FinancialFutureFilter: What should I be aiming to do to ensure I'm financially ok into my old age but still living (my version of) a good life 'til then? (Australia-centric)
January 27, 2009 7:45 PM   Subscribe

I'm 29, single (assume it's going to remain that way) female, and have spent the last few years saving an amount that's getting close to about $30k, which I presently have in my bank's equivalent of a your average ING Saver account, figuring by now I'd've figured out what I could/was willing to do with it, towards securing some kind of financial future that doesn't involve a cardboard box. I haven't, largely I suppose because I don't know what I need to be aiming for. Looking for advice. More inside.

When I began saving, it was with the vague feeling that I ought to do the grown-up thing and buy an apartment at some point to serve as an investment. I'm probably (depending on how I feel when the application's approved) going to go live overseas (Canada) for a few years, at some point in the next five years. To my vague figurings it sounded sensible to buy a two-bedroom place (as all the investment-property-luvvas recommend) and rent it out whilst overseas.

Now, (a) economic times are changing, in ways I've never experienced before so am unfamiliar with what to expect, and (b) I'm not honestly all that comfortable with the idea of being so saddled with debt that I've got no money to do any travelling for the next 30 years (or 'til whenever I could sell this fictitious apartment for some kind of profit, which given deflation and all seems like it could be some years down the track). I'm also in a period right now where I'm disliking the field I'm working in and weighing up what to do next (which will probably involve more study), whether to go overseas, whether not to, etc etc etc -- and thinking about tying myself to a loan that prevents me from studying, prevents me from changing jobs to one that might be a better fit but pays less, and just generally prevents me living my life the way I want to, makes me uncomfortable and trapped-feeling.

So, however, does the thought of reaching retirement age with nothing to my name. I've seen my grandfather struggle on the pension, and he owns his own home. I'm a frugal enough person but I don't want to spent retirement being grossly unhappy and unable to do or buy anything I want to or need. I don't know what's in my superannuation fund right now, but I spent a fair bit of my 20s studying, so I doubt very much; and it's only gotten worse of course with the stock market crapping itself. I work (and have done since I graduated) for an employer who makes only the minimum contributions to it. I make none. I'm not sure whether in the current economic climate I should or shouldn't be reconsidering that.

Obviously I can't have it all, but I want as much a rewarding life as I can have. I don't want to limit my options unnecessarily, but I also want to have a secure financial future. I'm not going to have any kids whose granny-flat I can muscle in on later. ;) My immediate family are now all home-owners, and I suppose the assumption is that I'll do the same thing when I get my shit together enough (I feel pressure, too, but it's largely internal to me: the parents used to make suggestions, but I think these days they've given up on me doing anything remotely suggestive of the smell of success), but I'm also a bit different to the rest of my family in that they all want the nice house in the 'burbs with a two car garage and that makes them happy. I feel isolated in the 'burbs, want to live in areas where there's a bit of interesting stuff happening, and in an ideal world I'd go overseas once a year and change careers four times in my life.

Can anyone offer any advice, specifically, I suppose, about what (if anything), and when, I should do with this $30k I've saved (including the question: is now so bad a time to buy property that I shouldn't even *consider* it?), and, more generally, any other advice on what I should be aiming for in terms of a balance between living-my-life-being-free and having an ok old age? Most of the people around me seem to be better-placed in terms of choices, either through being older and/or richer and/or more established, or partnered with two incomes to play with, and/or with a completely different goal-set; and many are inclined (naturally!) towards suggesting I should do exactly as they have. The few who don't, I worry might be going too easy on me. ;) To clarify, by the way, I'm not saying I wouldn't like to partner and/or perhaps foster a child (the latter would be some ten years down the track); but only the first of those is a priority for me, and in the interests of not counting my chickens when they may never hatch, I'd really appreciate some knowledge about how to proceed if neither ever happen--advice from outside the circle whose advice I'm currently limited to and who also may have an investment of whatever kind in me doing what they've done. Even if you wind up repeating what others think, that would be valuable and appreciated in terms of gaining a good overview of the different approaches out there; plus I trust you guys to be more objective for not knowing me!

