Author Topic: Reader Case Study-Advice appreciated for my first world problems  (Read 10759 times)

Clarion

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Age: 37 & 39
Income:  Husband- $162, 000.  Me- $14, 000 (both after tax)
Kids: 2
Cars: x2 (both 2007 models both fully paid for)
Current Expenses- Mortgage interest $1300/ month.  Mortgage is currently at $330,000.  School fees $26,000 per year.
Assets:  Our home,  which is worth around $1.8 million.  That's it.

Expenses:
Monthly:

Mortgage Interest $1300
groceries $1200 (yes, too high I probably need a punch in the face)
petrol and transport $300
Dog: $311.65 (yes we have a ridiculously expensive dog that needs ongoing medical care)
Entertainment $725 (this is mostly on kids -swimming lessons x2, one child does piano and the other tennis)
Giving and gifts $150 (includes donations and birthday presents for kids friends)
Health (dr, dentist etc) $50 (we don't always spend the whole amount but it is put aside for this)
Utilities $480
Personal Care $50
Home Maintenance $300 (anything we spend at Bunnings etc again we don't always spend this full amount)
TOTAL $4867

X12 Months = $58404 per year

Yearly:
Emergency fund:  $1500
Cars:  $4500 (will reduce soon when we sell one car)
Edcuation:  $26000
Clothing:   $5000 (yes, probably another punch needed)
Christmas:  $1500
Insurances:  $5000
Private Health Insurance: $3900
House rates/Water rates:  $3410
TOTAL:  $50810

Total Monthly plus yearly expenses = $109, 214

So, Total after tax income (176 000) - total expenses (109 214) = $66, 786  which is paid into our mortgage. 

My Dilemma:  Ok, so our situation, typed on the screen seems not so bad.  My husband makes great money but it can't go on forever - he is an engineer and works away A LOT.  Realistically he can probably only work in this job for another couple of years before completely burning out.  We made the mistake of building the biggest house that we could (or couldn't afford) three years ago.  It's in a great location close to the inner city (we are in Australia) and we can walk to almost everything.  In hindsight we never should have knocked the old one down (hindsight is wonderful). We have decided already to sell one car.  We woke up recently to the fact that we could probably be doing so much better and ultimately we don't want to work forever! We currently are not investing at all. We have cut back on any wasteful spending, we don't take holidays or eat out hardly at all. Any spare dollar goes into our mortgage. So my first world problem is: Do I pull the kids out of the fantastic but ridiculously expensive school (given that one child suffers with anxiety and may have trouble coping with the change) or do we sell our house which is too big but is in the best location and then drive from a cheaper neighbouring suburb to school everyday (currently we live a five minute walk from the school)  I know my problems really aren't problems compared to most people but still this has kept me awake for the better part of the year and I still don't know what to do. 
« Last Edit: May 26, 2014, 01:14:36 AM by Clarion »

urbanista

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #1 on: May 25, 2014, 11:49:58 PM »
Hello from the fellow Australian.

So, your net income is $176,000 - less mortgage interest and school fees = $134,400.
What are your other expenses like?

Also, I bet you are investing. Ask your husband his super balance and where the money are invested. On that sort of salary (assuming it is a salary and not a business?), he must have a sizable super by his age.

I wouldn't sell the house now. The transaction costs of sell/buy will run at ~100K for you.

It is hard to give advice on the school situation without knowing your kids, but usually public schools in the expensive suburbs of Australia are good, if not very good.

Also, can you work more? If your husband stops working away and instead get a job with regular 9-5 hours, but less pay, can you increase your working hours?

Clarion

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #2 on: May 26, 2014, 01:11:00 AM »
Thanks Urbanista.

I have updated my post with all our expenses (I have been tracking them for the last 12 months).
I'm not sure what the super balance is to be honest, but you are right there would be a decent super amount there I imagine.  I will have to look into it.  It is a salary.

Thank you for your advice about keeping the house.  I guess stamp duty and agents fees would be huge. 

We are close to a public school which I have heard only good things about.  I should have enrolled my kids there from the onset instead of being caught up in my middle class have everything now moment.  I think deep down I know that the smartest financial thing for us to do would be to pull the kids out of the pricey but awesome private school.

Yes, if my husband was to get a regular job I would be able to work more.  I do plan to work more when the kids are a bit older.  At the moment I am lucky to have so much time with them.
« Last Edit: May 26, 2014, 01:13:03 AM by Clarion »

former player

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #3 on: May 26, 2014, 01:13:50 AM »
You have two questions at the moment -

1.  Are the running costs on this house killing us?
2.  How do we secure ourselves against unexpected risks/a turndown in the property market/diversify our investments?

Re 1: How much is it costing you to run the house?  You've told us about mortgage interest (which should be declining, given the sums you are presumably putting into paying back principal) but not about property taxes and utilities.  If your running costs are out of whack with what a suitable smaller place would cost you in tax and utilities, what can you do to reduce them?  I would hope that a newbuild house is also an efficient house, so it might be property taxes that are the problem and that you can't do much about.

Re 2:  You are enormously exposed to changes in the property market in your city, both good and bad.  This only matters if you are going to sell, so the first thing you need to check is that you will be financially secure enough not to have to sell at the bottom of the market.  Make sure your husband has life/disability insurance so that if his income ends abruptly you won't be forced into an immediate sale.  Then, have an emergency fund that will keep you going long enough to wait for a good price (at least six months, possibly longer).

