Newbie needs help

[Jason and Amy]

Hi All,

Firstly I would like to commend everyone on the wealth of information that has been gathered here!!!

My Partner and I have just been introduced to property investing by a family member through a couple of Jan and also Peter Spanns Books. WHAT GREAT BOOKS!!! We are now motivated to start building a property portfolio with the long-term goal to become financially free!!!!
Heres our delima though..... Over the past couple of years we have fall for the take it now and pay later and have accumulated quite a bit of consumer debt. We are unsure about where to start, we are both very eager to get the ball rolling but are not really in the position to do so. Should we be concentrate on paying off all our debt or saving for a deposit for our first home?

Our situation is as follows:

Debt
Consumer debt $70k (alot I know)
van and tools $15k (I am a subie)

No real assets at this stage

Monthly Commitments:
Living(incl. rent, food ect) $2,895
Loan repayments $2,753
Total $5,648

We have a combined monthly income of between $8,300 and $9,200

Any advice on where we should start????

Any advice would be really appreciated,

Thanks

Jason

 

[BV]

Jason,

You are earning a lot of money but what are you doing with it?
Also, don't you have any savings?
By consumer debt do you mean personal loans?
What is the interest on the loans?

Cheers

 

[ArJay]

Personally I'd pay off any high interest debt first and foremost. This is the stuff that will kill you in the long run....

Know it may seem like a hard slog but adding a mortgage on top of the existing debit would be super tough on you and your relationship. Added to this you borrowing capacity is more than likely greatly reduced as a result.

I reckon get the debt monkey off your back and start saving hard...then read "The Richest Man in Babylon"..

My 2c
R

 

[alexlee]

Is that income before or after tax? That loan repayment looks pretty high: what interest rate are you paying on that debt? You realise you're paying $33k a year on a debt of 70k, right?

Get your balance sheet in order first and develop the savings habit. Cut expenses where you can, and put everything you can save (and let's be honest, you should be able to save a LOT) into that consumer debt. Do it aggressively and there is no reason why you can't pay off that debt within 2 years (even faster, since you're already paying 33k a year into that thing, and you can probably refinance to a lower rate). After that, keep the same savings ratio for a deposit for a property.

Your first priority should be to see where your money is going. I think there's a gap between what you say your expenses are and what is actually being spent. Get a notebook. Write down EVERYTHING you spend for 3 months, and I mean everything. Every magazine, every cup of coffee, every beer, every newspaper. Then analyse the results.
Alex

 

[Jason and Amy]

Thanks guys for your replys,
Yeah thats after Tax income.
Most of our spare money up until this point has been blown from week to week, new doodads, holidays ect.
Unfortunaley we dont have any real savings around $5k.
Sorry by consumer debt i ment personal loans, credit card. interest rates vary from 9.5% and 22%.
I have started to really pay attention to where our money is going each week(the note pad is a great idea) were before if threre was money in the bank we could always find something to spend it on. This has been and will be the hardest part for us is to break the spending habits!!!!

 

[BV]

Jason,

Can you consolidate your debt into 1 low interest loan for now?
Paying it off is very hard when you are paying credit card rates.
I would start by paying off all credit card debt.

Have you considered changing to a different credit card?
Some credit cards are offering very low interest on transfered amounts.
This will give you some breathing space but you will need to get serious
and start saving.
Another option would be to try to live in cheaper accomodation for a while.

Cheers

 

[Bricks & Mortar]

This has been and will be the hardest part for us is to break the spending habits!!!!

Ideally you would start by paying off the most expensive interest loans first
however judging by the above statement, it may be beneficial to start with the smallest loan.

By starting small and paying one item off, you will see that it is working
and as each small loan is payed off, there will be more available funds to pay off the next loan.


As Alex said you will need to document everything to help you visualize where the money is actually escaping and help you to keep yourselves on track.

good luck Jason & Amy

 

[BayView]

What Bricks and Mortar said is correct.

