It’s a new financial year … get your money working harder for you
Now that you have reviewed your spending habits, set some goals and planned a budget, it’s time to review and potentially refine how you make your money work for you.
Rather than spending your income with the hope of having something left over to invest (which almost never works), set aside a portion of your income specifically for investing – the old adage suggests we put 10% aside for savings before we plan our spending.
Sticking to a regular savings plan is a great way to achieve your goals and get your finances sorted. In most cases, it’s better to save for things than to go into debt to buy them. And thanks to the power of compound interest, the longer you leave your savings the bigger they grow.
Once you’ve worked out how much you can afford to save, set up an automatic payment so the money goes into your savings account on pay day.
An alternate approach is to ask your employer to set up a salary deduction so the money goes directly from your pay into your savings account or retirement fund rather than your regular bank account. Many businesses provide workplace savings schemes – your contributions come out of your pay before you see it. And what you don’t see, you don’t miss! This is called ‘paying yourself first’.
Emergency Funds: It’s a good idea to put money aside for emergencies. Ideally you should aim to save up the equivalent of three months’ expenses – but every little bit helps. A tip: Keep your ‘rainy day’ fund separate to your savings and everyday accounts. This makes it just that bit harder to access on the spur of the moment!
Retirement Savings: Saving for your retirement is easy to put off. But retired people who are now enjoying the benefits of their own savings will say that starting regular saving early was one of the best decisions they ever made.
The Australian government’s productivity commission paper titled “An Ageing Australia: Preparing for the Future” provides much food for thought.
The report details the expected trends with regard to life expectancy in Australia and what effect this will have on the government infrastructure that is currently in place to assist retirees and pensioners.
The report projects that Australia’s population will rise to about 38 million by 2060, with the population aged 75 or more expected to rise by 4 million.
One of the results of this trend is that Age Pension eligibility and superannuation preservation ages may be increased to partially reduce the burden on government resources.
By investing outside of your superannuation, you will have the flexibility to access those funds when you need them, rather than when the regulations provide you with access.
While there are circumstances in which you can access your super earlier; they usually require a certain level of personal or financial hardship to be eligible.
While your employer’s superannuation contributions may provide you with a sizeable nest egg come retirement, you may find yourself living a less-than-luxurious lifestyle (current estimates are that single retirees will need around $42,500 per year to enjoy a comfortable retirement, with couples needing $58,500).
With that in mind, make 2015 the year that you start making contributions into your fund if you aren’t already.
Risk Management: Finally, a warning – there is no 100 per cent guarantee with any financial venture. Whether personal injury, illness or redundancy; major changes in the economic climate or legislation; or catastrophic natural events like bush fires, cyclones or floods, things outside of your control can have a dramatic effect on your ability to earn, and save.
While you may not be able to prevent the problem, you can certainly help prevent injury to your investments by ensuring that you had adequate insurance for yourself, your family, your possessions and your income or business if you are a business owner.
So, make sure you are starting this year with a clear set of financial goals and realistic, appropriate plans for achieving them.
There’s plenty of expert support available to you. Why not schedule a meeting with your financial adviser now?
Disclaimer
Information current as at 2 July 2015
The advice is general in nature only and does not take into consideration your financial situation, goals or needs. Before making any investment decision you should consider the appropriateness of the information to your circumstances and obtain a copy and read the Product Disclosure Statement. Please seek expert advice prior to acting on this information.