Once you have those sorted out, you and your husband need to talk over your life goals.  Where do you want to be and what do you want to be doing in one year, five years, twenty years time?  The answer to that question will tell you whether or not to keep the house, what to do about your and your husband's jobs, what to do about other ways of earning money and what to do about your children's school fees.

urbanista

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #4 on: May 26, 2014, 01:46:27 AM »
I don't think you can do anything major about the running cost of the house. Utilities (do they include Foxtel?) are a bit high, but I guess with the large house and you staying at home during the day, the heating/cooling are comparable with what we would be paying should I stay home most of the week. It is expensive to heat a large house.

If you decided to move to a smaller (still 4-bed/2 bath) and cheaper house (say, 800K), your council rates & utilities will drop by about $2-3K a year. To me, it is not worth the hassle. You may also find that it is harder to survive with one car in the cheaper suburb. Inner city is great in that regards.

I would look at the food bill and insurance. What are $5000 annual insurance is for? That's on top of your medical insurance and car insurance? What other insurance is there? The home/contents insurance should not exceed roughly $2000 per year.

Yes, the major items is private school fees and (gusp!) kids activities.

P.S. The disability insurance for husband is usually arranged through super, it's worth checking what cover exactly he has.

Clarion

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #5 on: May 26, 2014, 03:02:44 AM »
Thank you so much for the replies, they really are helping me to get things sorted in my own mind.

former player, I think you have spelled out my questions really well.  I guess I am worried we could/should be doing more to secure our financial futures and I was really after some fresh perspectives about the best plan.

The property taxes are what they are for living here I guess and I can't do too much about them, you are right.  As for the utilities the house was built with the orientation in mind and we also installed the biggest solar powered system we could and so we pay no electricity here at all.  We do have quite high water bills (around $200/month), thanks mostly to the pool (blush) and high cost of water here.  Our gas bills, around $50/month, (hot water and heating) are not too bad.  I could cut back on our phone bills I guess (we have a package deal at $162 per month).

We really do need to look at our short and long term goals, you are so right.

Urbanista,  the utilities do not include foxtel but I guess I could cut back on our Telstra bill ($162 per month bundle deal).
The insurances are high and yes they are on top of private health and car insurance they include $1800 for home and contents.  The rest includes income protection, life insurance and trauma insurances for both myself and my husband.  We are in the process of reviewing our insurances and have spoken to an insurance broker.

The kids activities are a bit on the high side but to be fair this category is lumped under "entertainment" and tends to have other things grouped with it including any cash withdrawals.  This amount ($725/month) includes any rare outings, dinners, events etc.  It is probably the category where I really don't know how we manage to spend so much and where I could really tighten our spending.

I have thought so many times about moving to a cheaper suburb and cheaper house but I really struggle with giving up our location, that is being able to walk to everything and having public transport so conveniently close too.  I also think all the time about moving to a cheaper house within the same suburb but like you said the changeover cost might make it almost not worth it although it would be fantastic to be mortgage free.

Thanks again. 


deborah

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #6 on: May 26, 2014, 04:52:46 AM »
Ongoing House costs

These are probably much lower than they were for the old house, so it sounds like it would be a good place to stay. It might be worth investigating getting them down further, but I'm not sure that any of the following will do much...

It looks to me as if your rates are very reasonable for the house you have, and that maybe the house is overvalued for the land it's on. When was the last time it was valued for rates?

Choice argues that it is best to have a PV system that generates your lowest daily electricity consumption, so you have room to change things from gas (or other energy) to electricity, and still be in front. For instance, why do you have gas hot water?

If your house was built in the last 3 years, I think it should have a high star rating (I thought all Australia had insisted of high star ratings for all new houses by then). Your heating bill is low, so I suspect that all is OK. If you think they are higher than you were expecting, you could borrow an energy assessment kit from your library to check the house to see if there are any leaks.

When the time comes, you could fill your pool and make it into a garden if you need to save ongoing costs - many people also do this to reduce their maintenance workload.

Securing your financial Future

You should have more than $200k in super between you. Check both your super policies to find out what income protection, life insurance and trauma insurance are covered by them. Some of these are usually covered in most superannuation. You may find you are adequately covered by your super, so you can drop the relevant policies (super is usually a less expensive method of insuring), or you may find that the superannuation cover is not adequate (and cannot be changed) - in which case, you may want to remove this cover from your super (you are usually charged something in your super policy), and have reduced fees in super. For instance, I needed to have two superannuation policies, so on one of them, I removed the insurance. Check what your super is invested in. Because you are so exposed to property, you may want to have your super directed toward other types of investments.

You have earmarked other areas where your budget needs investigating/pruning, so there isn't much to say about them.

However, I think you need an overall goal - for instance $x in 5 years. Budgeting with this goal will tell you how much you need to prune (if anything), and will answer you questions about schooling. If your children are in primary school, and will be adversely affected by change, you might consider moving them when they reach secondary school (if that fits in, and your budget looks like you need to do it) - at which stage, they should be able to bicycle to school.

Work out where you want to invest any extra money - in super (if so, check out salary sacrificing and spouse co-contributions), or external to super, and in what proportions. This may depend upon when you want to stop working, but with the government wanting to increase preservation age, you may want more outside super - at this stage, you can make extra super contributions later if you want to.

former player

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #7 on: May 26, 2014, 05:01:12 AM »
Your annual costs for running the house are-

Electricity $0
Gas  $600 ($50 per month for hot water and heating)
Water $2,400 ($200 per month)
Property taxes/water rates $3,410
Insurance $1,800
Maintenance $3,600 ($300 per month or less)

That is $11,810 per annum, so on a take-home pay of $176,000 per annum, the running costs of the house aren't killing you.  The biggest ongoing expense is probably the pool: you could mothball it but as long as you are using it on a daily basis, now you've got it I'd keep it going unless your income dries up.  You are already looking at your insurance spend, and might take a look at your maintenance spend.

