Uncensored Money: Ask Mel Anything – Rebuilding Later in Life & Investing for Kid’s Education
Melissa Browne: Ex-Accountant, Ex-Financial Advisor, Ex-Working Till I Drop, Now Serial Entrepreneur & Author, Financial Wellness Advocate, Living a Life by Design | 14/07/2023
Show Notes
In the ‘Ask Mel Anything’ series, Mel answers your questions in the hope you realise you are not alone and that it helps to increase your financial literacy and confidence.
In this Ask Mel Anything episode, Mel answers two questions at very different ends of the spectrum. And regardless of where you fall on that spectrum, there’ll be nuggets of gold in there for you.
The two questions Mel answers are:
- Early to mid fifties, divorced, limited cash resources ($35K in savings, plus three months living in buffer), some super, just started small in ETF, micro and shares, full time employed, no dependents, renting, earning $104K inc. no debts - what would you do first, second and third priority?
- I have money saved for my 2 children's education ($50,000 and continuing to contribute) for private school between the years of 2029 - 2034. Would you recommend investing in the share market (direct shares and EFTs) for this period of time or a more conservative Term Deposit (approx 4% interest)
Resources mentioned in this episode:
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Transcript
In today's episode of Ask Me Anything, we have two very different ends of the spectrum questions. So the first is someone in their mid-fifties divorced and looking at what do I do next? And the second question is about money saving for kids. So two very different questions, but two questions that I am asked a lot by people either inside my community in the My Financial Adulting Plan or DMs that I receive on Insta and more.
So the first question is, early to mid fifties, divorced, limited cash resources. So that she has $35,000 in savings plus three months living in a buffer. Some super. Just started small in ETFs, micro-investing and shares. Full-time, employed, no dependents. Renting, earns about $104,000 a year and no debts. What would you do first, second and third priority?
So as I said, I love this question and part of the reason I love this question is because it's a question I am asked so often. Because what we saw during Covid, certainly one of the trends we saw during Covid was a quickening of separation of couples. It was almost that, oh my gosh, we are having to be forced to live together 24/7 and it's too much and now I just need to leave you. So we saw a lot of that during Covid plus also just the pressure of financial stress. Stress about money and fighting about money is the number one predictor of divorce. And if we agitate that with that stress of rising interest rates and uncertainty around money, then that was a ticking time bomb for many couples.
So this is something that I'm seeing a lot, particularly in that forties, fifties age group. So, first of all, I wanna acknowledge that it's tough in your mid-fifties to be starting again. You don't have the luxury of time. If this happened in your thirties, you're like, this sucks, but look how long I've got to go.
Having said that, we are all living longer. If you're in your mid-fifties, you got another 30, 40, 50 years to go. Certainly I've got my hand up as I wanna live to past a hundred, cause I want my telegram from the King. I don't know why that is so important to me, but it is. So I intend to optimise my health to live as long as possible.
So I wanna comment on the good things that she has going on. So she's got savings, she's got a buffer. She doesn't have any bad debt. She's got full-time employment. She's started in started investing in shares, and she has good earning, like she's earning six figures and she has some super.
But let's look at the cons. So she doesn't own her own home, which isn't a problem, but there's also no other significant assets. There's not a lot of super. She's investing in ETFs, but also individual shares, which makes me a little bit nervous because you really wanna be sure what you're doing. And if you don't have a lot of investments, you don't wanna be gambling on individual shares if this is not something that you feel comfortable with or if this is not something you have had a lot of experience with. Cause it's hard to get the diversification you need if you're investing in individual shares. So that might be, say, 10% of most people's investment, but 90% of their share investment will be managed funds or ETFs. So I was pleased to see ETFs in there, but the shares makes me a little nervous.
So she's asked for a first, second, and third priority. Well, the first thing you need to do is to sit down and plan for what you want to do over the next 20 years because you might have four different people lined up in exactly the same scenario and the four different women want four very different things. So therefore what they're going to have to do is going to be very different.
And that's why one of the things I say a lot is 'it depends' and it does because it depends what you want as to what you are going to have to do. So I would sit down and work out what does my next 1, 3, 5, 10, even 20 years look like, because let's say you wanna retire completely at age 65, you are gonna have to go so hard now.
So it's important to know what you want. Whereas if you looked at it and went, you know what? I'm happy to still be working part-time or to be operating a business that I'm having to work in a bit, but not the full-time work that I'm now. So I'm still happy to do something, then that's a very different situation to I wanna retire completely. See what I mean? And that's why it's important to sit down and work out, what do I want? What do I want life to look like for me? And as part of that planning to really look at, you've already listed your assets, but what income have I got coming in? And what income have I got going out?
