One of the keys to financial success is to adopt the right strategy at the right time. As you move through the stages of life here are the strategies you can best leverage to build and protect your wealth.
Teens and young adults
Time is on your side so get saving. Through the magic of compound interest, a little bit invested now can grow into a big amount over time.
Most young people don’t want to think about life in 50 years’ time, but if a 15-year-old starts saving just $10 per week into an investment returning 5% pa (after fees and tax) when they turn 65 their total outlay of $26,000 will have grown to over $116,000. Contributing those savings to a tax-favoured vehicle such as superannuation may provide an even higher final return.
Saving is still a key strategy as careers are established, but usually with a shorter timeframe and a specific purpose in mind – buying a home, for example. This is a time when savings strategies can be brought undone by the allure of desirable things and the ease with which one can go into debt. Take care not to indulge in too many luxuries, and avoid taking on any high-interest debt, such as credit cards. Rather, commit to the rather boring, but highly effective strategy of working out a budget and sticking to it.
The time of kids and mortgages is also the time of peak responsibility. It’s likely that your most valuable asset at this stage of life is your ability to earn an income. And thus it’s important to remember that illness, disability or death could deprive you and your family of that income. The financial consequences of each of these possibilities can be managed with a blend of income protection, total and permanent disability, trauma and life insurances.
Preparing for retirement
With offspring launched into the world and earning capacity often at a peak, a wealth of opportunities open up for pre-retirees.
By all means, enjoy some lifestyle spending, but don’t forget to supercharge your super in anticipation of a long retirement. For additional tax benefits, look at making salary sacrifice contributions, perhaps combined with a transition to retirement strategy. In times of normal interest rates, using surplus income to pay off any outstanding home loan is often recommended. However, when interest rates are very low, investing spare income into super and leaving debt repayments until later may deliver a better outcome.
Australians are up there with the leaders when it comes to enjoying long and healthy retirements. That means retirement savings need to last, so:
- Don’t go too hard too fast in spending your hard-earned super, and
- Don’t invest too conservatively, particularly in times of ultra-low interest rates.
If you’re able to leverage the above strategies through each phase of life, you should be in good shape to enjoy a long, financially comfortable retirement.
Whatever your stage of life, there are many things you could be doing to secure your financial future. To find out more, talk to your financial advisor today.
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This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.
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