Don't starve yourself to pay your mortgage

Liz Koh.

It is well known that having a lot of money tied up in assets, especially property, while being on a low income is an uncomfortable place to be.

However, it is not an uncommon scenario, particularly for young couples and the elderly.

It's not easy to get the balance right. If you have a high income but don't have significant assets, it's probably because you are spending too much of your income rather than saving or investing.

If you have significant assets but a low income, you've done a good job of accumulating wealth but you've probably reached a point where some of that wealth needs to run down so you can spend more.

Somewhere in between is the right balance - building up a store of wealth while having enough free funds to enjoy a good lifestyle.

Being asset rich and cash poor is a problem that usually centres around property - the family home, a farm, an investment property portfolio - or a business.

For young people buying their first home, the balancing act is to buy a home that is comfortable enough to live in but not so expensive that mortgage repayments compromise lifestyle or the ability to reduce debt quickly.

For the elderly, having a comfortable home is also important, but so is having access to funds for maintaining the home, supplementing pension income and covering unexpected expenses.

A good rule of thumb for retirement is to have a debt-free home and investments of around half the value of your property.

Ideally, these investments should be relatively liquid so you can run down your capital over your lifetime.

Set this as a target to guide you to make the right choices between spending, saving and investing throughout life so you don't end up asset rich and cash poor.

Liz Koh is an authorised financial adviser. The advice given is general and does not constitute specific advice to any person. A disclosure statement is free. Call 0800 273 847. For free e-books, see moneymax.co.nz and moneymaxcoach.com