Foundations for the future

A top wage and cheap living sounds too good to be true, unless you're happy to live in the Kimberleys, like Chris Lim.

He's 33, earns about $90,000 a year and lives rent-free on the grounds of the remote school where he's teaching until the end of next year. His only real expense is food, though he admits on visits to Broome - a two-hour drive away - every three weeks, ''there's a bit of a blow-out''.

And talk about one extreme to another. ''I'll be leaving here and we're thinking of going to England,'' he says.

Lim bought an investment property in the Blue Mountains in June and although he's already $20,000 ahead, the rent just covers the interest on the $280,000 mortgage and expenses.

He has shares worth about $10,000, a $5000 term deposit and owns one-third of a property in Malaysia, which he doesn't expect to hold long-term.

Lim has only a little bit in super.

''I've been a bit lazy there. It's scattered across different funds,'' he says, a legacy of uni and bartendering jobs. He doesn't make any contributions.

''I'd love to invest more in property.

I want to do more while I'm on good money. This is the year to be an aggressive investor and I'd like to know what to do.

"Some people say get in property and keep going, while others say put money in UBank and get the interest. And others say pay a chunk off the loan.''

Paul Moran, CFP Paul Moran Financial Planning

This is no year to be an aggressive investor. Your pending move to Britain makes you a short-term investor and you certainly don't want to have to keep sending money back to Australia just to support your investment property.

Depending on when you leave the country, you may not get a great tax benefit next financial year, so you need a loan that can become interest-only with a 100 per cent offset. You can then put your spare cash into a mortgage-offset account with the view of reducing your outgoings while you are overseas.

You haven't mentioned what you might do with the proceeds from the Malaysian property and this could naturally affect your decisions. You might be counting on these funds to support you in Britain.

Consolidate your super urgently. The government has recently announced some changes to ''lost super'' that make it more important than ever to keep track of your super. A single account is best for this, but make sure you look at insurance benefits and costs before deciding. Forgotten or unnecessary insurance is the main culprit in eating away small super balances - check how much you need, though, before consolidating or cancelling any funds. Some policies may not pay if you claim overseas, so contact your provider before you go.

Suzanne Haddan, CFP, BFG Financial Services

Chris needs to identify his goals, as these will provide guidance for decisions he makes on how to invest his money. The goals need to be measurable and have a time frame, such as move to Britain in two years and buy a home for £300,000 ($464,327) within five years.

Some unknowns in Chris's life need to be catered for, such as the possibility of reduced income from 2014, so he should be cautious of committing to further long-term investments involving more borrowing. He should continue to make advance payments on the mortgage, so if his income reduces, or he doesn't work for a while on moving to Britain, he can protect against cash-flow pressure.

While Chris's income is high, consideration should be given to building up a reserve fund to cover at least six months' living expenses, including loan repayments. A better after-tax return would be achieved by depositing the money into a mortgage-offset account rather than a savings account.

Chris should not forget to check his personal-risk insurance cover in particular for total and permanent disability and income protection.

Tony Harris, Executive Director, Firstfolio

Chris currently has a good income, but he doesn't know what his immediate future will look like. He needs a stable income. He'll need money to pay for repairs and maintenance, and if the tenant leaves, he might run into difficulties without income to service the loan.

Don't buy another investment property at this stage.

The first principle of borrowing is not to buy until income is assured. Keep the property in the Blue Mountains because it should be a good long-term investment, but pay down the loan as quickly as possible using the money from the term deposit and consider selling the shares.

Chris only earns about 4 per cent on his term deposit, while he pays 6 per cent interest on his mortgage. The money held in a home-loan offset account is not taxable. He can always use the redraw facility on his home loan for unexpected expenses.

Chris should aim to build up a buffer and reduce the mortgage for peace of mind while he moves on to the next phase in his life.

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This story Foundations for the future first appeared on The Sydney Morning Herald.