Thanks guys. :)
posted by springbound to Work & Money (27 answers total) 10 users marked this as a favorite
Others may disagree with me, but I'd highly recommend getting thee to a financial advisor who you can trust (look for recommendations from friends, etc.). Property is a great investment normally, but the market is so cantankerous right now, values may yet drop further, making a reasonable return on your $$ over 10 years not as secure as it has been in the last 20.

Plus, you'll be saddled with the responsibility of a mortgage, renters, maintenance, property taxes, etc. etc, which will make travelling abroad care-free much less likely.

In all honesty, if I had 30k sitting around right now, I'd look for the bluest-collar stocks I could find that has taken a beating in the market (ones that are guaranteed to be around five years from now), and buy a ton. The markets are an opportunity right now like no other time, given the widespread malaise and unfair devaluation of so many companies.

Again, however, GO TO AN ADVISOR. A conservative one, at that. Best place to start in the market when you have limited investment experience. You could, in an ideal situation, turn that 30k into your entire retirement savings need over the next 25 years, with the right investments right now.
posted by liquado at 8:14 PM on January 27, 2009

Many people (at least in my experience) seem to over-estimate the soundness of real estate as an investment, versus other options. Basically, a house is not necessarily a good investment, unless you want to have a house and are going to live in it anyway. (Somewhat US-centric article from 2005, but some good general information in it that probably applies just about anywhere.)

Investment property — and by that I mean buying something that you wouldn't otherwise buy if it weren't for the profit motive — represents a very illiquid, highly leveraged investment. It's generally pretty safe as those things go, but in many non-bubble markets, you're better off taking your "down payment" money and parking it in well-diversified equities. This also avoids saddling you with debt and lets you pull the money out at any time (liquidity).

It certainly seems, from what you describe, that you want more liquidity than a real estate investment is going to give you, and that you're not really dying to buy a house in general. So that would immediately tell me that buying one isn't a good idea.

If I were you (and I'm not, although I'm in a similar position myself) I'd start doing research about various types of investment options (especially any tax advantages that you should be making use of, like Roth IRAs here in the 'States), probably speak with a financial advisor, decide how much money I'm willing to put into different risk/reward categories, and invest it. I suspect that an advisor is going to recommend some mix of stock/bonds/cash depending on what you want to do in the future, but that's something you and they will have to decide.

I'd stay out of real estate unless you really have a burning desire to own some. With the bubble over (assuming it's over in Aus), you're not missing out or leaving money on the table by not buying property as soon as you can afford it, which is how some people were making the situation out to be just a few years ago.
posted by Kadin2048 at 8:16 PM on January 27, 2009 [2 favorites]

^ What Kadin2048 said, FAR more eloquently and edumacated-ly than I did.
posted by liquado at 8:19 PM on January 27, 2009 [1 favorite]

Assuming your living in Australia:
The property market bubble in Australia has not yet burst, and many finincial gurus are predicting that it wont, due to the extension of the first home buyers grant, and the huge reductions in interest rates lately (btw there are predictions that it will drop even further).

I'm in a similar position to you, 29 years old, living in Australia, and about to venture into the world of home ownership. I am still studying (by correspondence), working full time and I don't have anything in the way of savings, although I am married, so the two income thing probably makes a huge difference in our borrowing power. We are about to buy our first home (contract is currently being looked over by our solicitor) and I 'm feeling the same pangs of entrapment that you're feeling - but I'm immensely looking forward to having the sort of security that owning your own home brings.

