Author Topic: Should we stay or should we go? Possible forced work relocation  (Read 3496 times)

kyliec

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Should we stay or should we go? Possible forced work relocation
« on: September 20, 2014, 12:11:26 AM »
I would welcome advice from fellow Mustachians regarding the financial implications of a relocation for work (buying and selling our home).

Background:
Husband is working in environmental management with salary of around $150k plus $20k bonus with a multinational. This job may be relocated to Perth, Western Australia due to structural changes in the company. We are uncertain whether there would be a redundancy package if the company office relocates to Perth and we choose not to go. (He has been there around 3 years so redundancy would be minimum of 7 weeks pay). There is also some chance that there will continue to be an office in Brisbane. He is also applying for other positions locally but there is not much out there at the moment. If the move is to go ahead we would find out late 2014 / early 2015 with the move in around May next year. We are debating whether to make the move if the job moves to Perth happens. Also husband is applying for jobs in other Australian capital cities (Sydney, Melbourne) where there are more opportunities.

If we move whether to Perth/Sydney / Melbourne, our house buying power is quite a bit reduced due to the higher property values there. In addition would also lose around $100 k between real estate commissions, legals, moving costs and stamp duty (our plan would be to ultimately buy a house rather than rent, although we may rent short-term). There is some possibility that husband's company would assist with relocation but I expect it may be just moving costs.

Assets:
Our house in Brisbane, Australia. Currently worth $1.1 - $1.2 million (recent appraisal by RE). Really nice 4 bedroom place in a great suburb.
Stocks and mutual funds around $575K
Superannuation around $450K roughly equally split between the 2 of us.
No other savings - we put our wages into the home equity line of credit with regular drop downs into an everyday transaction account.

Liabilities
Mortgage around $186K - home equity line of credit at 5.23% variable rate with "buffer" of $80K available
Margin loan $273K - tax deductible, currently at 6.84% variable rate
Investment line of credit $420K - tax deductible at 5.23% variable rate.
No credit card debt.
Car is on a lease plan with 1.5 years to go. Around $700 post tax per fortnight. Plan to buy out the car for $13 k at the end of the plan. Never do the lease thing again.

We are both studying masters courses part time related to our job. Fees are tax deductible and we have borrowed using HELP loans - mine would probably have $6 K to go (debt is tax deductible as for work). My husband has probably paid off his debt but has 9 more subjects to go at around $2k each over the next 2-3 years.

No kids. Only dependent is our elderly beagle :)

Incomes

I am working in health care management with salary of around $110k p.a. I don't anticipate difficulty finding a job at the same level if we moved.
Husband is on $150K plus $20K bonus and also earns around $3-4K per year in a photography gig (very irregular and part time)
Dividends around $30k per year - much of these are fully franked.

Expenses/ month:

Interest on mortgage = around $800
Margin loan interest = around $1500 (deducted from investment line of credit)
Investment line of credit interest = around $1800/month
Car $700/fortnight - pre tax $
Transport $150/month (public transport and irregular parking)
Cleaner $240/month
Hair cuts / chemist etc $100/month
Gym $80/month
weekly "allowance" $960/month
entertainment $500/month
Groceries $900  month
Home and contents insurance $2300/year
Electricity and gas $200/month
Council rates and water $245/month
health insurance $224 / month
cell phone and internet $240/month
Dog $120/month (vet and food)
Life / TPD / trauma / income protection insurance $357/month
Financial advisor fees $363/month
Irregular purchases of clothes / home items - trying to avoid these at the moment.

My question is on what strategy should we be using. Do the costs of relocating and buying into a more expensive property market compensate for my husband having a job and a more secure income source? Should we "jump ship" now if a job is offered in Sydney or Melbourne rather than wait and risk unemployment later? We can live off our "reserves" for a while and there is some scope to reduce expenses if we stayed.

Obviously the decision to move is a lifestyle one as well as a financial one. We both like living where we are and our preference would be to stay where our family and friends are. On the other hand, unemployment is not an attractive option financially or emotionally.

One of our priorities would be to have a nice home - possibly smaller than our current one but it would still be important to us to live in a nice area close to amenities. I know this is not mustachian but it is something that I really value. Perth / Melbourne we would be able to buy something close to our current budget (up to 1.2Million) that would meet this criteria (but not as good as our current place). Sydney would be a different story however.

