Sunday, July 26, 2009

How Long Can We Live without Working?

Asked Snork Maiden today (at our current standard of living). If we don't make any big expenditures like buying couches or travelling we spend about $A4,000 per month. Half of that goes on rent. Our net worth outside of superannuation and retirement accounts is $A156,000. $A10,000 of that is our car. So the rough answer is 3 years. A couple of years ago it was nearer 5 years. I don't believe in the idea of a 6 month or whatever "emergency fund". The more savings we have the better. If we wanted to buy a house we'd need to make a $A100,000 downpayment probably (as houses cost at least $A500,000 around here). That's only leave us with $A40k in savings. As neither of us has a long term employment contract. We couldn't maintain the mortgage payments for long if either one of us didn't work or we both worked at lower salaries than today. Our salaries are near the mean for Australia, temp work or whatever will pay less. So we either need to have permanent contracts or really in my opinion enough is savings up front to buy a house outright, though we'd still buy it with a mortgage. The latter would make me feel much more comfortable with such a purchase...

3 comments:

enoughwealth@yahoo.com said...

Ahem. How long would it take to save up the $500,000 cost of a house? Are you saving more outside of retirement accounts than the $1000/mo going into the Colonial First State accounts?

($500K-$140K)/$12Kpa = 30 years! And that assumes that you're savings rate and the value of your savings after tax keeps pace with house prices.

Chris said...

I'm with you Moom - I just can't how people can be comfortable with the level of debt burden most take on when buying a home. I'm not scared of debt (I use margin loans for my shares). However, with my debt, I'm more concerned about servicibility than loan to value ratios. Means I'm just not comfortable taking on half a million bucks of debt for a home.

mOOm said...

@enoughwealth - I wrote either/or. If I had a tenured or effectively tenured position at a decent salary then we wouldn't need to have reserves to be able to pay the mortgage. So I was saying there is a trade off here. But with uncertain employment situations it seems crazy to take on a commitment which requires two people to earn the average salary in Australia without having the cash reserves to meet the commitment if that doesn't pan out. Otherwise we'd end up in foreclosure like so many people in the US (and some in Aus) who over-extended.

We are saving more than $A1,000 outside of super each month. In a good month we should hit $A4,000. And hopefully the decent appreciation we've seen recently again will continue.