Re school fees of $26,000 per annum, your hair is not currently on fire (no debts other than mortgage, high income, lots of home equity), so you don't need to rush them out of school during the school year, or at an awkward time for making friends/entering exams.  You could look at moving them at a convenient time in the future, depending on their ages (eg could they start at a public school at the same time as all the other kids, is there a natural break in the exam cycle).  You could also look at moving just one child to start with, provided you think it would be "fair" - ie the anxious child needs a more protected school environment and the other will thrive in public school and benefit from a wider social environment).  In the meantime, I'd take a hard look at what you are paying for the swimming, tennis and music.  You may have just followed the private school scene and bought into expensive, private, one on one tuition whereas there could be cheaper public and group activities which will give your kids a wider social circle and (unless they look like doing these activities at a professional level) will be just as satisfying to them, or even more so.

Other areas you could look at for better mustachianism are -

Grocery costs of $14,400 per annum (this is substantially more than the cost of running your house and pool).
Entertainment costs/cash at $8,700 per annum.
Car/petrol/transport costs of $8,100 per annum (although you are proposing to sell a car: good).
Clothes at $5,000 per annum.
Christmas and other gifts at $3,300 per annum.
Telstra at $1,944 per annum.

You are currently saving $66,786 per annum into your mortgage, $1,500 per annum into your emergency fund, and your husband's superannuation.  That is $68,286 saved on a net income of $176,000 per annum plus the superannuation.  You have interest on the mortgage of $15,600 per annum: presumably this is reducing rapidly given the amount of principal you are paying off?  Even at your current repayment rate you could have the mortgage paid off completely in less than 5 years. 

I don't think you need to lie awake at night worrying about all of this, and hope you will stop doing so!  As long as you have a decent emergency fund, and maybe take a look at some of the easier wins on your expenses, you are doing OK for the moment.  The things to talk about with your husband are how he sees his job (you are worried about burn-out, but is he?) and your goals for the future, and the bigger issues of the house and schools will fall into place from there.  Good luck.



nereo

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #8 on: May 26, 2014, 05:13:13 AM »
Quote
So my first world problem is: Do I pull the kids out of the fantastic but ridiculously expensive school (given that one child suffers with anxiety and may have trouble coping with the change) or do we sell our house which is too big but is in the best location and then drive from a cheaper neighbouring suburb to school everyday (currently we live a five minute walk from the school)  I know my problems really aren't problems compared to most people but still this has kept me awake for the better part of the year and I still don't know what to do. 
Hello there. 
So my first read on your situation is that, without any/many changes, your de-facto retirement strategy is to sell the house when you are ready and move someplace where a home is much cheaper.  You value your home at 1.8M and $333k left on the mortgage.  It sounds like you are attempting to kill that mortgage over the next few years, too.
That kind of strategy will probably work, but means everything is dependent on the house. 
First, I'd optimise spending on a few of the areas you've already mentioned (food, clothes) and start investing the difference. 
Regarding the schooling - $26k seems astronomical to me, but I don't have kids.  If the public school system is good I'd go that route - after all you're already paying for the public school with your taxes, right?  And from everything I've read parent involvement and home environment are the most important factors for a child's success.  The school itself is far less so. One of your children might have anxiety issues, but she'll have to deal with leaving the school at some point, right? 
Hope that gives you some things to think about.



happy

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #9 on: May 26, 2014, 06:44:01 AM »
Ok, I am going to give you a gentle face-tap. I understand that for high income earners it can be hard to reduce expenses from personal experience,  but your annual expenses all up are over 109k. Take off the mortgage interest and you are at 93.6k and after the school fees 67.6k.  With those exclusions >67k is still a mighty unmustachian total. And your savings rate in the form of extra mortgage payments is only about a third. Probably a bit higher if you include super.

Your hair is not on fire, but you could do a lot better.

You are over housed, but if you are in Sydney 1.8 is not totally outrageous. But undoing that is not entirely simple. Ditto for the private school. Keep in mind you would still have some expenses in a public school which is not entirely free, maybe 1k for 2 kids.

So I would suggest you concentrate on your expenses.  There's fat all over the place.  You are not working much so one of your jobs should be to carefully manage every $.  Make it a game.  Make it a challenge. A dollar saved is easier than a dollar earned especially in your hubbies tax bracket.
Examine everything you spend: do you need to spend it? Can you do without? Can you minimise it? Can you get it second hand? Can you spend half as much on a said item, or buy half as much or only use/do something half as often. Do some "no-spend challenges": pick whatever you want and make up your own no spend challenge of varying lengths.  You'll be surprised how much is habit.  If you spend 5k a year on clothes - you've probably got enough not to buy much for several years ( except the kids will grow). 5k is outrageous.   Enough said.

rmendpara

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #10 on: May 26, 2014, 10:26:47 AM »
You really can't afford your house. $1.8mm value vs <$200k income? Good thing is you only have $330k mortgage left, so it's not unreasonable. I'm from the US, but I know Australia real estate is a bit more expensive in general as well.

I would say work to pay off the mortgage, and then start putting your full mortgage payment into investments.