Even if I had your 30K savings, I'd probably still be doing exactly what I'm doing, only going into it with a bit more security. $30,000 is a huge backup, that would not only allow you to buy the sort of security you want in the future, but also have enough left over for you to play with if you want to travel overseas or whatever. My advice is to buy whatever property you are able to. If you can live in it for 12 months then you can get the 1st home owners grant, then rent it out and travel overseas.
posted by robotot at 8:19 PM on January 27, 2009

on preview: go see an advisor first, cos they (and the previous respondents) obviously have a better idea of what they're talking about than I do.
posted by robotot at 8:25 PM on January 27, 2009

My advice would be to educate yourself before you make any kind of decision. My favourite web sites (American-centric, but I'm from Canada and have found a lot of information there) are Get Rich Slowly and Millionaire Mommy Next Door.
posted by OLechat at 8:29 PM on January 27, 2009

You didn't say what you intend on doing with your career, but are there any sort of personal small business or consultancy projects you'd like to start? Professional licenses you need to get? Degrees or certifications you could earn? Craft studios you'd like to set up and run?

Investing in yourself seems like a great way to balance freedom and future security issues. The entire stock market might be smoke and mirrors, but skills and experiences can never be taken away from you. Something to consider, anyway.
posted by aquafortis at 9:10 PM on January 27, 2009

keep in mind it's often a good time to buy when the markets are down -there's nowhere to go but up, and they aren't making any more land either (whereas population is growing exponentially) for what it's worth, my richest self-made-millionaire friend loves investing in property, she owns several and they've all made ridiculously healthy returns, even in this market. though granted, they're not very liquid at all. anyway, if you were going to go that route, now would be the time (though maybe not in australia if it hasn't crashed yet) obviously ymmv.
posted by messiahwannabe at 9:18 PM on January 27, 2009

Why not just keep it in the bank?
posted by turgid dahlia at 9:19 PM on January 27, 2009

Cash is king. I agree with turgid dahlia.
posted by JohnnyGunn at 9:21 PM on January 27, 2009

life is short - spend it having fun and making yourself happy - however YOU define that. i was in a VERY similar situation as you financially and career-wise, and just before the dollar started tanking (which it did daily during my version of fun at the time - aka moving abroad).

you can always make more money, it's really true. but you cannot re-experience time that's already passed you by, nor can you take for granted the arrival of your expected retirement and what you will do/spend at that time.

so... live it up!
posted by jazzybelle at 9:47 PM on January 27, 2009

Response by poster: liquado, ahh, sound advice, *but*, alas, alack, I did see a financial advisor last year, and I had a resoundingly bad experience. She was decidedly not a conservative one, that said -- which to her mind (and to mine a bit, too, though with reservations, heh!) -- was a good thing. I suppose I've been worried so much about being behind in the game that I'm a sucker for the idea of a quick-fix (which she seemed to be suggesting), and so while I walked away going, "Hells, I don't know how I'd ever be able to pick a good financial advisor when they could all just out to play me like a puppet," I never thought about conservatism in an advisor as being something to look for. So thank you for that suggestion: that's something new to add to the vile brew of my thoughts ;) Unfortunately I don't know anyone *using* a financial advisor (to my knowledge) and am a bit leery now of being taken for a ride... but OLechat's reading suggestions might help me feel a bit more like I know what's going on -- thanks for those OLechat!

robotot, hah, yeah, you see my quandary, huh? Every time you think you've got it figured out, there's another line of wisdom that could be wiser, and omg-this-is-my-future-i'm-playing-with-here!!! etc etc. :s

aquifortis, to be honest I'm still not sure what I want to do career-wise. It's a good idea, though, thanks, and thinking similar things I *have* considered study as a good thing to do in a time of poor employment. I'll be more likely to dive into that if I find myself without a job, but in the meantime I still have the luxury to continue pondering a few different options, none of which is yet standing out particularly much. An AskMe post for another time, that one is! ;)

turgid dahlia and JohnnyGunn, yeah, well, just hanging onto it's of course an option. But my understanding of it is that $30,000 sitting in the bank isn't going to turn into an amount that'll sustain me through some decades of retirement, so I have to do something with it at some point. You guys are just suggesting I sit on it for the short term? Any particular reason? I mean, do you think investing it would be a bad thing to do [at the moment/at any time]?
posted by springbound at 9:49 PM on January 27, 2009

Response by poster: :) jazzybelle, yeah, these are things that have occurred to me lately, with some resonance. I know I can be a bit prone to figuring it'll all work itself out, though, and I don't want to float my way through life and into a trap, y'know? If I'm going to take a path different to what everyone else I know is doing, I figure I'm going to need to figure out my own workable version of what comes at the end of it too. Thanks mate.

