I wrote this at the start of January 2020 but then SO MUCH STUFF happened (actually this whole financial picture just changed this week so doing this again in December will be interesting)!
Just to preface, I consider my financial health tied to T’s and our finances have been tied since 2018 and I don’t see the point separating them out. For transparency, I earn less and had/have less assets, both of us have had varying levels of privilege and financial help bestowed by our parents, and since living together we have both made decisions and sacrifices together to be on the same financial path.
Our approximate allocation by end of 2019 (household of 2):
Equity in PPOR real estate (value minus remaining mortgage): 26.9%
Cash offsetting PPOR mortgage: 23.8%
Equities in stock market: 29.5%
Cash gains (expected) from sale of IP: 5%
MINUS DEBT (HELP): 1.6%
PPOR: Principal place of residence
IP: Investment property
HELP: Higher Education Loan Program
Real estate: We sold one apartment (“mine”) because we didn’t see any benefits keeping it. It helped realise a good chunk of cash, which we need more than holding the asset and it sits in the mortgage offset. (The price did not go up, by the way, but it wasn’t unexpected.) We kept our eyes on landed real estate (we want a house in the suburbs to put down roots) all year but officially are in the market as of late November 2019… right around the time the market went to sleep for Christmas and New Years, haha. We are hoping to purchase in 2020, and honestly if it doesn’t happen in 2020 we may be in a predicament in 2021, financially (see next section).
Cash in offset: [The offset account, one of the safest tax-free “investment/saving” vehicles accompanying a mortgage. I believe this is fairly unique to Australian banking.] Our reasonable amount of cash in offset means our mortgage repayments are smashing through the loan’s principle amount. As we need cash for purchasing a house in 2020 (fingers crossed), funnelling money into the offset is the best and safest return on investment we can hope to achieve. Mortgage repayments are almost entirely paying principle now as the there is only a tiny bit of interest charged thanks to our cash offset almost equalling the outstanding loan. The tricky thing is our cash will likely equal the balance of the mortgage by mid/late 2020, so beyond that level, our cash will no longer be helping us and we will need to do something else with it instead of sitting around losing to inflation. This is why purchasing in 2020 will be the best timing.
Equities in stock market: T’s portfolio is over ten times mine and entirely Australia-weighted so it makes me very nervous. His portfolio’s reinvested dividends accounts for around one quarter of his taxable income so we are paying a lot of income tax on those reinvested dividends. We have actually switched dividend reinvestment off starting December 2019 to realise a bit more cash to help our borrowing capacity and increase cashflow for the next year or so (with the expectation of purchasing a house and using up a lot of cash). My much smaller portfolio contains some overseas exposure but I will need to lean a lot more heavily towards overseas markets as I try and rebalance with both portfolios in mind. I don’t see us adding to shares much, if at all, in 2020 as we need to keep as much cash as humanly possible for purchasing a house.
Cash gains from sale of investment real estate: I’m not sure how to classify this. In December we sold an investment apartment that we have partial stakes in. So this is the expected gains that we will see in cash at settlement in January factoring in some fees deducted (and then we will pay capital gains tax at the end of the financial year). My calculations could also be way off though…
Cash: I keep a tiny sliver of cash in my own account (I make sure to keep this low if it gets beyond a certain number, as this cash is not making any money unlike cash in offset) and there’s some cash in the Citibank account that provides us fee-free and near-global rate currency conversion for overseas travel. I did not empty the account after the last overseas trip and the number is not so high that I feel the need to move the money out. The cash in my own account is to pay for all our household expenditure and also there in case I ever encounter an urgent situation that required cash. Every time I receive my pay, I transfer a portion to T (savings to offset mortgage) and then the remainder I use to pay for all our living expenses. The portion I give to T actually covers the mortgage and more so essentially T’s entire wage becomes our “savings”.
Superannuation: (Australian retirement fund – employers must contribute a minimum 9.5% of employee’s salary on top of salary. In Australia, we commonly don’t label our wage to include superannuation and benefits.) I’ve been in a high growth portfolio for a few years and only managed to get T around to switching his strategy over at the end of the year (crying at all the lost gains – despite working more years than me and having been in a field that pays almost double the minimum superannuation, his balance is not significantly higher than mine). I feel there’s no worth staying in a balanced or conservative strategy at this age as the money is locked away until preservation age. At this time in our lives (need cash!!!) I am not considering concessional contributions a smart option.
Other: HELP “debt” is indexed to inflation and paid back based on salary, so I don’t consider this debt, since it is the cheapest money one can get (interest rate effectively 0%). I might have three or four more years to go. T paid his off a couple of years ago – he started working before me, earned more and took on less HELP debt overall.
Spending: Too high. Travelled overseas twice and I shopped a lot. We are travelling overseas twice again in 2020, but I expect that both will be cheaper and shopping will be kept lower this year.
Looking ahead to 2020: I mean, everything hinges on whether we can find and purchase the house that we want. We have some strict criteria and a “tight” budget so either we buy something we can barely afford or the real estate market will continue to price us out. If we can’t find anything within budget, we’re more likely to just continue living in the city rather than sacrificing more of our housing criteria, though an unpredictable timeline for purchasing a house makes it very difficult to make a plan for our cash as our apartment will effectively “paid off” by the end of 2020 (but we won’t technically pay it off as cash in offset is wonderfully liquid). Our plans with the current apartment are to sell it after buying a house as we won’t have enough cash if we reach our maximum house budget. If we find something below the maximum budget, we would consider keeping the apartment. I personally appreciate that the apartment is in a sort after building in a very prime location, making it one of the few decent apartments to actually hold.