Mary Holm's new book - A Richer You: how to make the most of your money - is coming out in March. The following is an extract from the book.
Q: I have tried to get my wife, who does not like to think about money matters, to read your column, but so far no luck.
I have a question that's doing my head in. My housing dilemma: I am a recent first-home buyer along with my wife and our nine-month-old daughter. We live in our house with my in-laws, two cats and a dog. As you can imagine, for a first home in Auckland, we are a bit squished. We intentionally bought a large site to develop, but there are a number of ways to do this with different timeframes.
We could either:
• Renovate and add to the existing dwelling, which would cost roughly $200,000 and take three years to save for. This would limit how we could develop the site in future.
• Build a house in the front yard to live in and keep the existing house, which would roughly cost $500,000 and take us eight years to save for. But it would give us a rental income from the older house of around $500 a week if we rented it out, and also give us options to subdivide and/or tear down the old house and build two new ones in the future.
Building a new house would mean we need to live squished for a lot longer, particularly if another baby is on the horizon. And even after it's constructed, it wouldn't be a particularly big house.
Adding to our existing house would mean having a bigger house overall, but less potential for value added in future and no rental income.
I'm seesawing back and forward on this. Please help. I would be stoked to see my letter published. It might even convince my financially oblivious wife to start reading the column!
A: Dear Wife: Welcome! A couple of quick points especially for you:
• Money is not difficult or demanding. You just need to understand a few basics, get things set up in a way that works for you, and then you can get on with other more enthralling aspects to life.
• However, if you neglect things financial, money can end up taking a lot of time and energy. Often, it's fine while you have a partner taking care of the money, but that may not last forever. People in this situation are the ones who get ripped off, run up huge debt, or make mistakes that leave them struggling.
But that's not you anymore! Okay, now let's look at hubby's quandary – which is now yours, too. There's no way to know which option will work better.
Sure, you can make a spreadsheet and feed in numbers that will make building in the front yard look better. But you'll have to make lots of assumptions – about future land and house values, building costs, rents, and council rules. Change the assumptions, and the result might be quite different.
You also need to consider the hassle. As well as being squished for several more years - which is a big deal – you would have to organise the permissions, construction and so on.
Having a house built is quite a project. And living next to a building under construction with little ones, in-laws and assorted pets doesn't sound very relaxing.
True, you would also have that issue if you add to your current home, but for less time.
I don't know … reading between the lines, it seems that you want me to support your first option. And therefore I do. There'll be other chances later on, when you have fewer dependants, to get into property development – if that's what you really want to do. Now is family time.
But let me just add a couple of other options:
• When you renovate your home, could you build up instead of out – adding a second storey – to preserve the possibility of developing the section later?
• Your property will have added value because it's big enough to build another house on. I wonder if you should sell it – perhaps to someone able to develop the property now – and move to a bigger house where you're not paying extra for a feature you don't have much use for.
Oh no! I've left you with more options. I hope all this is helpful. Let me know what you – hopefully the two of you – decide.
A week later, the same reader wrote again:
Q: Thanks for the response to my letter. I was really stoked to see it.
I hadn't really thought about building up. We are in MHU (mixed housing urban) zoning, and it is feasible. It might be difficult because the house is on piles, but it is certainly another option which preserves our ability to redevelop. I shall ponder some more.
The column sparked a conversation with my wife, as she was initially quite defensive, reiterating that she was happy for me to handle financial things. When I mentioned what would happen if I was gone, she said I should write down everything she needs to know. If only it were that simple.
The good thing is that we did start discussing our housing options together a bit more. She has latched onto your idea of buying a new house which better meets our needs, which I initially thought would be tough, as our needs are so varied. However, she rightly pointed out that we aren't in an immediate rush.
And I think the main thing I now understand is that we should just stick to saving to give us options, and the right answer will probably reveal itself. Hopefully you stick around with the column and I can update you in a few years.
P.S. Thanks for being a champion for KiwiSaver. Your advice allowed us to buy our first house far quicker than we would have otherwise.
A: And thanks for your encouraging feedback. Great to hear your wife is taking an interest, too.
Daughter's fiance missing out
Q: I would like your opinion on the following situation: My daughter (47) and her fiancé (53) have good permanent jobs and have purchased their first home together.
My daughter put down a substantial deposit (she was previously mortgage-free) and he pays the mortgage, which he intends clearing before retirement. She has KiwiSaver but he has not joined up, preferring to pay more off the mortgage.
My daughter (and I) feel he's missing out on the advantages of this government-supported means of retirement savings.
He moved to New Zealand permanently early last year and will have a pension from his homeland in due course.
