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A fun and entertainingly educational forum, specifically designed for Australian “suburbanites".
A fun and entertainingly educational forum, specifically designed for Australian “suburbanites".
Thursday, September 29, 2011
And just like physical fitness, age plays a significant part in financial fitness. One of the reasons that all Australians need a financial plan, and have it regularly checked and updated, is that our needs change throughout life.
Financial plans should recognise a number of aspects, including current income; income prospects; lifestyle; expectations; and very importantly, age.
At the risk of stereotyping in the extreme (I don’t care, I’m allowed), I’ve put together some thoughts and tips for different stages in life.
You’re young, you’re independent and you’re about to set spending habits that are likely to stick with you for the rest of your life. At this stage in life, retirement planning is probably the furthest thing from your mind. It’s all about having what you want and having it now.
If you’re single, have little or no debts and wish to one day own your own home, this is one of the most important periods in your life because it’s about the only time when savings are discretionary. Many 20-somethings may think saving is a dirty word, but this is the time you need to set a budget and stick to it. If you get into good financial habits at this stage they will last the rest of your life.
Top Tips for the 20s
• Set a budget and stick to it
• Start saving a small amount each month for a home deposit
• Take out income protection insurance
• Direct a percentage of all salary increases into savings
• Make minimum superannuation contributions
• Set your superannuation approach for the long term by investing in quality growth assets
This is the time you’re supposed to get serious about your life and your finances. It’s a high commitment decade with many paying off a mortgage, starting a family and working hard. It’s also the time when you start to realise you must begin to seriously plan for the future if you haven’t already.
It’s the time when finances may start to get tight as commitments increase. It’s very important at this time in your life to avoid a high consumption lifestyle in an attempt to “keep up with the Joneses.”
Important considerations include life and income insurance, investing for growth, possibly saving for children’s education and buying or upgrading the home. Earning capacity often increases considerably from that of your 20s. For people without children this can mean you are well equipped to invest for the long term as well as to meet short term needs. But it can be the time to set a solid foundation for their future financial security.
Top Tips for the 30s
• Don’t get into the habit of spending all your income
• Set up an “emergency fund” to see you through if times are tough in the business
• Focus on mortgage reduction – don’t let debt stay at the same level or grow
• Make sure you have adequate insurance and a will
• Diversify investments
• Set a savings plan in place for children’s education
• If you don’t already have a Financial Planner, it’s time to get one
• Stick to a budget and avoid taking on debt to pay for luxuries, even though it’s easy to access loans.
Many people in their 40s have paid off, or are close to paying off, their mortgage. This, coupled with the fact that for some it’s the time children start to leave the nest, can mean that the 40s are a period of greater financial freedom. The 40s is also often a peak earning period but it’s important not to counter these benefits by also making it your peak “spending period”.
Often, for the first time in their life, as people turn 40 they start to become aware that retirement is not so far away after all and the need to plan for it becomes more pressing. It’s the time to start really focusing on retirement savings if you are to have a comfortable retirement lifestyle. The minimum superannuation contribution will not be enough.
Top Tips for the 40s
• Increase life, disability and income insurance
• Increase super contributions
• Continue to build a diversified share portfolio
• Continue mortgage reduction strategies
• Reduce lifestyle debt, such as the mortgage, so that you can consider using equity in your home to diversify into other investments
For many this is a period of major lifestyle change. Possible career uncertainty and impending retirement can have major financial and emotional effects. Many people’s dream becomes early retirement. However most people can expect another 10-15 years work and then another 15-20 years in retirement and, after working hard for years, you should be able to enjoy the fruits of your labour. The question is, at your present rate of savings, can you afford to fund the style of retirement living you would like? If not, there is still time to do something about it.
Generally, this is a decade of low financial commitments, high earning capacity and a time when you should be able to commit the maximum available income to your investments.
Top Tips for the 50s
• Add to your investment portfolio and continue to top up your super
• Maintain income insurance but focus less on life insurance
• Consider risk in relationship to your investment portfolio
• Make sure your will and power of attorney is up to date
It’s time to sit back and enjoy the pay-off from years of hard work and financial diligence. More than ever this is a time when financial decisions are heavily influenced by lifestyle aspirations – perhaps you want to start travelling the world or spend your days soaking up the sun. However you may still need to fund 20 years or more of living. At this time of life many people also consider moving to a smaller home. It’s important to start re-positioning investments and assets for income rather than financial growth (but not to the exclusion of growth!). You’ve worked hard for your money long enough, so now you can enjoy the fact that it’s working hard for you.
Ideally, debt should be eliminated at this point and all large purchases, such as a new car, should be financed debt-free.
Top Tips for the 60s
• Continue boosting super entitlements until you retire
• Look at the variety of income streams available and consider what suits you
• Ensure you have investigated all entitlements such as pension options
• Review investments, still maintaining some growth assets to help fund a long retirement
• Consider eliminating or reducing life and income insurance but maintain health insurance
• Enjoy life to its fullest!
Obviously, I’ve made lots of generalisations as part of this post, but I hope it’s been a bit of fun and that there’s been a few good tips you can use or pass on.
Thursday, September 15, 2011
Watching The Block a few weeks ago was a fairly grim experience. Fact - Melbourne’s property market is struggling a little at the moment. Even though most (all??) of the properties sold afterward, it was pretty clear that potential buyers are wary and holding their cards pretty close to their chest at the moment.
I read in the paper that the average purchase price of the homes on The Block including stamp duty was apparently $950,000.
Major renovations including stumping, plumbing and re-wiring etc averaged $300,000 per property. With cosmetic renovations averaging $100,000.
According to what I was reading, the average total cost per house was $1.35 million….
Now it was a TV show, and I really have no idea of how much of their own money contestants had to spend over and above prize money, all I know is that when it comes to property these days we’re dealing with pretty big numbers.
Along with the big numbers, tends to come the big loans.
We prepare hundreds of tax returns at The Hendrie Group, and we’re always surprised by the number of people with rental properties, but no income protection insurance.
A rental property is a huge investment in your long-term financial security, and no one wants to be in the position of having to sell in a downmarket because you’re unable to work for a while. It makes sense to spend a comparatively small - and tax deductible - amount to protect yourself.
Something I’ve always told my clients is that when it comes to property, if you need money quickly, you can’t just sell the bathroom, you have to sell the whole house. And times like these are a good example of why you don’t want to be forced into a position where you have to sell.
I have a very close friend who was diagnosed with breast cancer on Melbourne Cup Day last year, and she still hasn’t been able to return to work. And it looks like she won’t be able to go back to work until about June next year – that will be almost 2 years! Imagine two years unable to work. Fortunately she does have Income Protection, so can concentrate on getting well without having to worry about being able to service her debts, let alone her day-to-day living needs.
My advice to anyone that owns a rental property (or frankly, anyone earning $40,000 or more) is if you don’t have income protection cover, then you should explore your options. At the very least, you should be in the best position to make some informed decisions about your financial security.
PS. I have oodles (technical term) more information on income protection insurance if you’d like to know more. Just email me at firstname.lastname@example.org.