Currently we are minimising our expenses and building up as much of a buffer as we can on the home equity line of credit in preparation.

What are your thoughts on the best way to manage strategically?

Thanks for your advice!

FloridaStache

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Re: Should we stay or should we go? Possible forced work relocation
« Reply #1 on: September 20, 2014, 05:39:36 AM »
Thanks for sharing your story.  I'm not a financial expert of any sort, but here are my opinions:

1. You've amassed a BIG lifestyle- very high incomes, with very high expenses.  All other things being equal, I would think by cutting out some of these expenses you could increase your financial flexibility in a major way regardless of whether you move or stay.  Some things that I question:

-Investment LOC of over $400K? Oh man- that is risky- and that interest rate is huge at $1800/mo.  If your investment prices/returns drop below the amounts you have borrowed, you are in deep trouble.  If you can, I would shut that whole thing down and stick with traditional investing vs. leveraged investing like that.

-Weekly allowance of $960/month plus entertainment of $500/month? For two of you? And this doesn't even include clothes or incidental purchases? My head just exploded...

-Life / TPD / trauma / income protection insurance $357/month- With no kids, and both of you earning high incomes, why do you need life insurance?  In the worst case scenario if something were to happen to either of you, you each have sufficient income to support yourself- that is, if you can cut down some of these massive expenses! And the irony of shelling out income for "income protection insurance" is too much to bear!

-Financial advisor fees $363/month- Uh...my head exploded (again) when I saw this one.  This person is leading you far, far in the wrong direction- you have taken out a line of credit to buy investments, despite the fact that you are making high salaries. 

-The car lease is pretty high- but you already acknowledged that.

2. Now to get to your core question of whether to stay or move- with your massive expenses you have made yourselves slaves to your current jobs- you can't afford unemployment at these levels of expenditures.  And that is really too bad because if you had the financial flexibility you could make the decision based completely on your life priorities.  It sounds like you really want to stay in Brisbane.  Why not focus on aggressively cutting some of these egregious expenses so that if/when the requirement to move comes, you have the resources to stay put if you really want to?  If you had 6 months of necessary expenses set aside you would be able to stay in Brisbane and live off your salary plus your reserves while your husband had time to find another job.

The core idea of Mustachianism is to simplify your life so you can boost your freedom- freedom to be able to choose your path in life without the weight of financial obligations forcing your hand.  At your income level you could achieve this level of freedom very quickly if you made some changes.  I recommend going back into the archives of this blog, absorbing the lessons, and implementing them in your own life.  It has made a huge difference in my life.

3. Finally, if you manage your expenses, you should be able to "afford" a reasonable home in a reasonable area of any of the cities you might relocate to, even if your income remains the same.  I'm not sure how it is in Australia, but here in the US many large employers will modify your salary accordingly if they relocate you to a higher cost of living city.  But again, it really has nothing to do with how much you are earning if you are spending it all.

Whatever happens, good luck and may happiness follow wherever you go!


mozar

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Re: Should we stay or should we go? Possible forced work relocation
« Reply #2 on: September 20, 2014, 10:38:10 AM »
That's a really spendy lifestyle. If you cut it down you could easily stay put and take your time finding jobs where you are.
Completely unnecessary expenses: Financial Adviser: $363, Food is over budget by 600, I don't what you are doing but you could combine allowance and entertainment and spend $500 a month (I'm going easy on you here). So cut $900. Cleaner $240.
Total to easily cut: $2103
Why are you going to a chemist?
You could easily live on your salary until your spouse finds a new job.
If you want to retire soon you could downsize your house and get rid of all those scary loans.
That way you don't have to leave friends and family.

kyliec

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Re: Should we stay or should we go? Possible forced work relocation
« Reply #3 on: September 20, 2014, 05:31:04 PM »
Thanks Mozar and Floridastache for your thoughts - yes I think you're right and we need look at reducing our exposure to risk. We have > 6 months of expenses (around $80k) put away but this is against the mortgage line of credit so as to reduce our interest bills.