Do you/husband plan to work for another 10 years? If you want to keep the house, that is probably the most realistic course of action. He could probably find a lower paying job that is a bit easier/less stressful in a few years once the mortgage is paid off. Then, attack the private school ($26k is a TON!).

Schools don't make kids smart. Good parenting makes kids smart and successful. The exception is if you have to choose between a private school and a terrible public school, but you said this isn't the case.

If you don't cut the school expense, the rest is not going to make up for it.

I would do the following to make the biggest impact for the least effort/change: (low hanging fruit)

- Food: cut from 1,200/mo to 1,000/mo. Shouldn't be too difficult
- School: maybe move one child to public? Start talking to the one with anxiety, and see if you can make the change within 1-2 yrs
- Clothing: too much, but kids grow up and need new clothes. Maybe take a step down from designers? Or, try and shop for sales?

When it comes down to it, cutting the private school is the biggest single change you can make, and you could leave everything else the same and cut your expenses by 25%. Twenty-five thousand dollars!

This is the first and most important, because most other cutbacks combined won't add up to this much anyway.

Pylortes

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #11 on: May 26, 2014, 11:39:18 AM »
Warning!  I do not have all the information, but I still want to possibly raise a giant red flag.  From the little I know, there is a good chance that Australia has been going through a housing boom. I think the best way to tell is to compare the income to median housing cost charts.  Once the average (median) home becomes unaffordable for all but the top 5-10 percent of earners watch out below.   You may have to research some of these statistics.  I've seen them for the U.S. but never looked for Australia.   Do you recall what happened when the U.S. had a major housing run-up about a decade ago?  If not, you really should study it.   My suggestion is to seriously consider whether you are comfortable with having $1.5M tied up in the value of your home.  This would make me very nervous since I think there is a chance of the market dropping- however I cannot claim to know when or where.  Just please learn some lessons from the U.S.  and protect yourself.

If it was me, I would sell the house and would rent a very nice house with the location you want and diversify my equity into other asset classes such as mutual funds.  I would also remove the $26k annual school expense.  Since I'm moving, I'd make sure to find a neighborhood with a very good school district and then utilize the free education.   Just my two cents.

deborah

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #12 on: May 26, 2014, 01:24:35 PM »
Are you correct about the mortgage interest you are paying? or is this the entire mortgage repayment including the interest - if so, how much is principal?

Clarion

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #13 on: May 26, 2014, 06:53:17 PM »
Hello All, thank you for all the great responses.

Thanks Deborah, I think our house running costs, given it's size, are not too bad.  We have gas hot water because that was what the builder included when we were building and when we looked at changing it at the time of building the cost of the variation was not worth it (the builder obviously gets a deal on bulk lots of big gas hot water systems).  We thought we would keep the gas hot water system until it needs replacing and then probably switch over to solar if possible.

former player, I'm glad my hair is not on fire!  I will absolutely look at our budget again and look at setting some goals for our future.  I really appreciate you taking the time to have a good look at our situation.

Hi Nereo, yes I guess that is our informal strategy - too sell the house in retirement, when the time comes, for a cheaper one as all our money is tied up in our home.  It's a great home but I'm just not sure it's the wisest financial decision.  We certainly do have some things to think about and I think the common theme seems to be that the school is just too expensive as rmendpara suggests too.  I really can't see retirement as an option at least for the next 10-15 years in our current situation that is for sure.

Pylortes, you have raised some interesting points for me.  I do recall the housing problems in the U.S.  Our house prices here seem to be inflated and there are whispers of "bubbles" around.  I have tended to feel safe with real estate as I personally have really only experienced a rising market, while I have seen others around me greatly affected by the global financial crisis when they lost lots of money in stock markets and superannuation.  I guess this makes me nervous around stocks but realistically we may be no safer in having all our eggs in real estate.  I think your advice about diversifying into other asset classes has given us something to really consider.

[b]Deborah[/b, we have an interest only mortgage at the moment at a rate of 4.88%.  The interest fluctuates slightly each month as we have the loan linked to an offset account for all our day to day banking but the interest averages around $1300 per month.  This interest will obviously come down as we pay more and more into our mortgage which is what we have been trying to achieve.




nereo

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #14 on: May 26, 2014, 07:19:59 PM »
Quote
Hi Nereo, yes I guess that is our informal strategy - too sell the house in retirement, when the time comes, for a cheaper one as all our money is tied up in our home.  It's a great home but I'm just not sure it's the wisest financial decision.  We certainly do have some things to think about and I think the common theme seems to be that the school is just too expensive as rmendpara suggests too.  I really can't see retirement as an option at least for the next 10-15 years in our current situation that is for sure.
well... 10-15 years with your current approach, but you certainly have the ability to retire much sooner with some significant changes.  for example, the $26k in schooling could net you $24k in annual savings (as you said you will still have ~$2k in expenses at the public school).  Then there's a lot more you can cut.  Food can (and probably should be cut by $500, and that's still a generous budget.  Clothing can be cut in half.  You mentioned selling one car, cutting both expenses and netting you proceeds from the sale.

By making those cuts and applying the savings towards savings, you could something like this:
$66k towards mortgage (your current rate) + proceeds from car sale
$24k (school) + $6,000 (groceries) + $2500 (clothing) + $2250 (one-car) = $34,750/yr into index fund *or* towards the mortgage.
If you put everything towards the mortgage you could eliminate that in 3.5 years.  Then you'll need to start putting all of that towards savings, and/or sell the house to fund your (now very nice) retirement.  If you keep saving and avoid lifestyle creep in 7 years you can have a fully-paid off house and about $350k in savings.  Again, the only way that's FI is if you move.  But it's an option.
Keep workin' on it!