Thanks all of you too. You're giving me no easy answers (ya buggers!) but this is all making good food for thought -- thanks! :)
posted by springbound at 10:01 PM on January 27, 2009

Well, I don't think investing is a bad thing to do, certainly not. And you should be very proud of yourself for having saved thirty grand by this point in your life. It's just that cash is always going to be more useful than property, or shares, or whatever, and if it's sitting in the bank getting compounded interest, that's a safe investment (provided it's with a reputable bank, of course).

Thirty grand is a lot of money, but it's also not very much, when you think about it. It will barely get you a new car and it's not even close to 10% of a new house.

You know how the pencilnecks keep telling us to "start saving!"? Well, they do, because nobody saves any more. People come into a bit of money and they either blow it or invest it, which, as we've seen these past few months, can be as good as blowing it in a lot of cases.

But thirty grand is enough to live on for a year, easy, should your employment situation change. It's enough to cover significant hospital bills should, god forbid, something terrible happen. I'm afraid I only skimmed your question so I didn't see if you have any debt or not (credit card, store card, HECS fees, etc.), but if you do, it would certainly be a great idea to get those of your shoulders.

I just think that this is a really fantastic opportunity for you to have something that a lot of us don't, and that is more tangibly and directly useful than a mortgage or a portfolio. You've got that sweet, sweet money sitting there, earning a few more bucks every month. Maybe even consider it your travel fund. See a bit of the world every now and then.

Anyway, that's what I'd do, so obviously, YMWV!
posted by turgid dahlia at 10:02 PM on January 27, 2009

IRA's. Plug some of that cash into medical areas as those areas a recession proof; select areas that are RP, such as health, basic food, etc...
I'd plug 5,000 index fund 5,000 health account. then keep 20,000 for some good deals to snatch up (investments I mean not crap)
posted by BoldStepDesign at 11:06 PM on January 27, 2009

Response by poster: turgid dahlia, all true (although I read HECS debt's best off not paid off: the fact that it's only indexed up along with inflation rates makes it better for HECS debt-holders to just sit on their money and earn interest, I've read in a few places -- which suits me fine!). But sitting on money because it's nice to have it around doesn't solve the part of my problem that is my desire to work out a plan for when I'm granny-aged, that's all. That being, y'know... the cause of my concern, 'n all... ;p

Heh, BoldStep, now if YOU weren't a dude, that'd be more likely! :p Thanks for (the laugh, and) the advice, though, which is... like another language! But, cool -- something new to look into. IRAs... RP.... WTF...? ;) Ta, man!
posted by springbound at 11:29 PM on January 27, 2009

How about finding the Aussie equivalent of dividend aristocrats?

/Not to be confused with the possible punchline of the global economy in the next few years, "....The Aristocrats!"
posted by codswallop at 1:24 AM on January 28, 2009 [1 favorite]

You're young, which means that you can use a riskier strategy than someone facing imminent retirement. One class of strategies would be to invest in your education or life experience (say, by taking an extended trip). The rewards of these are not primarily financial, but the dividends can be very real. The other class of strategies is to make a financial investment.

The only financial investment you should consider is a listed investment fund. $30,000 isn't enough to spread your risk by buying a decent quantity of many different shares. That means that you'd be buying a few stocks and taking a risk that your choices would fail. A listed investment fund is a company traded on the stock exchange (which means that you can sell your investment easily) that makes its money by investing in things, not through production or sales. What you need to do is purchase shares in one or more funds that aim to track the share market as a whole. That way your investment should grow at roughly the rate of the share market as a whole - you won't have the thrill of picking a winner, but you will get a steady increase in your investment, year after year. Since the share market has now fallen to a five-year low your investment will buy more shares than if you had bought a year ago. The market may fall further, but that's the risk you have to take. It might just as easily rise, making your mooted investment more expensive.

