Burning Through the Bucks, Baby

Dear Barefoot,

I am 35 and engaged to the most generous guy, who I love. But we have spent $31,000 in two months! We earn $330,000 p.a. combined and have equity of $850,000 in our two properties, which we will sell next year so we can get a nice home with a small mortgage. Recently I did an audit and found we had spent $31,000 on … nothing! Meals out, weekends away, events at home, clothes, bond, removalists, some double rent for a period. I want to be debt-free in five years. Kick us up the pants!

Amanda

Hi Amanda,

Honestly, on your income you probably don’t need a kick up the pants -- you’re going to be fine ...… so long as you continue earning $330,000 a year. But if the money dries up, things can go into reverse pretty quickly.

It’s a three-step trap that I’ve seen plenty of high-income earners -- doctors, lawyers, footballers -- fall into:

First, buy expensive toys (boats, cars, and cash-draining McMansions).

Second, spend like a Kardashian -- and only invest in money-losing ventures that ‘lower my tax!’.

Third, get hit with one of the big D’s: divorce, disease, disability … or a downturn where you lose your income.

It’s more common than you’d think: recent research from Digital Finance Analytics (DFA) found that 30,000 households living in wealthy suburbs like Sydney’s Vaucluse (median price $4.5 million) and Melbourne’s Brighton (median price $2.6 million) are at risk of defaulting on their debts.

Truth is, wealth isn’t what you earn, it’s what you save.You want to impress me?

Don’t humblebrag about the $31,000 you’ve peed into your Prada handbag over the past couple of months.

As financial philosopher Shania Twain says, “That don’t impress me much”.

Instead, buy a house you can afford, pay it off, then show me your plan for how you will eventually replace some of your income through passive income, i.e. your investments.

Thank-you for reading.

Scott