The building blocks of a five-year plan

"At IBM you could salary sacrifice for shares, which I did. The shares actually grew a lot while I was there," Alex says.

He took his money out of those shares when the market turned shaky, which was just the right time for a rather large benefit. Now he is considering buying a residential property but is concerned about the state of the property market.

"The worst thing to do would be to buy a place and then, a few months down the track, for it to be worth less than the mortgage," Alex says.

But he is also cautious about the sharemarket. The reason he has so much in savings is because he sold off a lot of his equity investments.

"I guess any decision is really based on what is going to put me in the best position five to 10 years from now," he says. "I'm willing to sacrifice a bit of comfort now."

SUZANNE HADDEN

BFG Financial Services

One issue you have is the 31.5 per cent tax on interest earned on cash investments. An alternative is to invest the savings in a First Home Saver Account (FHSA), which is like a bank account for those saving to buy or build their first home but with more benefits and rules.

The advantages are that the interest earned is taxed at the lower rate of 15 per cent and you receive a 17 per cent contribution from the government on deposits of up to $5500 a year made to your account, as long as your balance does not exceed $85,000.

There are, however, significant disadvantages to the FHSA.

You will need to have contributed at least $1000 in four separate financial years to be eligible to withdraw your funds and the withdrawal must be for the purpose of buying or building your first home. Otherwise, the money in the FHSA could end up being transferred to superannuation.

Given the potential benefits total $1380 a year (tax saved of $445 and the maximum government contribution of $935), the FHSA is certainly worth considering.

TONY HARRIS

Easy Living Finance

I am totally biased towards property and I would encourage you to buy. The incentive is still the first home owner's grant.

If you intend to live in it within

the next 12 months, you'll still

get the $7000 and you can decide whether you want to live in it within that time.

The yield on property is about 4 per cent and that compares to a term deposit of 4 per cent to 5 per cent. Try to buy a property and add some value through which you can get some capital growth.

Do the research on who the best lender is and then I would also suggest you use your $60,000 to try to get a good rate with that lender and start building a relationship with them.

I think it's coming back in terms of relationships and banks offering you better rates because of them.

I don't think your $4000 in high-risk shares is investing, though. That sounds more like gambling.

PAUL MORAN

Paul Moran Financial Planning

If buying a house in the next three to four years is highest on the list, then forget shares and plough everything you have into a high-yield savings account and/or term deposit. This will become the deposit and costs on your home purchase. Ideally, you will have access to 25 per cent of the purchase price.

I strongly suggest you should be able to repay capital if you buy a home rather than just manage interest costs, so saving more allows you to set a repayment level that will actually lower the debt in a reasonable time frame.

In short, the more you can save, the better off you will be in the long term. If you wanted to start to build a long-term share portfolio as well as save for a home, you might look to shares that have a dividend reinvestment plan so you can plough back your dividends into more shares in a very efficient manner (no brokerage).

Buy a property when you are ready and focus on what debt you can afford.

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FINANCIAL SNAPSHOT

Name Alex Loza

Age 25

Occupation Consultant

Salary $70,000

ASSETS

Super about $10,000

Investments (managed funds or shares) $4000 in shares (very high risk)

Cash in the bank $60,000

LIABILITIES

Mortgage debts N/A

Credit card debts $0

Other loans None

HECS debts about $20,000

THE AVERAGE WEEK

INCOME

Salary (after tax) about $1000

Rental income (per week) N/A

Total $1000

EXPENSES

Rent Living at home ($0)

Living expenses $1400 a month

Insurance policies

Car insurance (third party only, about $450 annually)

Health insurance (extras only, think about $350 annually)

Total $338.50 a week.