Mozar - in Australia, chemist = drug store! This budget item is any prescriptions / over the counter medication plus haircuts also included here. Food is really expensive here in Australia but you're right we could definitely cut here.

Probably the kick up the butt we need - thanks again


mozar

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Re: Should we stay or should we go? Possible forced work relocation
« Reply #4 on: September 20, 2014, 07:36:39 PM »
Oh, I was imagining buying potions or something.

deborah

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Re: Should we stay or should we go? Possible forced work relocation
« Reply #5 on: September 20, 2014, 11:33:06 PM »
It appears to me that your spending pattern really needs a major rethink.

Are your investments really making you money? From the budget, you are getting less than $3000 a month in dividends for a $3663 outlay (including the financial planner). Of course, that doesn't count appreciation, the loan principle that is being paid and probably doesn't include franking credits, but it appears to be pretty slim pickings! I have rarely heard of people negatively gearing shares!

At our meetup yesterday in Canberra, we talked about Australian $ versus US $, and how much was reasonable as a living budget for a couple. Australia is a bit more expensive than the US - someone quoted a rate of 1:1.6 - and we all agreed that for a couple in Canberra (which has a higher COL than Brisbane, Perth, or Melbourne), a budget of $35,000 to $40,000 a year was quite doable - and I think most of us were within that range, no matter what we earn. Even if you remove all your loans, you still have much  more expenditure than that! And $80,000 every 6 months is insane! Look seriously at what services you actually need.

Because most of your equity is in superannuation (you appear to only have a total of $339,000 equity in your house and stocks as I am under the impression that you usually cannot have a loan within super) I assume that you are older rather than younger. How soon do you want to retire, and how soon will you need to retire? Remember that, in Australia, it is very difficult to get a job after you are 50, even is you are the bees knees in your profession. I suggest that you probably will have no option other than to go to Perth. You need to think very seriously about whether you move and keep your house, or move permanently - especially if you only have a few years before retirement. Do you even have the option of selling your house, or are your investment loans secured by your house?

kyliec

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Re: Should we stay or should we go? Possible forced work relocation
« Reply #6 on: September 21, 2014, 12:49:03 AM »
Hi Deborah, thanks for your thoughts. In answer to your questions, we are both in our late 30s and no plans to retire just yet. Just to clarify, a couple of points - when I said we have >6 months living expenses,  it was in response to a previous post that recommended that, not saying that $80k = 6 months living costs!

In terms of the equity, (disregarding super which is locked up until we are at retirement age) we have:
Assets = house $1.1 - 1.2m
Stocks and funds $575k
= around 1.675 - 1.775M

Liabilities
Mortgage $186K
Margin loan $273K
Investment line of credit $420K
=$879K

So I figure our total equity is between $796 - 896K(not including the car lease or super) if we sold everything including house and paid off all loans. We are able to sell the house if we had to.

I agree with your comments about us needing to cut our expenses. Working on that at the moment and giving some thought to getting out / reducing our position in  the financial planner / investment loan setup.
really appreciate you all taking the time to look at our situation.



deborah

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Re: Should we stay or should we go? Possible forced work relocation
« Reply #7 on: September 21, 2014, 01:21:11 AM »
Sorry for getting my calculations so wrong!

former player

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Re: Should we stay or should we go? Possible forced work relocation
« Reply #8 on: September 21, 2014, 02:03:26 AM »
I read the list of your assets and was thinking "great, stay in Brisbane and retire" and then I got to your liabilities which I just can't comprehend.  So then I thought either you are some kind of financial genius playing around with all that debt, or you are on course to lose everything as soon as anything goes wrong - you have $4,100 a month in interest payments!  Presumably the thought of something going wrong is why two working people in their thirties with no dependents except a beagle also pay $770 a month to various insurances?

You don't sound enthusiastic about moving away from Brisbane, and the $100K costs you put on moving are extraordinary - they would wipe out about a year of your husband's post-tax earnings.

Do you have family in Brisbane?  Are your study courses based there?  If you downsized your life to slightly more mustachian levels from its current $5,460 per month excluding interest payments, gettig rid of most of your debt and its attendant expenses, I think you could stay in Brisbane on your salary plus a lower salary from your spouse.