You need to start paying off the most expensive interest rate, but also the SMALLEST AMOUNT first, but keep paying the minimum due payments on all the rest. Once that amount is gone, put all the money from that onto the minimum due for the next, and so on.

There is a great book by John Burley called "Money Secrets of the Rich - the seven money steps".

In it there is a great tool called the "Debt Eliminator", and it describes in great detail the plan you need to get out of the hole you are in. Not only that; it has a lot of other fantastic money management tips for everyday life.

BUT, before you start, you need to get ride of every credit card you have, and every other store card etc, except one with the LOWEST balance owing and reduce its available credit limit to whatever that balance is right now.

This will take away the urge to keep spending on the plastic. Basically, you won't buy anything until you can actually afford to pay cash for it.

To be a successful Property Investor you need to have excellent money-management habits, otherwise the results could be disastrous.

At this point in time, your first bit of education needs to be about money management, budgets, and adopting the mindset of running your household like a business. You need to know where every cent is going, and to minimise expenses; just like running a business; because Property Investing is a business.

Also, on the subject of books to read; read all these -
NOEL WHITTAKER books,
MARGARET LOMAS books,
"THE RICHEST MAN IN BABYLON" (don't let the title put you off)
ROBERT KIYOSAKI books.

That'll keep you going for about a year while you blast away at that debt and get some serious savings going.

Also, have a look at this for helping you to work out where the "dollar haemorrhage" is coming from;
http://www.finishrich.com/free_resources/fr_lattefactor.php

 

[alexlee]

As the others have said, right now it's your spending habits and consumer debt that's holding you back. Put it this say, at around 9k after tax income, there is no reason why you can't save 5k a year if you budget hard. i.e. when you're analysing expenses don't think 'if we just save 10% we'll be doing well'. You're WAY past that. You have far too much bad debt and you make way too much money (you see the irony here?).

If I were you, I would aim to save 5k a month. I think you need some pretty drastic measures. Including (assuming the loan lets you do that) changing your salary payment details so that the loan gets paid FIRST, before you even see it. Cut up all your credit cards: live on cash and cash only. When you run out you stop buying, going out, or whatever. Look around your place for things you can sell: I figure there'll be a lot of stuff.

Let's be honest. You're making a LOT of money and have been spending it all. The fact that you didn't put details in your 'monthly commitments' thing suggests you don't know where it's going. If you're serious about the buying property and financial freedom thing, your finances need some drastic surgery.

And read the books the others suggested. Richest Man in Babylon to start, and probably the Millionaire Next Door.
Alex

 

[HandyAndy888]

Ideally you would start by paying off the most expensive interest loans first
however judging by the above statement, it may be beneficial to start with the smallest loan.

By starting small and paying one item off, you will see that it is working
and as each small loan is payed off, there will be more available funds to pay off the next loan.


As Alex said you will need to document everything to help you visualize where the money is actually escaping and help you to keep yourselves on track.

good luck Jason & Amy

Yep, this is what I reckon too...I hate to say it, but with that much personal debt, I would try to repay the bulk of those first before even contemplating IP. Also, sounds like you're mindset is changing towards your money, its a good start, but make sure you back it up with changing your spending habits...read this...

http://members.optushome.com.au/~andrewkiss88/Debt Monster.pdf

Good luck!!!

 

[FHB]

I haven't read many books, but I am half way through Noel Whittaker's "Making Money Made Simple". It sounds like this book would really suit where you are at the moment, the revised edition has just been released:

http://www.noelwhittaker.com.au/ie/order.html

Perhaps this is the last thing you should put on your credit card before cutting it up....

I'd agree with getting rid of the most expensive debt as your first investment, its hard to beat a risk free, tax free return of 22% p.a. I also find that older family members, getting near retirement, can often refer you to a good financial advisor. Even if you come up with a plan on your own, it may be worth the few dollars to get a second opinion from an expert.

Good luck.

 

[BV]

Jason,

Bankwest will give you a credit card with 6.99% for 1 year and a low 9.89% after that.
Check it out.
http://www.bankwest.com.au/lite/

Cheers