Interview part 2 – planning ahead for your mortarboard and bricks-and-mortar
What gives you the chance to have life on your terms? To call your own shots? What lets you sleep at night?
According to Scott Pape, Barefoot Investor, the answer is savings. For PhD students with limited money, the first part of good financial management is saving your money and staying out of debt.
“HECS is unavoidable, but the last thing you want is to graduate with huge amounts of debt just from your living expenses. If you can live within your means, that’s the ultimate goal,” he says.
The second thing to remember is that the financial race is only with yourself.
“I believe anyone who’s 27 or 28, in their early 30s, and who’s just starting out financially shouldn’t fall for the trap of trying to get to the finish line too quickly. Slow and steady really does win the race.
“Don’t try keep up with the Jones’s, because over the next 4 or 5 years, the Jones’s will probably come a cropper. The global financial crisis has changed the game.”
So what can students do now to plan for their future?
“You’ve got three big assets in life. Your ultimate assets are your education, your knowledge and your motivation. The second asset is your home, generally, and the third is your superannuation. If you’re in your late 20s or 30s, the first thing you want to do is work towards buying your first home.”
If that’s your intention, Scott’s advice is to start a savings program while you’re still studying, and afterward, and get in training for a mortgage.
“Don’t go out and buy a house wondering how you’re going meet a mortgage repayment. I think we’ve been encouraged by government leaders, bankers, and even our parents to hock ourselves into huge amounts of debt. When you’re in that situation, you can become enslaved to your possessions, and that’s not a good place to be.
“The Australian Government gives out first home-buyer grants of $21,000 – $28,000 and I think that’s going to end badly for a lot of young people. Over committing to a property is probably the worst thing you can do.”
Scott explains how the global financial crisis impacts on young people trying to get into the property market.
“We’ve just seen the G20 leaders pumping trillions of dollars into the economy. Generally what happens when you print more money is that the cost of things goes up. In my view, we’ll see inflation going up over the next two years, and if inflation goes up, interest rates go up.
“This is going to happen right at a time when the Government is handing out these grants to first home buyers. At the moment, we’ve got 30-year, generation low interest rates. But they’re not going to stay low forever and a lot of people could get themselves into serious trouble.
“Because of the Government policies we’ve seen, I also believe that housing is extremely over valued in Australia. I think it’s a great idea for everyone to own their own home, I just believe you should be starting a savings program.
“The Government’s First Home Saver Account is an absolutely cracking thing to do. The banks will give you a pretty high interest rate, and the Government will contribute $700 or $800 to help you get into your first home. You’ll get a good return on your money. More young people should get behind it.
“Real estate agents say the most important thing in property is location, location, location, but really, the most important thing with property is safety, safety, safety.”
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