I'm not going to recommend any particular fund, but I have a fair number of shares of AFI (Australian Foundation Investments) which is a fund tracking the Australian stock exchange, and I've been very satisfied with them. If you want to buy shares then all you need to do is pick a share broker (any one will do, really, but you might as well minimise your brokerage fee) and say that you want to buy $X worth of share Y. They'll buy it on your behalf, you'll send in the money and they'll send you a share statement. You never need talk to them again. Good luck!
posted by Joe in Australia at 3:04 AM on January 28, 2009

Depending on your current income, you could benefit from making a voluntary contribution to your superannuation; you can get up to $1500 from the government for putting in $1000 each financial year, impossible to beat. Another government bonus plan is the First Home Saver accounts, with a 15 percent match on up to $5000 each financial year ($850) - this is only useful if you will buy your first house more than three years away; or are happy with the money rolling into your super. It sounds like you probably have a low super balance, so both of these are worth looking at. You should definitely chase up any super you have - do you have more than one account? If so, consolidate them.

IRA is (roughly) an American equivalent to super, so don't worry about them.

I don't know much about the property market, but I do know a number of people who are looking to buy this year, and haven't really seen any predictions of a real housing crash. It depends on what city you're in, etc, and I would put a fair bit of effort into qualifying for the government First Home bonuses if I intended to buy - You can get up to $21,000 in grants (as well as the First Home Saver Account I mentioned above).

HECS - yes, you're usually better off just paying it as it comes due.
posted by jacalata at 3:18 AM on January 28, 2009

Disclaimer: I know very little about the housing market and whether or not that's a good idea. I also lean towards being conservative with my money.

If this were me, I'd probably keep most of it in savings for now (you may want to look at moving to online banks like ING...their rates are at 2.4% right now and my bank is at 0.4%.

Make sure you keep enough in savings to cover your living expenses for 3-6 months in case something happens to you or your job.

I do think it's probably a decent time to invest in stocks or mutual funds, if you're looking 5-10 years in the future. The market is low right now. It'll probably go lower. But eventually it will rebound. This is not a short-term way to earn money, but it will likely show results if you wait awhile.

I would also keep an eye on CD rates. The Certificates of Deposit typically earn more interest than a savings account with the stipulation that you can't take your money out for a certain period of time. Right now they're hardly worth it (ING's current rate is 2.5% versus the 2.4% in a regular savings account), but if you get in at a good time, it can be a nice way to earn a bit more.
posted by JannaK at 6:11 AM on January 28, 2009

1- If the idea of buying a house doesn't sound like a good idea to you, then you probably shouldn't. It's not a good deal for some people, like yourself, who have not-so-distant-future plans of travel and living away from "home" for a while. Owning a home (or condo or whatever) does have its costs. For many, those are outweighed by the rewards.

2- I'm not doing a very good job of it, but my retirement / old-age strategy is based on similar fears. Seeing grandparents and now parents, reaping the fruits of their earlier decisions, for better or worse. The "life is for the living, can't take it with you" crowd is scrimping and saving to make ends meet. The "rainy day fund" side is doing pretty good. That motivates me to save. I get far more happiness, comfort and peace from saving 10% of my income than I ever would from taking a killer vacation every year. Ultimately, I'd like to save enough where I can live on the interest. If I drop dead with $$$ in the bank, so what? I'll leave it to loved ones or charity. That's also a comfort.

3- As for a more detailed strategy, it depends on where you live and what your plans are. In the US, there are a number of great options for saving for retirement, IE, after age 65 or 70. But big penalties for taking the money out earlier than that. My strategy is to have three "piles" of savings. Super long term, for use after age 65, things like IRAs and pensions. Medium long term, for use before 65, should I be so lucky as to have enough to retire early. Investments that are not restricted by age or tax disadvantages, like brokerage accounts. And then more liquid savings for the rainy day kinds of things. I figure this covers most eventualities.

