Assets: House worth $350,000.
Savings: $100,000 in a mortgage offset account.
Income: Oliver, $95,000 including superannuation.
Super: Oliver, $50,000; Jillian has a small amount between a few different
funds, which she is in the process of consolidating.
Monthly expenses: Mortgage, $1500; household bills, $1000; leisure, dining,
$900; plus other expenses, such as insurance, holidays, $1250.
Debts: HECS, $10,000.
* Not their real names.
Oliver is an engineer and Jillian, a scientist, has a Ph.D. Oliver works
full-time for a defence company. Jillian is at home with a five-month-old baby,
does volunteer work for various organisations and keeps up an active social
life.
We have been married two-and-a-half years and met when we shared a long
drive to the country, where we were both rowing in a regatta with friends,
Jillian says.
Jillian has been accepted into medical school, which she plans to start in
2004 at Sydney University. The course takes four years, although she may have to
start in 2003 if she's not allowed to defer.
We're currently trying for another child for next year, then (we) plan to
have my husband take two years off to look after the kids while I study, if
that's financially possible, she says. I may be able to get into Melbourne Uni
next year.
Once Jillian qualifies as a doctor, she will be supporting the family and
Oliver might do some consulting work. We may put the children in child care one
to two days a week then, but not before, she says.
Jillian says they were planning to use their $100,000 savings to support
themselves during the first two years of her medical study.
We want to be financially secure without sacrificing too much in the way of
our lifestyle - cafes, good restaurants and so on, Jillian says. We also
donate regularly to charities, both in time and money, and currently sponsor two
children through World Vision.
As far as hobbies go, they love socialising and eating out with friends, good
food and wine, concerts, classical music, reading and walking their dogs.
Brian Corboy, who is the manager of financial planning at OAMPS Financial
Management and a member of the Financial Planning Association, replies:
Jillian and Oliver, the first thing you need to do is prepare a detailed
budget.
From the information you have given, your income after tax is about $57,000
a year and you are spending about $56,000 of that. That shows little capacity to
increase your savings.
You need to identify your essential and non-essential expenses as soon as
possible.
If you can cut down or reduce your non-essential spending - for example, eat
out less, take cheaper holidays or sell one of your cars - you will have the
capacity to increase your savings before you start university. You will also
benefit from a lower cost of living while you are at university.
When Oliver stops working and Jillian starts studying, you should be eligible
for Centrelink benefits. As Oliver will be caring for your child or children,
he should be eligible for the Parenting Payment along with the Family Tax
Benefit Part A and possibly part of the Family Tax Benefit Part B. Jillian
should be eligible for Austudy payments.
It is important to consult Centrelink as soon as you can so that you know
what assistance you will be entitled to.
Depending on your financial situation when Jillian starts studying, you may
be eligible for Centrelink benefits of around $22,000 a year.
If you are still spending $56,000 a year, you will have to draw on $34,000 a
year from your mortgage offset account to meet your expenses.
I suggest you defer any decision to buy a new home until you have finished
studying, as a larger mortgage is likely to put you under financial pressure.
If you are concerned about the impact of a rise in interest rates, you may
want to negotiate a fixed-rate mortgage during the time Jillian is studying.
However, you need to make sure you are aware of the penalties that apply if you
decide to sell the house during this fixed rate contract.
I've assumed that if you move to Sydney you will rent out your Melbourne home
and use the rental income to pay your rent in Sydney.
When Jillian has completed her studies, I would strongly recommend you
revisit your short, medium and long-term financial objectives.
I suggest you consider ensuring you have sufficient life and trauma insurance
cover and income insurance while Oliver is in the paid workforce.
If you would like a Money Makeover, send your details, including a daytime
telephone number, to: Money Manager, The Age, GPO Box 257C, City Mail Processing
Centre, Victoria 8001, or e-mail: money@theage.com.au
Each week financial advisor Noel Whittaker answers your
questions.
