Large lump of money - what should I do with it?
March 6, 2011 6:50 PM Subscribe
As part of my upcoming divorce I will be receiving a large sum of money for my portion of the house. What should I do with it?
I will be receiving around AU$115,000. This, plus another $10,000 cash, is the grand total of my savings, I have no other investments, shares, property or anything.
I'm 32, healthy and probably have a decent income in front of me (around $70,000/yr at the moment). I have no foreseeable need to touch any of this money in the near or medium term.
I'm not very money savvy - I'm good at saving but my brain melts when phrases like "negatively geared" or even "equity" are mentioned. I'm fairly risk averse as a result of this lack of understanding, but I'd like to put this money to work, as they say.
At some point I would like to live in my own house again, however there is currently no chance of me getting a loan as I am currently working short term contract to contract. Melbourne housing is not exactly affordable at the moment in any case - with a 33% increase in property value in the last 18 months, according to today's news.
My default response to having this money is simply to put it all in an interest bearing bank account, here in Australia I can get interest of over 6% without any trouble. This gets nowhere near the increase in house prices, but it's not bad.
I will be seeing a financial planner and I am well aware that you are not my financial planners. However, I'm interested to see what else the hive mind believes I should be thinking about and what I should be asking my financial planner.
As noted above, I am in Australia.
I will be receiving around AU$115,000. This, plus another $10,000 cash, is the grand total of my savings, I have no other investments, shares, property or anything.
I'm 32, healthy and probably have a decent income in front of me (around $70,000/yr at the moment). I have no foreseeable need to touch any of this money in the near or medium term.
I'm not very money savvy - I'm good at saving but my brain melts when phrases like "negatively geared" or even "equity" are mentioned. I'm fairly risk averse as a result of this lack of understanding, but I'd like to put this money to work, as they say.
At some point I would like to live in my own house again, however there is currently no chance of me getting a loan as I am currently working short term contract to contract. Melbourne housing is not exactly affordable at the moment in any case - with a 33% increase in property value in the last 18 months, according to today's news.
My default response to having this money is simply to put it all in an interest bearing bank account, here in Australia I can get interest of over 6% without any trouble. This gets nowhere near the increase in house prices, but it's not bad.
I will be seeing a financial planner and I am well aware that you are not my financial planners. However, I'm interested to see what else the hive mind believes I should be thinking about and what I should be asking my financial planner.
As noted above, I am in Australia.
There are a jillion books on personal finance, and a thread of recommendations could easily drown you. But I really - seriously - really need to beg you to get this one. It's entertainingly written, eminently sensible, thorough, and highly respected by just about everyone in the know. It changed my life.
It's so good that - get this! - it's written by the treasurer of the Democratic National Party, and lots of very conservative financial people recommend it.
Forgive me for the US amazon link....it'll be easy enough to find on australian amazon. Or in any bookstore.
posted by Quisp Lover at 7:13 PM on March 6, 2011
It's so good that - get this! - it's written by the treasurer of the Democratic National Party, and lots of very conservative financial people recommend it.
Forgive me for the US amazon link....it'll be easy enough to find on australian amazon. Or in any bookstore.
posted by Quisp Lover at 7:13 PM on March 6, 2011
Also, there's a chapter specifically about "what to do if you get a sudden windfall".
posted by Quisp Lover at 7:13 PM on March 6, 2011
posted by Quisp Lover at 7:13 PM on March 6, 2011
Talk to a bank about loans. With ~100K you could put down a big deposit on a 3 bedroom house in Werribee or Hoppers or somewhere and have it making money almost immediately or if you wanted you could negatively gear something.
A 2 bedroom flat closer in somewhere would also be possible.
Banks can be surprisingly good with people on contract.
Note, you don't have to do this, but it would be worth checking out with a bank whether you could.
posted by sien at 7:41 PM on March 6, 2011
A 2 bedroom flat closer in somewhere would also be possible.
Banks can be surprisingly good with people on contract.
Note, you don't have to do this, but it would be worth checking out with a bank whether you could.
posted by sien at 7:41 PM on March 6, 2011
Personally, I would:
- set aside a small some for frivolous purposes. Like 2k for a little resort holiday or something.
- pay off any debts (you didn't mention any, but maybe you have credit card or hire purchase debts?)
- divide the remainder between a couple of banks and several accounts, keeping most of it on highest interest term deposit you can find at 12 months or less, and a smaller amount on call for emergencies
- wait and think about your plans
- take 6 months or a year to work through the personal finance section of the local public library
I would not buy a house in Australia in the near term unless I fully backed myself as knowing all there is to know. To the outside observer, Australian houses appear to be crazy over-valued and due for an enormous and terrifying fall.
posted by i_am_joe's_spleen at 8:29 PM on March 6, 2011 [1 favorite]
- set aside a small some for frivolous purposes. Like 2k for a little resort holiday or something.