And where's the fat and where do I need to plug up the leaky bucket? How much do I actually have leftover for investing at the end of the day? So that's quite a bit of work, but it's really, really necessary. It's also what we do inside week three and four of the My Financial Adulting Plan, where you actually create your very own financial strategic plan, which is something that people pay thousands and thousands and thousands of dollars. So average is $3,600 to a financial planner to prepare for them. Because for me, it's so important to have that skill where you can actually do that for yourself. And we've got 60% of people inside the My Financial Adulting Plan that have got kids, but there's 40% of people who don’t. We just did a recent poll that are either single with kids or single without kids. So this is a growing amount of people that are they're single and they're looking after their own finances. So it's really important that you plan for, what will my life look like? And if you're a single, I wanna plan for what that looks like without a partner. Cause if I choose to have a partner later on down the track, great. But I want my own house in order and then they can just join my train that's going this way versus, oh, thank God you're here. You know who wants that? And that may not even happen. A man is not a freaking plan. Ladies, let's just make that very clear.
So the second thing to look at is, what are you prepared to suffer for? And I don't think it's a question that's asked often enough, cause if you do step one and then you look at it and go well, I wanna retire at this age, or I wanna do that, the question is, am I prepared to suffer for that? And how am I prepared to suffer? Because, for example in order to move your goals closer, you might need to remove that whole cost of renting, which you can do. And you might decide to do that for 12 months or even two years and save so much money that you could then put towards assets or a house deposit or more and really quicken that success. So I've got someone that works for me that has done that for the last two years. She had an unexpected separation from her partner and her for the last two years, she has house sat, so she has saved herself that whole cost of renting. And she absolutely would not have chosen that. She's just coming up to the two year mark. She's so over it. So she's kind of thinking two years, she'll be done. But she has saved so much money by doing that. And not everyone is prepared to do that, which is why my question is, what are you prepared to suffer for? Because if you are prepared to do that for the next year or two, that then can kind of take off a little bit of the pain later on. So that is a question. What are you prepared to suffer for?
Third thing is you have to start building assets. So when you plan for what you wanna do over the next 20 years, and ask the question, what are you prepared to suffer for? The third priority would be starting to build assets. Now you have some cash in the bank, you have a buffer, but there's no getting around you gotta build assets. Now, if you are saving for a house, then that asset is cash that will then be invested in your home. But it is about assets. So it might be house deposit, it might be an investment property deposit. It might be shares, it might be super. Or more. But you need to start and you need to start now.
And not small. You don't have as I said at the beginning, you don't have the luxury of time if someone in their twenties or thirties that have separated. So you don't have the luxury of doing this slowly, and you have to be prepared to put as much as you can into it. For example, I ran some numbers and I went, okay, so if you could find two grand a month by house sitting or if you stripped your expenses down with the income that you're on, potentially you could easily find two grand a month. And if you invested that at an 8% return, which the average Australian share market has returned well over that over the last 30 years. Then over 10 years, over a decade, you will have saved, if I include your $35,000 savings, you would've saved almost $450,000, which is significant. So you need to go hard.
But I also wanted you to understand by doing that maths for you is that it is very possible to amass wealth quickly by going hard because of the power of compound interest. And that's where you need to look at what are you prepared to suffer for? Cause you might go, oh yeah, I can do $2,000 a month, that's no problem. But you might go, well, what if I quickened that? And over two years went hard and doubled that, and then really backed off and backed it off to $2,000 a month after that. And then you're gonna have compound interest do its thing for two years, for that extra money that you got in.
The fourth thing that you might do is you need to start building income streams, plus can you find more income to put towards asset building and super. So I looked at one way that you could do, which would be house-sitting, but I've got a download called 50 Plus Ways to Find 10 K in 12 months. If you can find an extra 10 grand and no, it is not necessarily from getting a second job, that's one of the 50.
But if you can find an extra 10 grand, that means that then you've got even more money and you might say, I've got enough for investing and for house deposit now, but if I was to find an extra 10 K that would really quicken my super, that would load up my super for example, which would mean that your super balance in a decade, with what's going in by your employer and that extra $10k, would suddenly look very very robust. So you need to start building multiple income streams and finding more cash to put towards asset building and super. So building more income streams is key as well. And this might be through shares, it might be through rental property. It might be through a side hustle and more.
And then the fifth thing is to really understand how much is enough? To really understand how much you need for the next stage of your life that you are in now. And again, we've got a download inside the My Financial Adulting Plan where you answer this with whatever position you are starting from now, so that you can really appreciate how much is enough for you? And I think it's an important question that too few people answer properly or we guesstimate or we don't personalise it for where we're at.
