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Money and Divorce
Often during the first 2 years following a separation the finances for both individuals will be very tight. Managing through the first few years can help establish a solid footing for future financial wellbeing. This article is intended as good food for thought, before meeting with an adviser to help you with your specific issues.
Frequently, both individuals will have to adjust their living habits to manage the cash flow of their situation. Where a woman was not working previously she may start part time or full time work to reinvigorate the household budget. The male may have been the primary breadwinner and may have extra costs in the interim period, rent, mortgage support, child support and other costs.
There are more costs for each to shoulder, two places to live, two lots of furniture and if you have children perhaps duplicate sets of toys, a portable laptop instead of a desktop etc.
Budgeting becomes a critical issue.
Where possible reduce your costs and be ruthless about it, they can be relaxed later.
Cars are a significant expense item, even when salary packaged. Given the new tax rates in the May 2006 budget many people should think twice about a car as a salary package. The lease payments will all include an allowance for depreciation and even the prestige cars don’t hold their value as they use to. The leasing companies have recently adjusted their leasing arrangements to refect that as well.
Quite often a simple solution is a reputable brand second hand, even up to 4-5 years old.
If you must maintain some luxury, add an extra year. Try to buy without resorting to a loan.
Exiting a lease arrangement early may be difficult, but look into the added costs and do the numbers. It may be worthwhile depending on what you would be prepared to drive as an alternative.
Cars are the most expensive items before housing; the all up costs over time can be substantial. Depreciation and interest costs alone on a typical $30,000 vehicle may be around $5000 pa. Someone pays for depreciation, and it isn’t the finance company. Given the new tax rates you could be pocketing a critical amount of money if you can sidestep such an arrangement, at least for the initial few years after separation.
Furniture doesn’t have to be brand new. Let someone else buy the new flash sofa and you can cash in on a perfectly good second hand one that is nearly half price.
The Internet will carry all sorts of items that prior to digital cameras were not easily represented. So it’s easy to see what a brown couch looks like, before traipsing across town to see it close up. The cost of transporting it will be minimal compared to buying a new item. The higher priced, non-university student, market segment should be quite reasonable.
The January and June store sales, should lead to plenty of items on the Internet in February and July that are of interest.
Once your budget is under control, your future savings and investment will be easier to implement.
Rebuilding your wealth will then be a matter of investing the surplus that you haven’t spent on cars and new furniture.
Dollar Cost Averaging is not a complex theory but essentially it is about investing a regular amount on a regular basis in the investment markets where capital growth potential is strong. Sometimes, you will acquire shares or investments at a bargain due to a market correction, at others you will pay above average, but in the long term the discipline will pay off as the investment rises in value.
Tax effectively superannuation contributions will be the most effective here, and contributed on a monthly basis are an effective Dollar Cost Averaging system at work. If you are in your early to mid 40’s you will need to think hard about your super balance. Maybe it’s not even in the best place to grow effectively. 50% of people leave their super in the default arrangement, without considering the options for more growth.
However, if you need to save to buy a new home then options outside of Superannuation need to be considered, and may involve some modest borrowing to invest. A combination of geared investment and Dollar Cost Average contributions can help build a tidy sum over a period.
Additionally a geared investment will also be tax effective, but used to acquire an asset that improves in value, as opposed to one that falls in value.
At the end of the day, you adviser will help you work out your priorities and your capacity.
Robert Dawson Click to go to Roberts advertisement on i-dont.com.au
Authorised Representative
Charter Financial Planning
AFSL 234665 |