Posted on 17/04/2018
Save more, spend less and plan for the future…that’s the simple money advice that’s drummed into most of us from a young age.
While it might sound straightforward, the reality is that many adults find it difficult to put it into practice. In fact, household debt in Australia has almost doubled in the last 12 years according to the Australian Bureau of Statistics (ABS).
The reasons are many and varied. Often it’s the immediate gratification of a new outfit, night out or a quick getaway that are continual setbacks, while the high costs of living and raising a growing family are more sustained barriers to reaching wealth goals.
Whatever the reasons, it’s important to realise that it’s never too late to get your finances back on track.
Statewide Super’s Head of Financial Planning, Lisa Palmer, said the key was to understand where you wanted to go, and then put measures in place to get there.
But what exactly should you be aiming for? Here’s some broad financial benchmarks for each stage of life to guide you.
Ages 20 - 30
In your early 20s, many people are emerging from university or are in the early stages of their career, so saving isn’t always a top priority.
However, Lisa said this is when you should put in place the financial habits that will last a lifetime, such as learning to live within your means, putting money into savings and contributing extra to your superannuation.
“This is the age when your financial foundations are going to be set, so you need to get the fundamentals of building wealth right,” she said.
“As well as putting a good financial plan and budget in place, focus on paying down any early debts such as student loans as quickly as possible.”
Consider using budgeting tools to help set you on the right course.
By your late 20s, your income will start to grow as your career progresses. But so will your financial responsibilities. You may be in the early stages of starting a family or taking on mortgage debt, so the demands for your hard-earned income are also likely to increase.
Benchmarks to aim for by the end of this stage:
• Working to a budget so you can understand where your money goes
• Establishing a cash reserve that holds around 3 months of your income needs
• 5 per cent salary to superannuation
• Insurance in place to protect your income and our assets
Ages 30 - 45
This is the phase of life when you’re aiming to strengthen your financial position. If you haven’t already you’re likely to purchase your first home during this period, as well as considering an investment portfolio - which may include property or shares.
At the same time many find this period one of the most challenging, with growing families putting pressure on the family budget. This is when the disciplines you put in place in your early 20s will start to pay-off.
“In this stage of life you’ll be juggling more competing priorities than ever before, so it’s important to stay focused on the end-goal.”
Aim to keep your additional superannuation contributions in place during this period, no matter how tempting it is to access that extra money.
There’s a range of tools and information on the MoneySmart site to help guide you.
Benchmarks to aim for by the end of this stage:
• 5 per cent of your salary in superannuation
• Building equity within your home and possibly starting other investments/savings
• Keeping debt levels in check with no more than 30 per cent of your disposable income being required for minimum loan repayments.
Ages 45 – 55
If you’ve put in the hard yards early in your working life, you’ll find that the pressure valve starts to ease by this point. That’s not to say things will be easy. You may still have mortgage debt, as well as financially supporting your growing children through their teenage or young adult lives.
You’re likely to start building significant assets by this age, so reviewing your life and income protection insurances to protect them is worth exploring.
It’s also time to get more focused on your superannuation. You’re reaching the peak of your earning capacity and still have many working years left, so it’s the ideal time to accumulate super - particularly when you don’t know what may be around the corner.
Benchmarks to aim for by the end of this stage:
• 5% salary in superannuation
• Increased equity within your home and building of other assets
Age 55+
This is the stage where you’re likely to experience greater financial independence. You’re less likely to have mortgage debt or repayments, your children have probably flown the coop, and you can start to make financial decisions on your terms.
Lisa said that during this period, you’ll want to balance lifestyle needs such as travel and asset upgrades with continuing to save for the future. She suggested this being a good time to explore how super can be used differently to help save for the future whilst still balancing out current and future needs.
Benchmarks to aim for by the end of this stage:
• 5 per cent salary in superannuation
• House paid off
• No debts
How financially fit are you for your age?