Should he join KiwiSaver now, and at least put the minimum in, or continue to put all he can into the mortgage?
I know you are in favour of both KiwiSaver (who wouldn't be?) and in making your property mortgage-free!
A: I wonder if your son-in-law-to-be (SILTB) is keen to get rid of the mortgage to even things up with your daughter – so that each has paid for, say, half the house. He might find the current situation a bit uncomfortable, and that's understandable.
However, I do agree with your daughter and you. It sounds as if SILTB is an employee, in which case every dollar he puts into KiwiSaver would be roughly doubled by the government and his employer.
Even if he's self-employed, he can contribute $1042 a year, and the government contribution will boost that by 50 per cent. Add the current low mortgage rates to the picture and being in KiwiSaver is a pretty clear winner over making extra mortgage payments.
Still, I suggest he puts only enough into KiwiSaver to get the incentives – 3 per cent if employed and $1042 a year otherwise.
Beyond that? There's still nothing wrong with killing off a mortgage quickly, especially when approaching retirement.
Note for SILTB: If I were you, I might resent my partner and their parent telling me what to do with my finances! But perhaps let them win this one. It's a pity to miss out on free money.
Q: In 2012, I left a 25-year marriage and since have provided all of the hands-on care for three teenage children and simultaneously rebuilt my career.
Through sheer hard work, grit and some good luck, I have retrained and now have 15 times the income I had on separation.
In that time, I have also had a five-year relationship that recently finished. That person was also separated, and had not made any decisions about buying property or organising
KiwiSaver, and downsized their career to live a 'better life'. While we were together, I did provide a nice home. They paid some contribution to everyday living costs only. We wrote an agreement stating that any assets previously owned or bought by one of us while in the relationship would not be shared, and any gain in asset value stays with the owner.
A recent letter to your column implies somehow that just because we live together the partner could expect to 'push for a name on the house' or some other 'relationship property'.
On what level is any expectation, legal or otherwise, that a partner can access any of my finances or assets?
A: I put your question to trust and estates lawyer Rhonda Powell. She starts with the basic law.
"The first point to establish is whether the relationship 'qualifies' for the equal sharing regime under the Property (Relationships) Act 1976," she says.
"As a general rule, de facto relationships qualify for equal sharing after three years. Marriages qualify immediately.
"As a general rule, pre-relationship assets remain your separate property, as do gifts and inheritances, and these are not subject to division. Assets acquired during the relationship are relationship property to be split equally when the relationship ends.
"As an exception to this, the family home is always relationship property, if either party to the relationship owns it. Family chattels (household items for family use) are also always relationship property."
She adds that if your ex moved in with you, and lived there for five years, he probably has a right to 50 per cent of the value of that home.
But what about the agreement you two had – which presumably stated that the family home would remain your separate property?
"A contracting out agreement is a formal legal document that can only be completed after both parties have independent legal advice, and the lawyers certify the agreement too," says Powell.
"So, if that is the sort of agreement you wrote, you are probably okay. If you wrote one yourselves at home, then it will have no legal effect."
She adds, "Most general practitioner lawyers can prepare a contracting out agreement, but you can also do it yourself online, as long as you still get independent legal advice before signing it." Go to agreeable.co.nz.
A couple of couples who have it sorted
Q: I have saved several thousand dollars since my husband and I agreed to have our 'own pocket money', no questions asked. It's the best way to avoid almost all arguments over money. It only took us 25 years!
I get to save and play around a bit in Sharesies, and no longer have to say all my clothes purchases are super-cheap!
He gets to build up a very nice wine collection. He no longer has to say 'super-cheap deal' and is very happy about his collection!
A: Thanks for a great tip. There are too many money arguments in too many marriages.
Award: Most thoughtful spouse!
Q: This may be of no interest, but here goes. I started in real estate at the age of 34 and my wife was at home being mother to twin boys and a daughter. We managed our finances well and over a period of ten years managed to buy two modest commercial properties.
I did realise that as I was the wage earner my wife had no control over her personal spending, being reliant on the family income. I felt this was unfair.
We struck a deal. She had the income from the two properties and ran the house, paying all the bills. What was left over was hers. I would live on my real estate income.
This has worked well for us. Never any arguments over money. I am 87 and she is 85. She has $1.5 million in savings, and I have $700,000. Plus the joint house and cars. Worked for us.
A: I wonder how many other husbands would have thought along those lines 40 or 50 years ago. You hear so many stories of stay-at-home wives in that era being given grocery money, but with little financial freedom. I'm sure it still happens, but much less often.
A Richer You: how to make the most of your money - By Mary Holm. To be published by HarperCollins New Zealand early March 2021. To pre-order a copy, click here.