While many of us would have spent recent years in angst over money, research suggests that the number of Australians with more than $US1 million in investable assets, excluding the family home, has hit a high.
While a million isn’t what it used to be, it is still worth chasing whether you’re in your twenties or fifties. So how do you do it?
Financial planner Marisa Broome told Money magazine that the key to reaching a million bucks within 20 years, for people in their twenties, requires a lifelong saving discipline.
“There are four main strategies you will need to use,” she said.
“They are savings; superannuation – both the superannuation guarantee contribution from your employer and any discretionary top-up contributions you make yourself; gearing – that is, using debt to invest, typically in shares directly or through a managed fund or by buying an investment property; and buying your own home.”
She recommends opting for a high-growth option for superannuation (assuming you’re comfortable with the volatility that this entails), as well as adding 2 percent of your salary each year to super through salary sacrifice. On top of this, Broome suggests saving (in after-tax terms) an extra 4 percent of your salary and increasing this amount by 1 percent each year until you are saving 15 percent of your salary.
A savings calculator, such as the one at RateCity, may help you to realise your goal.
Finally, review the plan annually or as your circumstances change, she said.
That’s because the best strategy for someone in their twenties is not necessarily the best for future years as market conditions, personal circumstances and your income change.
For those in their thirties, for instance, there is a good chance that children and a mortgage are now a part of the equation.
Julie Berry, managing director of Berry Financial Services, said to take into consideration how much superannuation is being contributed by your employer each year.
“This is a long-term savings plan by itself,” she told Money.
For example, if you are earning $55,00 per annum and your employer is contributing 9 percent per annum superannuation, that is around $350 a month being saved on your behalf, according to Berry.
“If you’re married and both on this level of salary, that is [approximately] $700 a month being saved already. This means that you then only need to save an additional $1218 a month to meet your saving goal of $1 million in 20 years, based on a $0 start,” she said.
No matter your age, Berry insists that the key to financial success is budgeting.
“A budget determines what you can afford to pay on debts, whether you can meet normal living expense and what you can afford to save,” she said.
The government’s Money Smart website (moneysmart.gov.au) offers a comprehensive budgeting tool, which can help you to check where you money is going, if you’re spending more than you can afford and whether your money is going towards your priorities.