Whether you’re going to hit 40 soon or it’s a fair way down the road, looking ahead to shore up your financial security is a must.
Glenn Stevens, Reserve Bank of Australia (RBA) Governor recently commented that Australian savers are looking for high returns, which can set you in good stead for the future.
The RBA elected to maintain the official cash rate (OCR) at 2.5 percent, which is good news for those seeking home loans. Term deposits remain a good option for saving in terms of their risk profile, but the low OCR impact possible returns.
“On present indications, the most prudent course is likely to be a period of stability in interest rates,” Mr Stevens said.
Forty is seen as a milestone in itself, with many people holding a celebratory birthday bash. However, don’t leave yourself with a financial headache when you turn 40 — work towards these financial milestones, too.
Drive down the debt
Before you start saving up a storm, don’t forget to drive down any non-tax deductible debt you’ve accumulated.
At the end of 2013, total household debt was $1.84 trillion in Australia, according to the Australian Bureau of Statistics (ABS).
Some debt will take a while to knock off — for instance, if you’ve taken out a home loan.
“At the end of 2013, three-quarters of all household debt was borrowing for housing”, the ABS said. However, paying off your credit cards, hire purchases and other debt can help you turn your attention to other financial milestones.
A tidy nest egg
You’ll become eligible for the Age Pension when you turn 65, although this age is set to rise in the decades ahead.
Regardless, it’s important to start forming a tidy nest egg. When you hit 40, you’ll probably continue to work for another decade, if not two or even three.
However, the earlier you start saving, the more interest you’ll be earning on your nest egg – don’t underestimate the power of compound interest! Set yourself a financial goal for 40, taking into account how much you’ll receive when you’re eligible for the pension and how much you actually want to live off. There may be a big difference between these two figures, so you’ll need to start saving accordingly!
A holiday fund
It’s important to pay off your debt and save up a tidy nest egg — but life’s about enjoyment, too.
For many Australians, seeing other countries across the globe is important. Of course, when you add up the cost of flights, land travel, accommodation, sightseeing and food costs and other expenses, a dream holiday can quickly seem financially unattainable.
One option is to put off travelling for some time and focus on building your career or raising a family in your 20s and 30s. Meanwhile, top up a holiday fund on a regular basis — preferably with each pay cheque. Open a dedicated savings account for your overseas adventure and be sure to accrue plenty of holiday leave, too.
Once you’ve saved up enough money and annual leave, reward yourself with a trip to places you’ve never seen before. Whether it’s a trip to charming Spain and romantic Italy, a jaunt to the exotic beaches of Thailand or a soul-searching trip to South America, there are plenty of countries that will enrich your appreciation of the world.