- pay off any debts (you didn't mention any, but maybe you have credit card or hire purchase debts?)
- divide the remainder between a couple of banks and several accounts, keeping most of it on highest interest term deposit you can find at 12 months or less, and a smaller amount on call for emergencies
- wait and think about your plans
- take 6 months or a year to work through the personal finance section of the local public library
I would not buy a house in Australia in the near term unless I fully backed myself as knowing all there is to know. To the outside observer, Australian houses appear to be crazy over-valued and due for an enormous and terrifying fall.
posted by i_am_joe's_spleen at 8:29 PM on March 6, 2011 [1 favorite]
Standard "responsible" advice for managing a windfall (per bogleheads.org et al) is to put it into a safe savings account, and not touch it for six months. Decisions you make soon after receiving your windfall - including suggestions give above - are likely to be rushed and not necessarily sensible. In six months time, you will probably have a very good idea of what to do with this money, better than any advice you can get here.
posted by blindcarboncopy at 8:43 PM on March 6, 2011 [7 favorites]
posted by blindcarboncopy at 8:43 PM on March 6, 2011 [7 favorites]
Honestly, with no other savings or investments, you need to start planning for retirement with that money. Go ahead and stick it in a savings account that earns 6% while you plan your medium to long term strategy. Make sure it's an account that allows you to withdraw the money whenever you want, without penalty. Then go off and educate yourself a bit about investing, even if you plan to hire a financial advisor. The more educated you are, the less you can be bamboozled.
I assume Australia has government funded pensions, but personally I think the days of relying on those are well gone.
posted by Joh at 8:46 PM on March 6, 2011 [2 favorites]
I assume Australia has government funded pensions, but personally I think the days of relying on those are well gone.
posted by Joh at 8:46 PM on March 6, 2011 [2 favorites]
Any time I've ever gotten out of a relationship, the first thing I do after making sure I was settled into a new home and financially set is pamper myself. I love the idea of taking some 'me' time by going to a spa resort ALONE to get some mojo back. You can feel good about if because you have a lot of money in savings and you have a whole new life ahead of you.
posted by two lights above the sea at 8:46 PM on March 6, 2011
posted by two lights above the sea at 8:46 PM on March 6, 2011
I am a research-based risk taker when it comes to sums of money. This is what I'd do.
1. Ensure your financial consultant is an independent flat-fee based professional and not one paid by commissions on financial products they sell you.
3. Pay off any debts.
4. Maximise your voluntary superannuation payments for this year.
5. Bank the rest.
Pop $100k into a term deposit - 12 months.
Put another $10k into a shorter term deposits
Put the rest into a interest paying savings account.
This website Compare Savings Accounts & Term Deposits does what it says.
Please don't get caught up in the 'got to buy a house now or I'll miss out' fever or in the 'must take all tax benefits available (eg: negative gearing*) even if it will cost me money in the long run' ploy. Of course, I am not you and I don't know your goals but I advise that you don't rush into a long-term financial commitment without being knowledgeable and certain about what you are doing, where and why.
And if you feel you must invest it in real estate at some time, look at a non-city property, one in an reviving country town with tourist/uni-student potential. You'll get more for your dollar and possibly be able to make a larger capital gain in the medium to long term.
* Negative gearing means that the costs of owning a rental property - mortgage interest, property rates, maintenance, management fees etc - are deductible against income earned by the property. It does not apply to your own residence.
posted by Kerasia at 9:00 PM on March 6, 2011 [3 favorites]
1. Ensure your financial consultant is an independent flat-fee based professional and not one paid by commissions on financial products they sell you.
3. Pay off any debts.
4. Maximise your voluntary superannuation payments for this year.
5. Bank the rest.
This website Compare Savings Accounts & Term Deposits does what it says.
Please don't get caught up in the 'got to buy a house now or I'll miss out' fever or in the 'must take all tax benefits available (eg: negative gearing*) even if it will cost me money in the long run' ploy. Of course, I am not you and I don't know your goals but I advise that you don't rush into a long-term financial commitment without being knowledgeable and certain about what you are doing, where and why.
And if you feel you must invest it in real estate at some time, look at a non-city property, one in an reviving country town with tourist/uni-student potential. You'll get more for your dollar and possibly be able to make a larger capital gain in the medium to long term.
