Question:

My wife and I are in our mid-40s and we have two children, 12 and 10. We live on my income as a teacher (around $60,000) plus receive a Working For Families top-up of about $200 a fortnight. We spend $360 a week on rent.

We live a fairly modest existence, although by the end of the month we don't have a lot left over, especially if we get a one-off car repair bill, for example.

I joined the Public Service superannuation scheme (medium risk) about five years ago and contribute 3 per cent of my income. We have no debts.

Before our children arrived my wife and I both worked and managed to save a healthy deposit for a house. We soon discovered, however, that our limited income would not allow us to buy.

We have since been waiting for house prices to become more affordable, but are now of the opinion that we need to rethink this plan.

So my question is, what do we do with the deposit that is sitting in the bank? Interest rates have dropped recently and I worry that inflation will eventually rob us of these hard-earned savings. Are there alternatives for a financial conservative like me?

Answer:

Mary Holm: What's happened to this country that a family with no debt and on a pretty good income - especially when you include the Working for Families money - can't quite readily get into home ownership?

Don't give up. Apart from the security that having your own home would give you two and the children now, there's the issue of your retirement. If you haven't got your own home, preferably mortgage-free, at that stage in your life - or have equivalent savings that will comfortably provide you with accommodation in retirement - you're in for a tough old age.

I suggest you plan to buy a house - with substantial savings to keep the mortgage manageable - in about five years. Nobody knows where house prices will be then, but I would be surprised if they are much higher than now. They might even be lower. Here are some steps you two could take towards your goal:

* Leave your savings in a bank, but shop around for higher interest. Check out the different rates on www.interest.co.nz. There's a pretty wide range of rates on term deposits.

Tie up, say, a third of the money in a five-year term deposit, a third for three years and a third for one year. Then renew the shorter-term ones as you go. It's always hard to tell what interest rates will do, but by spreading your money you'll end up getting a good deal on at least some of it.

This might boost your savings by, say, $1000 more than you would otherwise have.

* Sign your wife up for KiwiSaver. As a non-employee, as long as she saves 2 per cent of the minimum annual wage - which amounts to $10 a week - she will be eligible for the first-home subsidy, which is $5000 after five years. She will also be able to put her KiwiSaver savings, plus all returns earned on the account, into the house.

I appreciate that you haven't got much spare cash. But if you set up an automatic transfer to KiwiSaver of $10 a week you probably won't miss it. And if you can gradually increase that to $20 a week, your wife will receive the maximum KiwiSaver tax credit of $1043 a year. She won't be able to put the tax credit money into the house, but it will be there for her retirement.

Total extra for the house: say $8500.

* Look carefully into your retirement savings options. In your situation, you might be better off also joining KiwiSaver and contributing 2 per cent, while continuing to put 1 per cent into the other scheme, if that is permitted.

Even if you get somewhat smaller total employer contributions, this might still work well for you, as you will also be eligible for the KiwiSaver first-home subsidy, adding another $5000 to your deposit.

And you'll be able to put all of your and your employer's KiwiSaver contributions, plus returns, into the house deposit as well. It's a way of getting at the money earlier than you would in your super scheme. And given that you would be using it to buy a home - which will contribute to your retirement comfort - there's nothing wrong with doing that.

Total: Perhaps $18,000.

* If your wife can earn some money - even in just a small part-time job - that would obviously help. But keep the total household income under $100,000 - the current maximum to get the KiwiSaver first home subsidy.

Once in the workforce, your wife would need to put 2 per cent of her pay into KiwiSaver. She could get out of this by taking a contributions holiday, but she would then lose eligibility for the first-home subsidy. And in any case she can put her KiwiSaver savings, plus her employer's 2 per cent contributions, into the first home, too. It will all help.

Note that if your wife works, your Working for Families money will be lower, but you should still come out ahead.

Total, net of extra costs: Say $30,000.

* Consider trying to negotiate lower rent in exchange for a commitment to your landlord that you will stay in your current accommodation for five years. You sound like good tenants and your landlord may be willing, especially if rents have been falling in the area.

If you could save $20 a week that way, it might amount to $5500 including returns over five years.

All in all, we come to $63,000 to add to your current savings for a home. That could make all the difference.

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.