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TIME TO STEP OUT OF YOUR COMFORT ZONE
April 22, 2013 at 12:27 PM
The article written by Janine Starks, in the Dominion Post for Saturday 21 April 2013, was a fresh take on receiving an inheritance. It was good to see that she challenged the reader to step out of their normal financial place and take a new look upon what they could do with this unexpected lump sum.
I would suggest going even more radical than what Janine suggested, with why not have it all – the children’s tertiary education, savings for retirement, renovations for the house, and a change in lifestyle whether hobbies/pursuits or a different pace in life.
Now you are wondering how can they do it all and still be the hard savers like their parents. Well here is an approach that could be considered:
1) Spend some time to get more financially savvy, rather than going to an investment advisor who would gladly direct their money into managed funds or the share market. This could work but is as risky as you getting some financial education and understanding all the different asset classes available which the advisor may not make available to you, and as it is your money you will take extra time and care with your choice of investments.
2) Now here is a scenario that is worth considering:
- Purchase a rental property in Trust for your children. You put up the deposit money and get a property manager to manage the rental who is answerable to you, until your children are of age. Then your children take over the ownership decisions such as maintenance, rent arrangements, insurance, expenses so forth. Within 10 – 15 years from when your initially invested, your children should be getting a surplus off the property which can be used towards their education, they may choose to do some of the maintenance themselves to reduce costs, and will begin to understand the rules around tenancy arrangements and may even pick up some valuable business skills such as management, communication, negotiation, asset protection, practical house repair skills, and sometimes diplomacy. If there is not enough surplus at that point, then at least in the future they can sell the house and hopefully have enough for a deposit for their first home.
- How about purchasing a couple of rentals for yourself as there are benefits such as a passive income, inflation proofing your investment and your investment can be insured against loss. If you choose not to buy outright then you may begin to understand the power of leverage and as you are running a business there can be some tax advantages also – definitely speak with an Accountant (for setting up a business, asset protection and tax) and maybe read a NZ tax book (that may sound boring but time and money well spent as it could save you hundreds of dollars).
- Now it’s time to look at the remainder if you have decided to leverage your properties by borrowing some of the Banks money. The next thing to think about is looking at other asset classes like the share market, bonds, cash deposits, or Commercial Property through Property Trusts as you may want further passive income and assets which can be cashed up quickly if you need money in a hurry. When investing you may want to consider the industries you invest in and whether you keep all your investments within New Zealand as you may want a well rounded portfolio where you earn passive income whether the country is going through a recession cycle or downturn or a boom cycle. It’s worth considering.
- Finally those renovations and pursuits are now available to be done over a period of a couple of years as you use your monthly salary which you have been able to save. There may even be enough to continue your savings plan.
Yes this is some radical thinking but taking you out of your comfort zone can indeed render any “short-sightedness to ignore the opportunities”. When Janine Starks recommends taking your time to decide on what to do with the inheritance, also spend your time to further your financial education first before making any major decisions.