* Negative gearing means that the costs of owning a rental property - mortgage interest, property rates, maintenance, management fees etc - are deductible against income earned by the property. It does not apply to your own residence.
posted by Kerasia at 9:00 PM on March 6, 2011 [3 favorites]
Go ahead and stick it in a savings account that earns 6% while you plan your medium to long term strategy
Not to derail, but do those still exist in Australia? In the US, you're lucky to get above 1% these days.
posted by schmod at 9:01 PM on March 6, 2011 [1 favorite]
Not to derail, but do those still exist in Australia? In the US, you're lucky to get above 1% these days.
posted by schmod at 9:01 PM on March 6, 2011 [1 favorite]
Yep, that's the rough current average for term deposits.
posted by Kerasia at 9:33 PM on March 6, 2011 [1 favorite]
posted by Kerasia at 9:33 PM on March 6, 2011 [1 favorite]
In your position, I'd be inclined to avoid property right now: what you want is a degree of liquidity to deal with mid-term events (being between contracts, perhaps potential relocation) and so I'd go with Kerasia's suggestions. Being in your own place offers a degree of stability, but not liquidity, and post-divorce, you want to leave the door open for dealing with life-changing circumstances.
but do those still exist in Australia? Yep. Savings rates reflect base lending rates, and base rates are higher in Australia than the US.
posted by holgate at 9:39 PM on March 6, 2011
but do those still exist in Australia? Yep. Savings rates reflect base lending rates, and base rates are higher in Australia than the US.
posted by holgate at 9:39 PM on March 6, 2011
Go ahead and stick it in a savings account that earns 6% while you plan your medium to long term strategy.
There are still ways to get a %6 return in Australia? Those of us stuck in the US can't get a flipping one percent on money market stuff, what year is it where you get %6?
That said, I don't have the access to 'Emerging East-Asian Markets' like you do. I wish you the best with your windfall, and hope you can use it to the best of your ability.
posted by Sphinx at 9:44 PM on March 6, 2011
There are still ways to get a %6 return in Australia? Those of us stuck in the US can't get a flipping one percent on money market stuff, what year is it where you get %6?
That said, I don't have the access to 'Emerging East-Asian Markets' like you do. I wish you the best with your windfall, and hope you can use it to the best of your ability.
posted by Sphinx at 9:44 PM on March 6, 2011
Here are the term deposit rates of one Australian bank. Note that those are for deposits of less than $100,000. The OP can probably do even better.
Do you currently make any voluntary contributions to your super? You may want to discuss that with the planner, they can help you determine an appropriate amount to maximise your co-contribution/the tax benefit.
If you're risk averse, your options are pretty much putting it in your super (which doesn't work for you if you need a lot of liquidity), treasury bonds (ditto), an index fund, or a term deposit.
The most important thing you can do to get the most out of a meeting with a financial planner is go in with a very firm idea of what your immediate term, long term (5-10 years) and very long term (retirement) goals are.
posted by PercyByssheShelley at 3:06 AM on March 7, 2011
Do you currently make any voluntary contributions to your super? You may want to discuss that with the planner, they can help you determine an appropriate amount to maximise your co-contribution/the tax benefit.
If you're risk averse, your options are pretty much putting it in your super (which doesn't work for you if you need a lot of liquidity), treasury bonds (ditto), an index fund, or a term deposit.
The most important thing you can do to get the most out of a meeting with a financial planner is go in with a very firm idea of what your immediate term, long term (5-10 years) and very long term (retirement) goals are.
posted by PercyByssheShelley at 3:06 AM on March 7, 2011
This thread is closed to new comments.
I'd give some of it to a cause I believed in.
If you have any consumer or student loan debt, pay it off.
Keep 6 - 12 months pay in a relatively liquid savings vehicle, like the interest bearing checking you mentioned. Normal recommendation would be 3-6 months, but if your income/job situation fluctuates a lot, I'd stay more liquid.
Do you have any children you want to put through college? Starting a fund for that would be my next priority.
Setting up a reasonable % of income for retirement or disability in older age would be next. I have NO idea about the investment vehicles and tax consequences of same in AU. In the US, there are a variety of ways to set up a retirement fund that have different tax angles to them. Your financial advisor will know about all that.
It would be very valid to think about postponing any irreversible investment decision, i.e. anything that would tie your funds up in something not liquid, for a year after a big life changing event like a divorce or a major windfall. Don't let an investment advisor (or a real estate broker, or someone with a business proposal, or a car salesman, or...) talk you into anything you're not comfortable with.
posted by randomkeystrike at 7:09 PM on March 6, 2011