Kaminoge

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #15 on: May 27, 2014, 02:45:39 AM »
How old are the kids? As noted your hair isn't exactly on fire and while those school fees are pretty horrendous I'd really hesitate to make any fast decisions about changing the kids' schools. Could you switch them at a "natural" point? For example when they move from primary to secondary school? What about scholarships? Are there any they could apply for to offset some of the fees?

Is there a possiblity of increasing your income to add a little extra to your 'stache and prepare for the day when your husband eventually takes a pay cut?

My personal feeling is that Australia doesn't genearlly have a housing bubble (although of course I've got no way of knowing for your exact location) so I wouldn't be super concerned about having a lot of equity tied up in your house as long as you aren't going to end up in a situation where you need to sell in a hurry. But of course that's my own belief and there's plenty of experts that disagree (and plenty of others who agree - the beauty of listening to "experts").


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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #16 on: May 27, 2014, 05:24:55 AM »
Another fellow Aussie here, so commenting on the things that seem off to me (based on Perth prices, you don'tsay what state you're in, but if you can cope with 1 car then it's less likely to be Perth than Mel or Syd).

I wouldn't be so concerned about the school as some people are, I know the value of a good private school. It is worth thinking about whether it is really the best thing for your particular kids though. DH went to an elite private school, and his message is that if your child does not excel in something they value then they are just a source of fees - most schools don't care beyond what helps them improve their reputation. So if your kids - especially the anxious one - are not academic / sports stars / musicians / whatever else your school values, then they are probably not getting as good an education as at a good public school where the teachers are under less pressure (cause public schools don't have so much extra curricular work plonked on teachers shoulders), and may actually be more supportive of weak / sensitive kids. I went to a good public school (expensive suburb - so the kids were all from families who expected their children to do well, go to uni, etc) and it was low stress compared to what I've heard about private schools, yet there was always the unspoken assumption that of course you'd work and do well. Don't assume that a public school will not deliver a good education, go visit the one nearby (and don't worry about enrolment - your kids are automatically entitled to enrolment if they are in the school district) and see how it feels. Look at the facilities and talk to the deputy / head, check out their website (they all have websites now). If you like it, ask the deputy / head when the best times are to start there - they will know.

Now, what stood out to me as a major over-spend. Kids activities. You quote over $700 per month for 2 kids swimming lessons, tennis and piano. So 4 classes per week, over 4 weeks, 16 in total. What are you paying per class? At $20 a class for swimming and $40 for piano and tennis that should be $480, and those costs seem high to me. Why do the kids need weekly swimming lessons if you have a pool? I'm assuming they are both already competent and the lessons are just to improve their style and speed? Are they actually good enough to get anywhere with it? If not, do they really need squad lessons? You have a pool at home, if they are like every other school I know they do school swimming, add Vac Swim and they'll keep improving on their skills without exorbitant fees, what more do they need? For piano - does the school not offer music? Pro for public school - music lessons are included (I had group then 1 to 1 flute lessons for 4 or 5 years until I put my foot down and quit, all free).

Also - BIG face punch for the water bills. Buy a pool cover!!! And then for goodness sake, use the darn thing. No one in Aus has the right to use that much water. My water bills have recently increased to nearly $200 every 2 months, including $170 of fees and fixed charges. That's with a big back and front garden, and a toddler who gets a deep bath every day. Make sure your fittings are low flow (your shower is probably something uber deluxe and spa-like, if you love it, then put a timer in there and start having shorter showers instead) and when you get new appliances, check the water mark on them. Put in a bore for the garden (or a tank over east) and use that instead. Or just stop watering your inappropriate exotics and replace them with hardy natives when they all die. Sorry for the rant - can you tell I work in the water industry?

Yes, you are spending too much on groceries and clothes, but don't try and compare yourself to the Americans on that part of the budget - you'll never manage it. But it is worth looking online, time the sales, try op shopping (or recycling boutiques for high end, gently worn but MUCH cheaper clothes), and just simply buy less. And for food, look at what you waste, pay attention to your family's eating habits and work out what costs a lot.

homeymomma

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #17 on: May 27, 2014, 05:36:43 AM »
I'm in the US so I wouldn't really be able to comment on the level of some of your expenses. Many seem very high but that may simply be the cost of services there or the exchange rate. That being said, I think you need to so some real thinking about your priorities. If the private school is wonderful and your children and happy and thriving, I wouldn't just cut that first because it's the biggest and you'll get more bang for your buck. There are so many other areas you could cut first. No, they won't add up to 26K but it's all about what is important to you and your family. I just personally wouldn't be able to pull my kids out of a school they love in order to continue spending 5K on clothes. You may have to work with your kids (I don't know how old they are) about some of the changes, like getting rid of cable. If you explain that the changes are in an effort to keep them in their preferred school with their friends they may be more amenable.

All that being said, if you feel the school is unnecessary and your kids are young enough that a change would be tolerable this year, then by all means go for the public school. As others have said, you are already paying for it with what is assume are quite high taxes.

