bitch). With any luck he'll be in position health-wise to start taking clients at the end of the year, whether he decides to go on and do a full Bachelor in counselling or just stick with the diploma.

My take is that you both need to be working full time. I can't see how to cut much of your budget but I would ask why you both need mobile's and why you are giving to charity. I lived without a mobile when I was earning $60k per year and now that I have a fancy smart phone I really think that these things are overrated.

At this point, full-time work isn't an option I'd be comfortable with either of us taking even if it was available. DH's mental health is more important to me than almost any amount of money we could be earning. It frustrates the hell out of me sometimes (hence my original post), but given the steady improvements over the last few years, I'm optimistic that it's a likely choice in the future. (To put that statement in perspective, two years ago DH's depression was so debilitating he was being referred back and forth to be put on a disability pension. The fact that he's more or less functional on a day-to-day basis now, still blows my mind occasionally.)

You're right about the mobiles and the monthly donations, though. Logically, I know we can't really afford to be donating money to other people. Emotionally, it's damned hard to let go of that "but we need to be helping out the less fortunate, because we have spare cash now, and that means we're not really broke, right?" mentality. **cues up punch in the face** I know MMM wrote an article on giving and stuff after FIRE, I think I need to go reread it.

I would basically be focusing on earning more money, saving as much as possible and looking then to buy a cheap house. I don't think houses are the best investments especially at the prices they are now but once you pay one off and you are living rent free things look a lot better.

I definitely wouldn't be looking at a home as an investment. For me a house is a non-monetary stability factor, a safe haven from the world, and owning my own means I can do whatever the hell I like with it and not have to suffer the indignity of quarterly inspections. Plus we'd save something like AU$8-10K a year living rent free, even factoring in home maintenance and insurance.

[steveo]

At this point, full-time work isn't an option I'd be comfortable with either of us taking even if it was available. DH's mental health is more important to me than almost any amount of money we could be earning. It frustrates the hell out of me sometimes (hence my original post), but given the steady improvements over the last few years, I'm optimistic that it's a likely choice in the future. (To put that statement in perspective, two years ago DH's depression was so debilitating he was being referred back and forth to be put on a disability pension. The fact that he's more or less functional on a day-to-day basis now, still blows my mind occasionally.)

This sucks but hey what can you do. Why does he get depressed or maybe better put can it be managed a little better (without meaning to sound like a dick). Is full time work just too much ? Would the right job be a better option ?

You're right about the mobiles and the monthly donations, though. Logically, I know we can't really afford to be donating money to other people. Emotionally, it's damned hard to let go of that "but we need to be helping out the less fortunate, because we have spare cash now, and that means we're not really broke, right?" mentality. **cues up punch in the face** I know MMM wrote an article on giving and stuff after FIRE, I think I need to go reread it.

I think you should just stop this outright. You need the money. I have this fancy mobile phone and its starting to annoy me just looking at it. I paid a couple of hundred dollars on ebay and bought it outright and I pay $15 month for as many phone calls as I want to make basically but its just a waste because I get so little out of it. To be fair my son plays games on it all the time but for me as a phone I just don't get it.

I definitely wouldn't be looking at a home as an investment. For me a house is a non-monetary stability factor, a safe haven from the world, and owning my own means I can do whatever the hell I like with it and not have to suffer the indignity of quarterly inspections. Plus we'd save something like AU$8-10K a year living rent free, even factoring in home maintenance and insurance.

This is exactly how I view a home. To me it is a great form of security because you have somewhere to live for life. Worst case is that you can downsize later on. I know some people will state it doesn't add up financially and they may be right but the convenience to me is huge. The trick is not to pay too much and I've stuffed this up. I bought a small unit and we upgraded because the kids were getting too old and we wanted another kid. If we had just bought the right size house initially we would be a lot better off now. I suppose the trick is to be careful when looking to buy.

[easyrider]

I just skimmed this but it seems you are better off saving than renting.  I almost always say the opposite but in your case it's different.  You are paying $1040 rent, versus $450-500k for a house right?  I am assuming the place you are renting is not really comparable to the house but nevertheless it's a much better deal.  With a house you have insurance, property tax, maintenance, plus your equity is locked up.  I just don't see how it makes sense in this case. 

What would it cost to rent a house comparable to that which you would buy?

EDIT:  In the first sentence I meant to say that you are better off saving than BUYING.