It’s almost July. That means that cloudy mornings and chilly weather are going to hang…
Whether you are in your 20s 0r 60s, we are going to break down your financial needs.
Financial advisor Katherine O’Sullivan is the first woman financial planner employed by Canberra firm Much more than money. She has some sage financial advice for women of all ages, noting that each new life stage presents new financial questions to consider and plan for.
In your early 20s
You have graduated school, and possibly uni, and at some stage during your schooling you would have been taught about the seven wonders of the world. Most of the time you would not have learned about the eighth wonder of the world, compounding interest.
Let me introduce you to two eighteen-year-olds, Margot and Wila. Margot saves $1,000 each year until age 30 ($13,000 in total). Wila starts saving at age 30 until age 65, putting away $2,000 each year ($70,000 in total).
Fast forward to when Margot and Wila are age 65 and who do you think has the higher balance? Wila now has $542,000 from her $70,000. Margot has a whopping $690,000 from her $13,000 contribution. This is the power of compound interest.
The message from this is, the sooner you can put a little money away, the bigger the nest egg. To help find these savings while managing a HELP debt and possibly paying rent, it is helpful to put a budget together. A mantra we often then use from this is, ‘the first bill you should pay is your savings’. You then pay the rest of your expenses and what is left over is your fun money.
Remember ‘it’s not your salary that makes you rich, it’s your good spending habits that do!’.
There are plenty of great apps available that can assist women with this. Perhaps consider the use of an online high-interest savings account to direct your surplus cash. Online accounts with no bank cards attached are great ways to avoid the temptation of dipping into your savings. I tend to find if it’s out of sight then it really is out of mind! New investment apps such as Raiz are also great ways to put money away and seek a better investment return over time.
Another important consideration is protecting your greatest asset. Most people assume their greatest asset is their home, or their car if they don’t yet have a home. Your greatest asset is actually your ability to earn income. Think about what would happen if you did lose your income – there would be no home, there would be no car, there would be no holiday, and you would have to hope the bank of mum and dad could help out. For this reason, you at least need to ensure you have Income Protection in place so that if you were unable to work for a prolonged period due to illness or injury, 75 per cent of your income is covered.
Consideration should also be given to super – where it is held and how it is invested. Depending on circumstances, women could potentially start making small salary sacrifice contributions to super to prepare for the future should they have time off work to start a family. But just remember, you will not be able to access super at this stage until age 60 – so your funds will be locked away until then.
In your 30s
The eighth wonder of the world is almost as wonderful in your 30’s as it is in your 20’s. Remember, Wila still turned $70,000 into $542,000 when putting money away in her 30’s!
In your 30’s, you are generally considering starting a family and one partner is often having time off work. This usually coincides with a high level of debt due to buying your first home. There tends to be a substantial reduction in household income as the family working hours are reduced to raise your children and so money is tight! This means managing cash-flow by having a clear budget in place, is a must.
Often it is hard to get ahead in your 30’s with these competing pressures, and that’s ok, but it is very easy to go backwards and unwinding poor decisions will cost you a lot of lost opportunity in later years. For this reason, it is vitally important to have a plan to navigate these years and make sure you don’t overcommit yourself financially, impacting the lifestyle choices you would like to have.
Whether you are planning on having a family or not, ensure you are putting extra money aside to build your emergency bucket for any unforeseen bumps in the road. A good place to direct these funds is to the offset account linked to your mortgage. This way your money will still be working for you by reducing your interest repayments but is also accessible if needed.
It is also very important to consider personal insurances and having a Plan B in place. Death, illness and trauma are not discriminatory and you could find all your hard work coming undone in the blink of an eye. Having your estate plan in place is also key – that means Wills, Powers of Attorney and beneficiary nominations in super.
In your 40s
Often cashflow starts to free up after a pretty hectic and demanding decade in your 30’s. This can often be a time when people start to think about what to do with any extra cash. The correct use of that extra cash can be quite powerful and really start to set you up for the future.
Investing this cash is good but investing this cash with the right strategy will win every time. Don’t just buy an investment property because that’s what everyone does, don’t just buy shares because that’s what mum and dad did, don’t just put money into super because that’s what the nice person at the seminar said.
Understand what you want your Return on Life to be, then work out what you will need to enable you to achieve your Return on Life, then put a strategy together to deliver on this. Or see someone that is an expert at doing so!
In your 50s
While the power of the eighth wonder of the world is diminishing, it still has some kick left in it, so it is never too late to benefit from it.
At this stage in your life, you are typically giving thought to your retirement. It’s important to start thinking about what retirement looks like to you. When do you want to retire and how much you want to retire on? The answer to these questions then help shape the decisions you need to make.
One very key consideration is what you will do in retirement. It is really important that a lot of thought is given to how you will transition to retirement mentally and emotionally. Quite often we get so caught up in the financial transition we neglect these two elements and they can often be equally as important.
In your 60s
Moving into full-time retirement is a big change, it can be overwhelming and scary. Quite often we see people struggle with actually retiring as they feel their identity is wrapped in what they do and not who they are. Consideration could be given to transition to retirement strategies which allow you to access a portion of your super while progressing from full-time hours to reduced working hours.
Review your estate plan to make sure your hard-earned assets fall into the right hands but also make sure that if you were to lose capacity or become unable to make financial or medical decisions you have the right people in place to do so on your behalf.
As grim as it is, it is also worth thinking about your aged care plan, or at least having the discussion with the key people in your life about what you would like to happen in that situation.
Katherine O’Sullivan is an authorised representative of Godfrey Pembroke Ltd Authorised Financial Services Licensee. Any advice given in this article is of a general nature only and has not been tailored to your personal circumstances.
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