If You Want To Be Really Happy, Aim For The Lower End

THE average home loan commitment for owner-occupied dwellings in Australia was $240,300 last October.

How much do you save a year? If you're a poor dad, nothing. You spend 110%-plus of everything you earn every year. But the reality of the average $240,000 mortgage is that you need to save $1000 (after tax) every month for 20 years before you can retire mortgage free. That's about $24,000 of pre-tax salary you just lost. And if you have less than 20 years to retirement you need to increase the numbers accordingly.

But there's more. There's the $20,000 interest every year (soon to be $24,000). Pre-tax, that's another, say, $40,000 off your salary.

Now your average mortgage repayment plan has cost and lost you $65,000 of salary. The average wage in Australia is $60,434. The average mortgage is crippling the average man. Someone out there is under water.

If we are ever to retire debt free (how dull) we will either have to earn a lot more than the average man or at some point downsize our property or risk a drop in our standard of living. If the definition of happiness is the expectation of an improvement in our standard of living then the expectation of a drop in our standard of living is the definition of unhappy.

When faced with debt I have always lived by the creed "earn more" rather than live like a miser and pay it off. Of course that attitude comes with the luxury of youth - I'm only 46 (cripes - that old).

But the time is coming when my earning capacity will probably plateau, not because I can't earn it but because for once in my life I might want to sit down with the wife and read the newspapers without having to rush. Just once would be nice. And it's that desire that will set my financial time frame. It's a while away, but it will one day come into focus.

Happiness is about expectations. The route to happiness is to set expectations (you will need to do that with the other half) and work out how to deliver them. To set expectations you need a plan.

I went to a financial planner once. We did some basic planning you could all do on an envelope this morning. (Better on an Excel spreadsheet). Very simple. We set up a chart with two columns for every year, starting with the current year. Column A and column B.

In column A we put expected post-tax income. Sounds simple. But the process teaches you a lot about yourself.

When you look at "expected" income, you realise you simply cannot count the "unexpected income" we all expect, such as sharemarket gains, bonuses, inheritance, house price appreciation, lotto. They are "risk" items and in a financial planning sense are not secure items that can be relied on.

When you can only put down "expected" income, the future suddenly starts to look a bit bleak. Sparse, in fact. And that's before you factor in "unexpected losses".

In column B we put expected expenses. Household expenses and any predictable annual costs, car loans, utility bills, usual stuff (make a guess).

Food is a big item and you have to inflate the figure by the combined expected annual body mass increase of your four children and their expected length of stay in your abode. (Note to kids. It's our house, you are simply passing through.) Multiply costs by 1.5 for each boy. Chuck 'em out as quick as you can is the revelation.

But the mortgage and mortgage interest and school fees were the major spending items. We inflated school fees at 6% a year (optimistic) and left a function to vary that. We then added unexpected spending variables (possible renovation). It's a touch scary when the reality is on the sheet; when the B column vastly outweighs column A for about 10 years.

After that little game a few things hit you:

? Earn more.

? Spend less.

? I'm in denial.

? I'll be working until I'm 75.

? I need a major score.

Either way it will become clear the "never never" is really "today". Planning isn't hard, it's simple. Happiness is knowing where you are (both) going and going there. If you want to be really happy, aim low.

Marcus Padley is a stockbroker and author of the daily sharemarket newsletter Marcus Today. For a free trial, go to www.marcustoday.com.au