With a need to save for a wedding, a house deposit and a pension, what is the best strategy this couple can pursue in order to achieve their lifetime financial goals? By David Potts.
Heres one young couple who think ahead. Natalie Simpson and Mark Stewart have saved $10,000 for their wedding, want to buy a home in five years and are already fretting about how much theyll have to live on in retirement.
Natalie saves about $1000 a month from an annual income of about $60,000 as a district nurse.
Mark eventually hopes to manage the pool where hes a part-time instructor, but is also training as a bike mechanic as a back-up, so at the moment hes earning about $20,000.
They aim to buy a home in five years and, Natalie says, have at least one child in that time , in which case shed take six months off work.
Natalie has $1500 in a home-saver account, and estimates they spend about $700 a week on living expenses, including rent.
Our financial goal is to aim for a 20 [per cent] to 30 per cent deposit on a house, so around the $100,000 mark, Natalie says.
The couple want to know when they should speak with an adviser about investing in shares. I dont want a portfolio of properties, Natalie says.
They also figure there wont be a pension by the time they retire, so how should they plan for their retirement?
PAUL MORAN
CFP, Paul Moran Financial Planning
The job of a good financial planner is always to consider all of your goals and help you to prioritise.
Financial goals have two key components how much do you need, and when do you need it. Lets see how we go here:
Wedding how much do you want to spend, and when is the wedding planned for?
Home purchase you need $100,000 in five years
Family you will need to budget to be on one income for probably a year
Mortgage repayment $300,000 (for example) mortgage over 20 years
Retirement average retirement needs about $45,000-$50,000 in todays dollars in 40 years.
Now the prioritising starts. Is it more important to have a big wedding or get into a home?
Saving $12,000 a year, it will take you eight years to save your deposit, although I would expect that when Mark gets his qualification your savings capacity will increase. Saving for another year for a wedding will push the home purchase back a few years.
Im not about to start suggesting when you should start a family, but you will need to be sure that you can afford to meet your obligations while Natalie is on maternity leave.
Extra super payments are a lower priority than getting into a home. And dont invest your house deposit in shares the time frame is too short.
SUZANNE HADDAN
CFP, BFG Financial Services
Natalie and Marks major financial goal is to save $100,000 over five years and then buy their first home. Natalie has already opened a first home-saver account (FHSA) and has a balance of $1500.
The advantages of the FHSA are a government contribution of up to $1020 a year and a 15 per cent tax on the interest earned. However, strict rules apply, including the requirement to contribute a minimum of $1000 in four financial years before a withdrawal is allowed. Also, the funds must be used for building or buying a first home, otherwise the funds will be transferred to super.
Mark should also open a FHSA, then the couple should contribute $6000 a year each to their individual accounts. It is more beneficial to have an FHSA each rather than just use Natalies, as this doubles the annual entitlement for the government contribution from $1020 to $2040.
Based on their current saving capacity of $1000 a month and utilising the FHSA, Natalie and Mark should have saved about $81,500 in five years. To achieve the goal of $100,000, the monthly saving will need to increase to about $1275 a month.
At this stage Natalie and Mark should focus on saving for their home deposit then repaying the home loan as quickly as possible. After the home loan has been repaid, maybe build a share portfolio.
TONY HARRIS
FIRSTFOLIO
Youve got to be realistic about how much you can save. Itll take about 10 years to save the $100,000, twice as long as Natalie is planning. You could do what you need to do with half the savings in half the time. Dont wait 10 years to buy. Save a lower 10 per cent deposit in five years and perhaps buy an apartment but, realistically, you cant have a baby beforehand. Id also tone down the wedding and use the savings for a deposit on a home.
When she has a baby, Natalie will get the new maternity leave payments, but will still lose about $35,000 in income. Mark should consider setting up his own business as a mechanic rather than aim to manage the swimming pool.
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Frequently Asked Questions about this Article…
What is a First Home Saver Account (FHSA) and how can it help me save for a house deposit?
A First Home Saver Account (FHSA) is a tax-advantaged saving account for first-home buyers. The FHSA offers a government contribution of up to $1,020 a year and tax of 15% on interest earned, but strict rules apply: you must contribute at least $1,000 in four financial years before withdrawal is allowed, and funds must be used to buy or build a first home or they will be transferred to super.
Should both partners open an FHSA or is one account enough?
Both partners should open their own FHSA if eligible. Having an FHSA each doubles the annual government contribution entitlement from $1,020 to $2,040 and can meaningfully boost joint savings toward a deposit.
How much will Natalie and Mark likely save in five years with their current saving rate?
Based on the couple’s current saving capacity of $1,000 a month and using FHSAs, they should save about $81,500 in five years. To reach their $100,000 deposit target in five years they would need to increase combined monthly savings to roughly $1,275.
Is it a good idea to invest my house deposit in shares?
No — if you’re saving for a house deposit within a short time frame, investing that money in shares is generally too risky. The article advises keeping a deposit in safe, liquid savings rather than exposing it to share market volatility.
When should this couple speak to a financial adviser about investing in shares or other goals?
Talk to a financial adviser early to help prioritise goals and timing, but consider postponing share investing until after you’ve saved the deposit and repaid your home loan. A planner can help balance wedding costs, a deposit, family leave and retirement planning.
How will having a baby affect their savings plan and what should they budget for?
Expect to budget for being on one income for about a year. The article notes Natalie may take six months off and, even with new maternity leave payments, could lose about $35,000 in income — so build a buffer and plan how mortgage or rent and living costs will be met.
What are realistic timelines and alternatives if saving $100,000 in five years is too ambitious?
Realistic assessments in the article range from eight to ten years to save $100,000 at current rates. Alternatives include aiming for a smaller (e.g. 10%) deposit in five years and buying an apartment sooner, increasing income (e.g. Mark qualifying as a mechanic), or reducing wedding spending to prioritise the deposit.
How should the couple prioritise saving for a wedding, a home deposit and retirement?
The advisers in the article recommend prioritising the home deposit first, then repaying the mortgage quickly, and only afterwards building a share portfolio or making extra super payments. Wedding spending can be scaled back if it delays achieving the home-buying goal, and extra super is a lower priority while saving for a deposit.
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