Financial Management Tips for Every Stage of Life
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Published by TOP4 Team
No matter what your age is right now, taking control of your money boils down to spending less than you earn and investing that surplus well. Although it sounds simple, in reality, this turns out to be quite hard for most people. But if you can master this, plus make some smart money moves as the years go by, you’ll reap the rewards. And extra money will give you the freedom to make more choices about how you want to live your life.
Take control of your finances now and reap the rewards later. Here are some tips on managing your funds at every stage of life.
By the time you reach your 30s, it’s likely that you’ve settled on a career. You may be in a permanent relationship and you have children.
Buying a home in a growth area, even if it’s an investment, is a smart move. So is putting every spare dollar into the mortgage. Paying off a home is enforced saving, and a debt-free home is an important component in long-term financial freedom.
Another must is personal protection. How will you manage without your regular salary for a time? What will happen if you can never work again?
If you enjoy a double income and plan to start a family, work out how you’ll live on a single income for a period. If you have children, start saving for their education. A good strategy is to pay extra off your home loan, provided you have a redraw facility so you can get it back when you need it.
Draw up a budget and stick to it, but do build in some money for indulgences. And if you have credit or store cards, don’t abuse them.
The 40s can be very expensive, especially for those with school-age children. You may need more suitable accommodation for your family, particularly teenagers. In this case, renovating and expanding may be cheaper than moving. Staying put means this money can be used for a renovation or extension project instead. If you want to move, always sell first, as this puts you in the box seat to do a better deal as a buyer. Do the opposite and you may be under pressure to sell quickly, often at a discount.
Keep your personal protection and continue paying spare money into the mortgage, even if it’s mainly to build up a stash to redraw for renovations and school fees.
If you have no children and/or earn a high income, you may have paid off the mortgage. If so, invest the surplus money rather than spending it on lifestyle. Maybe start a share portfolio. If being a DIY investor doesn’t appeal, check out managed funds, where a professional chooses the stocks.
For most people in this age group, a decade when you’re likely to be earning more and have fewer family costs, it’s a time to aggressively create wealth. By now, many will be living in mortgage-free homes. It’s time to move into superannuation, as you’ll be able to access it soon. Once you hit 50 you can put $50,000 each year into super and pay only 15% tax on it.
If you intend to put a lot of money into super, choose your fund and investment options wisely — many people have lost a lot of their super in the current global financial crisis. For many, low-free industry superannuation funds are a good choice, which typically dominate the top 10 place for returns.
As you age, you should keep some super in growth options, such as shares, but it’s also wise to increase the amount you have in safer options.
60s and Beyond
You may still be working full-time but some people in this age group will be thinking about cutting back. If so, transition-to-retirement pensions (TRAPs) are for you. These enable you to draw from your super tax-free while still working. TRAPs allow you to take up to 10% of the balance each year, and the investment earning on the balance are also tax-free.
If you’re worried because your super balance is low, investigate reverse mortgages, which give you access to some of the equity in your home. The capital is repaid (with interest) when you leave your home or when you’re out of your estate. At this time, you should also reassess your level of personal protection, as you may longer need as much.
Learn more smart money moves from the banking & financial experts in Australia today.