Dear Vanessa,
My husband and I have a combined income of $180,000, but recently it feels as though we’re struggling to stay afloat financially.
Our two teenage sons go to a private school. They each receive a 50 per cent scholarship, but we still spend about $50,000 a year on tuition.
Our house is valued at approximately $3million and we have a $700,000 mortgage. There is also $100,000 in an offset account, which we planned to use for the boys’ remaining three years of school fees.
On paper, our finances should look healthy. In practice, the mortgage, school costs and ordinary household expenses make us feel as though our money disappears almost immediately. I worry about how we would cope if either of us lost our job or faced a major unexpected expense.
It seems as if everyone we know earns $300,000 or more. I appreciate how fortunate we are, but I’m starting to question whether we’ve taken on more than we can comfortably afford.
Should we simply push through for another three years until the boys graduate, or are we living beyond our means?
Asset Rich, Cash Poor
Money educator Vanessa Stoykov (pictured) gives advice to a woman who is feeling the strain financially
Dear Asset Rich, Cash Poor,
There is a growing sense of financial pressure among people who once believed they were comfortably well-off. Despite earning good incomes and owning valuable property, many are checking their accounts and wondering why there is so little cash left.
You own a $3million property, have roughly $2.3million in home equity and earn $180,000 a year. Even so, you feel financially restricted.
That is because having wealth is not the same as having readily available spending money.
Your house may be worth $3million, but unless you sell, downsize or access some of that equity through borrowing, it cannot be used to cover groceries, bills or school costs.
Your children’s school fees alone account for close to 28 per cent of your gross household income.
That figure comes before tax, mortgage repayments, food, insurance, utilities and all the other costs involved in running a household.
It is a significant financial commitment, especially because your actual take-home pay is much lower than your gross salary. This is why I encourage families to focus not only on income, but on what remains after essential expenses have been covered.
The key question is whether you are genuinely living beyond your means or simply moving through an unusually costly period of family life. Those are not necessarily the same thing.
Assuming the fees remain unchanged, another three years at $50,000 a year represents approximately $150,000. You have already set aside $100,000 towards that amount.
Instead of making a rushed decision, approach the next 36 months as a defined financial plan.
Work out your income after tax and track your monthly outgoings carefully. Can you meet every commitment without accumulating debt or using up the emergency funds you may need for an unforeseen event?
The money in your offset account is working to reduce the interest charged on your mortgage while also providing a financial safety net.
If you use the entire balance for school fees, you will reduce both of those advantages.
With two teenagers and a substantial mortgage, retaining an emergency buffer is important. Decide how much you would need to feel secure if something went wrong. An offset account is not simply spare cash waiting to be spent; it gives you room to respond when circumstances change.
Now we need to consider the biggest expense: private education.
Schooling is a deeply personal choice, and many parents are willing to make considerable sacrifices to provide opportunities they believe are important for their children.
Your sons have scholarships, they are settled at the school and only three years remain.
However, if you were making the decision from scratch today, would you still choose to take on the same cost?
It is easy to continue with an expensive commitment simply because you have already invested so much in it. The more useful question is whether it still makes sense for your family now.
Moving the boys to another school may not be the right answer. But examining the financial and emotional trade-offs honestly is essential.
The people around you who earn $300,000 may also have large mortgages, financial support from family, inheritances or debts that are not visible to you.
Measuring your finances against another household’s outward appearance is rarely helpful and almost impossible to do accurately.
It is also worth thinking beyond the immediate pressure. What will your finances look like once the school fees end?
The $50,000 currently going towards education could then be redirected to rebuilding savings, reducing the mortgage and improving your retirement prospects.
My suggestion is to sit down together and create a detailed three-year plan. Set out your income, expenses, upcoming costs and the amount you can realistically afford. You can also use my free Find a Financial Adviser service here and seek tailored professional guidance.
The exercise may show that you are overextended and need to make changes. Equally, it may confirm that this is simply the most financially demanding stage your family will face.
All the best,
Vanessa
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