Q. I am 47 years old, divorced with two 14 year old children still living at home.  I own my home outright which is worth approximately $500,000.  I have nearly $200000 in Super and approx $20,000 in shares.  I have $100,000 sitting in the bank which I don’t know what to do with.  I am currently considered a low income earner with income less than $20,000 a year though I am retraining currently and hoping to turn that around into the future.  What would be the best thing to do with my cash?  Top up super a little?  Cash management accounts?  Or be more risky and buy more property or shares with a loan based on my home equity.  I would like to generate income now and into the future and am getting conflicting thoughts from those around me!

A. Everybody will have an opinion on what is best for you. What is appropriate for one person could be a complete disaster for another.  Hence the strategy appropriate to you should be based on all the facts as they apply to your circumstances now.

As your circumstances change, the planning strategy should be flexible enough to accommodate differing circumstances.

The starting point with all financial planning is to identify your goals, the cost to achieve the goals, the appropriate time frame and appreciate how much available cash or cash flow you have available to meet your objectives.

With two children still living at home, I would imagine maintaining sufficient family income to meet living expenses would be the key in the foreseeable future.  In time, subject to you successfully re-training and securing employment, the need to rely on investments to produce income for day to day living would diminish and other investment alternatives may become more appropriate.  I would focus now on providing income and access to capital in the event of an emergency.  I would avoid locking up funds for the near term.

Medium to longer term, I would retain sufficient funds in a high interest savings account to meet emergency expenses.  Typically 3 – 6 months income needs would be sufficient.  I would encourage you to look at growth investments for the longer term but not until your circumstances change.  Super is important for long term wealth generation but the problem of using Super in your case is that the funds are preserved until you reach age 60.  So if you feel you may need access to funds prior to this time you would be stuck.

The same logic applies to property, the tax benefits of gearing into property make it an attractive proposition but not when you have low or minimal income.  Not to mention your capacity to borrow or the consequences of a forced sale in the event of an emergency.

I would look at high interest savings accounts in the short term, then review and look at longer term strategies once your career and income settle.  I would then review your strategy and consider longer term growth investments both within and outside of the Superannuation system.

Given your age, I would ensure that your current Superannuation fund is invested in growth assets and in accordance with your long term appetite for risk.  After all you cannot access these fund for at least another 13 years.

Beyond this, ensure that you hold appropriate insurances to protect yourself and the children in the event of your disability or death. Importantly make sure you have a binding death benefit nomination on your Superannuation fund and your Will reflects your wishes.

Always seek advice from a professional adviser.  Well intentioned advice family and friends can lead to more harm than good.


Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.