So understanding how much is enough so that you can feel comfortable in the plan you've created through steps one through to five is really important. So I hope that helps. I know that was lots of information, but I'm really passionate about this situation in this age group cause I say too many people, women particularly that's abdicated responsibility for their finances and then are finding themselves in this position and kind of panicking a little. Whereas there's actually no reason to panic, but you have to take action. And if you heard one thing from my answer, I want it to be that you gotta take radical action, gotta have a plan. You gotta assess where you're at, and then you gotta take action.
And again, the My Financial Adulting Plan, we are having some training at the end of August, and then the doors open in September will be absofreakinglutely perfect for you. And there are so many women in your situation that are inside.
So the second question is as I said, very, very different. We’re changing gears completely now and we're talking about kids and money. So the question is, I have money saved for my two children's education, so $50,000 and continuing to contribute for private school between the years of 2029 and 2034. Would you recommend investing in the share market, so direct shares and ETFs for this period of time or a more conservative term deposit, approximately 4% interest?
I love this question. It's a question I'm asked a lot, and the thing that we really need to understand is investing and timeframes. So investing and timeframes, this is where this is really important. And the thing that I think too few people understand is investing and timeframes. And again, we have three modules on investing inside the My Financial Adulting Plan. And one of the first things we do look at is your risk profile, asset classes and timeframes, because you should not be risking your house deposit inside the share market. And I'm gonna argue for most people, they shouldn't also be risking their kids' private school fees inside the share market as well. So that's gonna give away part of my answer. So you might look at 2034 and go, that's nine years away. That's actually a long time. A long-term timeframe for investing is considered five to seven years plus. The problem with the share market that we have though is the up and down nature of the share market, and that's because over time the share market should bring in over 9% in Australia.
But the problem that we have is that of the dips and troughs. So what we don't want is that it might fall and it might take four to five years to get back up again, or three years to get back up again. And we need that money for the private school fees in the meantime and so we've realised the loss.
So here are my thoughts around timeframes and investing for kids. For most people, it would be bonds. Or high interest online savings accounts. So that's the thing that was missing here is investment bonds. So how in asset classes work are its cash in the bank is considered the safest, and that's why you're gonna get the lowest return. Next up is bonds, considered the second safest, and that's why you're getting a slightly higher return generally than cash in the bank. Third is property and then shares.
Now the reason that I like bonds is that be you still have this safety in that you don't have those up and down nature of shares, but you are also getting that slightly higher return. So that there are different classes of bonds as well. So you wanna choose one that's quite safe. So it might be a government bond or something like that where you know, if the government falls over, we're all in trouble. But that can be a beautiful way to invest with a slightly higher return than what you're going to get a savings account.
Having said that, at the moment, you could get a high-interest online account or return deposit for over 5%, which isn't a bad rate of return for a fairly short-term investment.
However, given that you've got that slightly longer timeframe as well, sure you might look at the fact that you’ve got $50,000 now. You might look at taking either a piece of that, and again, it depends on your risk profile. Because those later schooling years are in that five to seven year timeframe, you might choose to take a portion of that and invest that in Exchange Traded Funds. Or the reason that you may not is it's just that sleep-at-night factor and what if there was a dip and I needed to access those funds for the private school fees and they've gone back backwards, which is why I absofreakinglutely would not be comfortable putting the whole amount into shares or ETFs because the first time period of time that you're gonna need it is in six years time or really in five years time. And that's really on the borderline of being an appropriate time for investing in the share market.
The thing that you would consider is potentially a high interest online account or term deposit or bonds. So I would look into those as well with maybe a portion of the money invested in either one, like in an Exchange Traded Fund. But you might consider something like the ASX 300, just something super broad based that's going to perhaps not be as volatile as maybe another type of share investment.
So, as I said, two very different questions today. But they are definitely things that we wanna get right, because we don't wanna risk school fees inside the share market necessarily if we've got a short term timeframe. And if we're in mid fifties and we're divorced, we don't wanna be sitting back Where we are really looking at it, feeling panicked and actually not doing anything. And the problem that I see is our fight and flight can kick in, but what we're don't often talk about is fight, flight or freeze, and the freeze kicks in, which means we press pause financially. We put our head in the sand and we don't wanna face it.
The most important thing we can do when it comes to our finances is face it and have a plan. And as I said, if you know you need a plan, make sure you check out the My Financial Adulting Plan and jump on the wait list. We also have a bonus kids and money section where we look at the best way to save for kids, to invest for kids, and to make sure that we are putting money aside for school.
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