Anatidae V

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #18 on: May 27, 2014, 06:56:52 AM »
Quote
Monthly:
Mortgage Interest $1300
groceries $1200 (yes, too high I probably need a punch in the face)
petrol and transport $300
Dog: $311.65 (yes we have a ridiculously expensive dog that needs ongoing medical care)
Entertainment $725 (this is mostly on kids -swimming lessons x2, one child does piano and the other tennis)
Giving and gifts $150 (includes donations and birthday presents for kids friends)
Health (dr, dentist etc) $50 (we don't always spend the whole amount but it is put aside for this)
Utilities $480
Personal Care $50
Home Maintenance $300 (anything we spend at Bunnings etc again we don't always spend this full amount)
TOTAL $4867

X12 Months = $58404 per year

Yearly:
Emergency fund:  $1500
Cars:  $4500 (will reduce soon when we sell one car)
Edcuation:  $26000
Clothing:   $5000 (yes, probably another punch needed)
Christmas:  $1500
Insurances:  $5000
Private Health Insurance: $3900
House rates/Water rates:  $3410
TOTAL:  $50810

That is a lot of money. Wow.

OK, so my oberservations are:
Groceries: we're working on ours now too, but depending on the kids ages (growth spurts = extra calories) some mindful shopping should reduce this.
Cars & transport: yeah that seems about right, although again mindful driving would shave a little off here too. And maybe family bike rides to friend's houses?
Dog: awww. I hope it's feeling OK.
Entertainment: +1 Southern Saver. Get the kids out in your own pool more. But also, what else is really in this category?
Giving and other gifts: how many people do you know, and does everyone require lavish gifts? Try cards and other items made by kids, a single box of their favourite treat etc or your own ideas and see if you can't get this cut in half.
Utilities: ouch. +1 southern star again. Pool covers keep the water a nice temperature, too. Check your sprinkler systems for timing and length of watering too (evening is best as it gives time for the water to soak in). We're having a constant water crises, this should be able to be reduced.
Home maintenance: we don't have any so I can't comment on this.

Yearly:
Emergency fund: this seems low. If hubby got laid off, how long would this last?
Cars: nice work with deciding you don't need the second car!
Education: do what's best for your kids here. Changing at the split between primary and highschool is probably best if they're near that. Schools vary by their suitability from one to the next in a way that can have little to do with whether they're public or private, but kids from public schools have statistically had a lower year 12 mark (TEE etc) while doing better at uni once there due to self-motivated learning skills. Your anxious kid may do better getting more exposure to a wider range of kids, but they also might not- that's really going to be up to way more factors than you have control over.
Clothing: adults with full wardrobes don't cost this much, and neither do kids (get hand me down school uniforms, and if they're the same gender, other clothes can be handed down between them too).
Christmas: seems about right, particularly if you have to travel a bit and have nieces/nephews/large families.
Insurances: explore all options to reduce these :)
Health insurance: I'm of the "whatever feels most reassuring" approach here.
House rates/water rates: not much you can do about these!

Just remember, hubby working more doesn't earn you as much as you earning more! It's less effort for you to earn another $1 than him, given the huge difference in tax rates you're at.
I look forward to your updates!

Clarion

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #19 on: May 27, 2014, 07:22:20 AM »
Homeymomma, my kids are young so I think if I was going to change schools I would do it sooner rather than later.  They are in early primary school.  Their education is a priority for us and we are so torn about pulling them out of this exclusive school but we are considering doing this for primary school and maybe by the time they reach high school we can go private again when we are in a better financial position (ie mortgage free).  Plus, the public primary school here has a great reputation whereas the public high school is apparently not so great.

Southern Saver,   Thanks for your feedback.  I am in Perth!  It was good to hear your DH's perspective on schools.  I went to a public school myself (a not so great one) but I appreciate that they can vary greatly.  The public primary school close to us has a good rep and most of the children that go there go private for high school from what I have heard.
Just to clarify with the kids expenses, they come under a heading of "entertainment" in my budget tracker (I use EEBA) but that category actually includes any pocket money ($5 a week per child) occasional eating out (rarely) or activities for the family, it also includes any cash withdrawals we make.  Swimming lessons are $520 for the year, total for two kids, (only in summer months), originally we started them because we have a pool and I wanted the kids to be able to swim.  Tennis is $20 per week for 8 week terms so $640 for the year and piano is $30 per week ($1200 per year) for the other child.  I guess these are luxury expenses but I would rather cut my budget from other areas first.  I'm going to try much harder on the groceries and clothes plus I'm trying to be very aware of cash spending.
As for the water,  I just got out my bill.  For two months we paid a total of $312  so for the last two months it was a bit under what I budgeted.  Usage was $130 and service charges $182.  That's OK about the rant, I am proud to say we use the pool cover all the time.  I have a crappy standard builders issue shower head.  We have a grey water system too, no exotic plants though!   I could take shorter showers, guilty there.  I really appreciate your tips.  I have been using EEBA for the last year to track all our expenses but it's time to really put the budget into action.

Kaminoge  I hope to increase my working hours as my children get a little bit older,  I have been fortunate to cut right back at work to spend time with them but I am happy to increase my hours again in the next year or two.  Deep down I don't really think the house price will plummet either but I would hate to be proven wrong.

Clarion

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #20 on: May 27, 2014, 07:34:50 AM »
Thanks for taking a look at my spendinganatidaev, it was great to get feedback on each category.
The entertainment category needs work for sure, the kids activities are pricey but this one seems to catch anything I'm not sure about ie cash spending, lotto tickets (i've stopped this now after reading MMM), anything bought at the bottleshop or coffeeshop, basically it's a category where we can work on.
I like your ideas about the giving and gifts.  We do buy too many gifts and I recently offended a good friend by saying I didn't want to exchange gifts anymore.  I still feel bad about it but am slowly coming to terms with the fact that it's not worth being upset about.
Our emergency fund is low.  We do have an offset account with around $30000 cash buffer in it (I count this as already being paid off the mortgage) so in a real emergency we would have to dip into that.  I would also go back to work full time in that case.
I look forward to keeping you updated too!

