When it comes to life goals, some of us have clear ideas about what we want at different ages – others are less certain. But through each life stage there are always some financial steps that can greatly improve our financial future to help achieve these life goals.
Here is an overview of the different life stages we may find ourselves in and the financial considerations appropriate to each stage.
Early working years
These are the years when it is important to invest in the most valuable asset – you. Developing skills and employability at this age will pay dividends throughout life. Saving regularly into at least a higher interest paying cash management or Internet type account is a good habit to get into at this stage.
Good Income, Few Commitments
These years are characterised by a reasonably free lifestyle. This presents opportunities to lay solid financial foundations for the future. Take advantage of compounding returns. An investment growing at 7% per annum for example, will almost double in value every ten years.
Investing in growth-type assets is another good option. This could be quality shares and property that steadily appreciate in value over the long term. Buying these investments with borrowed money, sometimes called ‘gearing’ or ‘leveraging’ can be a rewarding strategy. The borrowed money can build wealth faster whilst possibly delivering other benefits such as the opportunity to reduce personal income tax.
When in a relationship and preparing to start a family – financial goals become clearer, and making a dent in the mortgage is likely to be a main concern.
Although adding to your superannuation may not hold such high priority at this time making additional contributions to top up employer-sponsored super is a good idea. It can be done tax effectively using salary sacrifice (making contributions out of your before-tax salary).
These years can be enormously busy. Despite the increased outgoings, good planning can still kick some financial goals. People with a very young family may need to tread water financially for a few years – possibly until the children are at school. But this is a time when again salary sacrifice can make a big difference in the amount of super accumulated.
Keep focused on building an investment portfolio. Even a small amount invested each month in say, a growth focused managed fund, will accumulate to a decent nest egg by age 60.
Single, without children and able to afford to live an independent lifestyle. An easy time to spend money on yourself but still important to provide for the future. With plenty of income-earning years ahead, assets like shares, property or managed funds, should show good growth over time rather than more conservative investments, paying a regular, but lower return.
A lot of the financial pressure has generally eased by this stage of life. The larger expenses, including the mortgage, are nearing an end, and the children are largely independent.
If back to being a two-income household, earning ability is often at its peak. Income from investments usually does not have to be relied on yet. Investing in growth assets via a gearing strategy and/or superannuation may boost returns over the medium to long term and ensure investments last the distance through retirement.
Throughout this period, focus is usually on income generating investments. But with life expectancy at retirement currently around twenty years, some exposure to growth assets is still a vital if a nest egg is to keep pace with lifestyle requirements.
Franked dividends from quality shares can be an effective source of income and getting the right advice on rolling over super to an allocated annuity or pension can make a real difference to someone’s retirement lifestyle.
Not all our lives will follow this sequence. But whatever our aspirations, to reach those goals we need to take steps to achieve them. All it takes is a good understanding of what those goals really are, together with a plan of how to get there.
For more information and to find out how our financial planner Perth can help you, call Paul Baggetta on 9317 7300.
November 15, 2017
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Paul Baggetta is the Founder & Principal of Baggetta & Co. Paul Baggetta has been a Taxation Accountant since 1981, a Financial Planner since 1998, and in 1993 qualified as a Real Estate Licensee, holding a Triennial Certificate (currently not trading) and operated his own Real Estate business for property investment clients for over 5 years as a second business.
Financial planning services are provided by Paul Baggetta as an Authorised Representative (No. 261469) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services License No. 223135.
Taxation & Accounting services are provided by Paul Baggetta as a Registered Tax Agent (No.61487008) and is a Member of SMSF Association, FIPA & NTAA.