Think you’re too young to start planning towards a financially secure future? Think again.
It’s true, financial planning can be daunting but it doesn’t have to be overwhelming. There are simple steps you can take to start managing your money early and take control of your financial security.
1. Start your savings and investing sooner
“The sooner you start, the sooner and more likely you are to achieve your financial goals,” says Michael Nowak, adviser & partner at Joe Nowak Financial Services Group and national president of the Association of Financial Advisers.
Whether you are saving towards a holiday or a deposit towards your first mortgage, starting early helps you establish a habit of saving that will come in handy throughout your life. “I’ve found that it’s not the people who earn the most money who have the most; it’s the people who use their money wisely,” Nowak adds.
2. Pay off your non-deductible debt as a priority
The family home is the biggest debt most of us will have and, in tax terms, it’s a non-deductible debt. “The sooner you pay off your home loan, the sooner you can use your discretionary income to invest in shares, other investments or towards your retirement plan,” Nowak says.
Most home loans are calculated to run over 25 or 30 years, which means a large chunk of your repayments is directed towards the interest rather than the original amount you borrowed – known as the principal of your loan. The longer you take to pay it off, the more money you spend on interest. Making extra repayments and having an offset account linked to your home loan will help you chip away at the principal and pay off your home sooner.
“By modelling differing repayment options, for example $500 or $600 per month, you can see the difference extra payments will have on reducing your interest and time to pay off your loan. This can be tens of thousands of dollars saved and many years on repayments,” Nowak says. Try using the RateCity home loan calculator as a guide.
3. Have a back-up plan
What happens if you get sick or lose your job? What if you or your spouse dies unexpectedly? Sure, nobody likes to think about gloomy scenarios but achieving financial security is more than accumulating wealth; it also means protecting your assets and your ability to create wealth.
Income protection (which can pay up to 80 percent of your personal exertion income if you lose your job or are unable to work for a period of time), trauma insurance and life insurance are all an important part of a financially secure future.
“Life insurance is an essential component of any financial plan,” Nowak says. “Australians are drastically underinsured, which is alarming given most would say they would like to maintain their own and their family’s lifestyle on death or disability.”
4. Take control of your super
“You are never too young to own and monitor your super,” Nowak adds. “First steps are consolidating your super into one fund and choosing the most appropriate investment strategy.
“Don’t be afraid to get professional advice if you need it as it can give you the help and certainty and the confidence you need to start you on your retirement funding journey.”
5. Start your pre-retirement planning early
Nowak recommends starting your retirement planning at age 50, or earlier. Start by setting a date for retirement and calculating how much money you would like to have each year. From there, you can calculate how much you will need in your retirement to achieve your goal.