EngineerMum

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #21 on: May 27, 2014, 08:48:29 AM »
Two points of good news for you
You are double counting your water rates - Water Corp have started incorporating water rates into the bi monthly bills, so that's already counted in your regular bills.
Second, if you have standard builders shower heads, you can switch them out for low flow ones which cost about $20 at bunnings and will start saving you power and water right away (even without shorter showers - which lets face it, are hard to maintain) and really don't change your shower much.

WRT your other clarifications. With extra detail, I agree the kids expenses are no un reasonable, but as you say, probably other fat to cut in that budget.
As far as the school, I didn't realise it was primary. Gees, I'd really struggle to justify private school for primary when you're in a good suburb.

urbanista

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #22 on: May 27, 2014, 06:41:15 PM »
In my view, expensive private primary schools only worth it when one lives in a lower social economic area. For example, my sister lives in Melbourne Western suburbs because that's where her and her hubby's jobs are and she puts a high value on short commute (5-10 min). All public schools in the area have 75% of kids from the non-English speaking families, whereas private schools ($7-8K annual fees) have roughly 25% of kids of non-English speaking families which is much closer to the % of the total population. So she decided that since her family's first language is not English, her child would really benefit from the private primary school.

On the other side of the town, where we live (North-East), we have a population of predominantly English-speaking families and public schools reflect that. We have a wide choice of good public (primary) schools and inexpensive Catholic schools. So my kid will go to one of them.

The situation with the high schools are different though. I am totally prepared to either move to a good high public school's area (at the expense of at least 500K to add to the price of the house) or pay 25K annual school fees for a local private school.

Counting Down

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #23 on: May 27, 2014, 08:29:36 PM »
Hi Clarion thank you so much for posting this we are similar high savings but high spending with a husband working away a lot at a job that we know can only be short term. Also in Perth!

In your situation this is what I would do:

1- Put a limit on the work e.g. 5 years. Say that you will do this for 5 years so that after that your family will be in a really secure position and your husband has the option of taking a less stressful job.

2- Put the kids in public school, at primary stage I don't think the money is worth it especially if you have good public schools. Commit to putting them in the best private schools for High school were it really will benefit them.

3- Stop putting everything towards mortgage you should be more diversified. I do agree with getting rid of mortgage but it can be done in 5 years as well as investing and increasing super with the following plan

14,650 Monthly Income
(5,800) Monthly Expenses (I've excluded mortgage interest and school fees)
8,850 remaining. Split as follows:

6,250 Pay to mortgage each month this will pay mortgage off in 5 years
   550 Salary Sacrifice to Husbands Super. Due to tax benefit $1k a month contribution costs you $550
 2,050 Invest in Index Fund under your name only to take advantage of your lower tax rates

In 5 years assuming 7% return you will have a paid for mortgage, $140k in investments and an extra $70k in super.

This is without reducing any of your other expenses which of course you should look at but I think this is a solid plan.

I do sympathise with you re moving anxious child. My oldest is the same and I struggle with the fact that should we move it will disrupt her. The only benefit is the earlier you do this the better as they will make friends quickly when they are young. Do you know any other children that live close by that go to the public school? This may help the children transition. I of course would only move at the start of the school year so that gives another 8 months or so for them to get used to the idea.

I look forward to hearing how you progress.




Sparkie

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #24 on: May 27, 2014, 09:42:06 PM »
Hi
My comment is based on an assumption that may not be true, so bearing that in mind....

I would be concerned in your shoes on how income reliant you are currently. My assumption is that your husband works FIFO in mining or similar. And your current house price estimate is largely dependent on the mining boom continuing.

Given that China is the main driver behind WA's success, and it is going to have serious issues as its shadow banking and housing markets collapse, coupled with their diminished need for ore etc, your situation is IMHO prone to significant change potentially quite quickly, most of which will be out of your control.

I'd be wanting to cut out costs and maximising a buffer as a priority, just for some piece of mind.

Clarion

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #25 on: May 28, 2014, 12:09:14 AM »
Thanks again for the replies.

Counting Down I love the plan you have suggested and I can't wait to show it to my husband.  I hope that he loves it too.  I think it is quite achievable for us and would give us something to work towards.  We have been feeling for a while (last 12 months) that we should be somehow investing or doing better things with our money.  We have spoken to a financial planner who suggested borrowing to invest in shares plus sold us on MORE insurance. We were unsure about this and didn't follow his investing advice.  We even obtained a pre-approved loan for investing in real estate, as we thought that might be the way to go, which we have not used because when it came to the crunch something didn't feel right about going into more debt, even so called "good debt" With the plan that you suggest I think we can still pay our mortgage down in a reasonable time and invest wisely at the same time in a more diversified way without taking on extra debt.  I had a look at the link to your journal and it seems we have very similar situations!  My children are only slightly older than yours.  It was great to hear from you.

Sparkie, your comments about China is probably the biggest fear that is always in the back of my mind.  If it were to come to fruition I think things would certainly get a whole lot tougher for us.  I would need to go back to work full time for sure and the private school wouldn't be an option.  You have assumed correctly about my husband's job and things can be volatile for sure. 