And yes, getting an advisor who doesn't have something to sell besides their advice is a good idea. Diversification is key, but there is a theory that over-diversification can be bad too- too much overhead and one could inadvertently end up overinvested in one sector or another.
posted by gjc at 6:42 AM on January 28, 2009

personally I'd wait untill the housing market has totally tanked, here in CO that hasn't happened yet. I'm still waiting to buy my $30,000 condo. But cash is king, your cash may hold better value in pounds or the euro, diversification is key.

To blogs to read up on:
-- Good investing info
-- Good for young people. Investing, saving money, etc.... All around awesomeness
posted by BoldStepDesign at 7:15 AM on January 28, 2009

It's an interesting thread, as I am in a similar situation but have investments. I've been keeping my money liquid (not invested) by buying CDs and thus, haven't been hit as badly as most when stocks took a nose dive. Investment people were always eyeing that money and pushing me to invest it but I didn't know what my plans were for the next 5 years (a car, a house etc) so I didn't.

However, I did take about the amount you have and traveled around the world twice. That was my dream though, and although every once in a while I think about the fact that I could have put a down payment on a house I think visiting 30 countries and really living life how I wanted to were worth it. No one asks me anymore when I'm going to buy a house or have kids but they do ask what my next big trip is. Your family will get over it. Having a lot of savings gives you the freedom to make choices based on what you want, not what you need and also allows you to worry less than most people.
posted by Bunglegirl at 8:35 AM on January 28, 2009

But sitting on money because it's nice to have it around doesn't solve the part of my problem that is my desire to work out a plan for when I'm granny-aged

I appreciate that, but putting your young life on hold so you can live life when you are older just doesn't strike me as the most appealing prospect.
posted by turgid dahlia at 7:16 PM on January 28, 2009

I was suggesting cash as the safest and most appropriate current investment. I am of the mind that I am willing to sacrifice some return for liquidity. What I did was build a significant nest egg vis a vis my salary and then started investing and buying a house. I always wanted to have money available for an emergency or for living expenses if I lost my job. Once I had build a large enough (YMMV) cash reserve, I was willing to take more risk in my investments to try to get return.

Timing is everything when investing. Yeah, the markets may have had an average return of 7% over the last 50 years, but if you started investing for the first time last August, you would be so far in the whole that you may never get a total return half of the market averages.
posted by JohnnyGunn at 7:27 PM on January 28, 2009

Response by poster: Well, a few days on, am about as confused as ever over what to do, but thanks for all your input. Have decided to keep a questioning ear out towards acquiring a financial advisor I can trust, and in the meantime start doing some real, good research using OLechat and BoldStepDesign's recommended blogs, and codswallop's suggestion too (amongst other things I've picked up in this thread) so I feel empowered enough to act when I do come across one I can work with. In the meantime, I guess money stays in the bank. And I continue feeling indecisive. Bah!

Re the suggestions I live my life now -- absolutely, I agree with that too, and I've got no intentions of giving that up. If I'm hit by a bus tomorrow and don't wake up, what's the point of lots of money in the bank waiting 'til I'm old and grey? I suppose what I'm trying to do is get an even spread of general happiness across my whole life, and working out the part I'm not sure how to finance is necessary to enabling me to feel okay about the holidays and other "now" stuff I know very well how to do, y'know? :)

Anyway, thanks everyone for your thoughts! All are very appreciated!
posted by springbound at 6:20 PM on January 29, 2009

Response by poster: PS: I didn't read this properly before posting the grand final thank you, but, JohnnyGunn, thanks for the clarification and for the info on what you did. Yes, you're absolutely right, having some money in reserve before doing the investing thing sounds like an excellent plan for someone like me who does want some flexibility. Mentally noting this with a few asterisks beside it, because that doesn't sound like a bad way of warding off the "trapped" feeling. Thanks eh!
posted by springbound at 6:25 PM on January 29, 2009

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