Counting Down

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #26 on: May 28, 2014, 12:21:17 AM »
I would be careful taking on debt to invest. The only benefit to this is tax wise to your husband as the interest on the loan is tax deductible. However your earnings are low so you can take advantage of this by having savings/investments in your name alone and thus paying a low rate of tax without the risk of debt ( and the cost of interest) you can earn up to $37k a year and only pay $3.5k tax max. We have all our savings in my name for this very reason.

I also wouldn't invest in real estate as you are extremely real estate heavy already with your house.

The financial planner obviously didn't help you guys very much which is a shame. The best you can do is read up on investing for yourself as you always have your best interests at heart! There are tons of books at the librabry it would be so worthwhile for you.

You can set up a Vanguard index fund quite easily. $5k minimum then you can bpay whatever amounts you want.

Clarion

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #27 on: May 28, 2014, 12:30:18 AM »
I was skeptical about the financial planner's advice because I felt things were being recommended that he would benefit from rather than necessarily being the best for our situation.  Maybe it would have been win-win but my gut feeling was not to run with it. 
I will check out the investing books at the local library and will also look into Index funds.  It's not an area I am confident or knowledgeable in but I am keen to learn.

deborah

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #28 on: May 28, 2014, 01:37:13 AM »
Try Noel Whittaker's Money Made Simple

SU

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #29 on: May 28, 2014, 02:28:50 AM »
2- Put the kids in public school, at primary stage I don't think the money is worth it especially if you have good public schools. Commit to putting them in the best private schools for High school were it really will benefit them.

I second this. I went to one of the 'best private schools' in Perth for high school; I think the kids from public primary schools in Perth were the best prepared and most resilient of all the students (which included boarders, and students from private primary schools) AND in university I think the students from public high schools were some of the best performers. I also saw students who'd spent at least some time in public schools do very well (and better than many privately educated students) in the workplace.

I wonder what it is that makes you think that the school is so good. I think private schools respond to an expectation from the parents that they will take extremely good care of their children; sometimes what is reassuring for the parents is not the best for the kids. I think I'm saying that the kids might benefit from a bit of benign neglect; you mentioned that one kid experiences anxiety. As hard as it might be to contemplate, creating a super protective environment around the child might get in the way of him or her developing skills to deal with it. Coming from a private secondary school I struggled with the independence expected of me in university; while I enjoyed the pastoral care at the time, I wonder if it was the best thing for me in the long term.

To summarise, I'd recommend moving to a public primary school and also consider one of the specialist public high schools (I can't remember which ones they were now, but Applecross stood out as being good) if one of your kids gets into a good program there. If you're burning to spend money on their education I'm sure you'll get the chance when they reach university :)

Good luck!

Sparkie

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #30 on: May 29, 2014, 01:08:16 AM »
I was thinking about your situation today. I know everyone is different, but you are in a good position to remove a lot of stress by making some seemingly big, yet simple moves.

If you move house, to one costing say $1M, stamp duty and moving costs etc would be under $60k. If you sold for 1.8M, paid the costs, and your mortgage, you'd have over $400k left over to invest and keep as an emergency buffer.

If you get rid of the private school, your bills drop by over $2100 per month. Added to no mortgage payment of $1300 pm, you are now $3,400 per month better off, or $40,800 per year.

Changing the insurances, a bit less clothes, and a few odds and sods, and you could quite easily be $50,000 a year better off, have $400,000 liquid investments, and live in a paid off million dollar house.

If you are worried about a Chinese downturn, and personally I think that would be prudent, it will be much easier to weather, with no mortgage, and close to half a million dollars in the bank.

Just sayin....  :)

Clarion

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #31 on: June 01, 2014, 11:54:51 PM »
Try Noel Whittaker's Money Made Simple
Thanks Deborah I'm going to look for this book.

Su I think I was feeling really strongly about private schools because it was something I never had growing up (grass is greener, I guess).  I also just wanted to give my kids the best possible start I could, I realise now that it doesn't mean having to send them to a pricey school to get a good start.  Thank you for your ideas about schools.  I certainly feel that I have grown up with a certain resilience and independence coming from a crap school but I also wonder sometimes how things might have been different if I went to a school that I loved, where people actually cared about each other and themselves a bit more.  I really didn't enjoy school at all and I guess I didn't want my kids to have the same negative experience.

Sparkie  I agree selling our house for a cheaper one, getting rid of private school and trimming some expenses would be the best thing for us to do.  We have considered these options.  For now our immediate plan is to see out the rest of this year at the private school and we will then transfer to public for the commencement of the next school year.  We would like to stay in this area due to the good public school.  I will definitely be keeping an eye our for a cheaper house (not always easy in this part of town) it's something to think about but we probably don't need to rush into any real estate decisions.  In the meantime we are going to work at keeping our expenses down.

SU

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #32 on: June 03, 2014, 01:58:36 AM »
Hi Clarion, I just came across this and thought you might be interested in it: http://www.beyondblue.org.au/media/media-releases/media-releases/free-online-program-proven-to-help-children-with-anxiety

I'm glad that my ideas about schools helped, and I'm sorry to hear that you didn't enjoy school at all. That sounds hard. It sounds like you're a really thoughtful and engaged parent though, and I think the combination of a good public primary school and parents who aren't worried about money would be a great start for your kids. Staying in the same house and reducing spending on education sounds like a good short-medium term plan.
« Last Edit: June 03, 2014, 02:01:49 AM by SU »

Clarion

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Re: Reader Case Study-Advice appreciated for my first world problems
« Reply #33 on: June 03, 2014, 06:53:07 PM »
Thank you so much for the link Su.  I hadn't heard about that before and it looks like it might be well worth looking into.