You’ve been busy, you have a great life, and then you realise you haven’t even thought about planning your finances beyond your next pay.
Don’t fret, with good advice, it’s never too late to improve your wealth position. The longer you procrastinate though, the ability to make a real difference is reduced.
For the average thirty-something, there are still 25 – 35 years ahead in the workforce. This is plenty of time to build wealth and ride out the market peaks and troughs that on average occur every 7 years. The sooner you have a plan and act on the plan, the more likely you are to achieve your goals.
Financial circumstances vary greatly between individuals and generalisations can be dangerous. Some of the most common questions financial experts get asked are:
How do I best reduce my mortgage?
Should I put more into super or pay down the mortgage?
How do I build wealth for the kids education?
How do I maximise my career/new business opportunities?
What if I get sick and can’t pay the mortgage? Should I consider income protection insurance?
What if I die, will the family be ok financially? Do I need life insurance and have I got an up to date will in place?
How do I protect what assets I have and are my affairs structured correctly?
My parents are getting older, what will happen when they are no longer self sufficient?
How do I best manage my cash flow?
How do I financially recover from divorce?
Answers to these types of questions are complex and a reputable financial planner is a must to develop a plan that takes into account your personal circumstances and your goals. This must be your first priority. It is very tempting to rush ahead and make decisions, but any decisions you take must be a deliberate part of a broader plan.
Note too that your plan that can, and no doubt, will change over time. It is not a ‘set and forget’ document that sits in a bottom draw, it must be revisited regularly as your circumstances change, no less than twice a year.
There’s a very good reason businesses develop budgets and strategic plans. The mere process of preparing them makes the stakeholders think about what the future looks like for the business and it’s SWOT (strengths, weaknesses, opportunities and threats). The same thinking applies just as much to individuals.
Start by taking a realistic snapshot of you and where relevant, your partners assets and liabilities. The key is to be realistic not optimistic or pessimistic. Do the same for your sources of income and your living expenses.
This snapshot forms the basis for a budget that you can then massage for the ‘what ifs’ that might arise.
Now, think as best you can about what your life goals. Look at the short, medium, and long term and consider what financial liabilities might arise that have to be factored in.
This can be a bit daunting to do and your financial planner can guide you. Remember though they can’t be your planner’s goals, they must be yours. Your planner’s role is to prompt you to think about the typical things that you should consider.
As part of the plan you develop, do think about paying off debts that are not in relation to wealth building assets. The best example of this is high interest credit card debt. Debt consolidation where you consolidate your debts into one lower interest product might be an option to consider.
Given the low interest rate environment prevailing at the moment, it is not such a simple answer any more to pay down your mortgage before investing in super. This might still be right choice but consider it with your professional advisor.
I am a fan of investing in property but whilst talk of a property crash is probably overstated, it is more likely than not that there will at least be a softening in the growth rates we have seen in the Sydney market.
Negative gearing property can be a great wealth building strategy but you must be able to afford any after tax net cash flow shortfall from the property and even if you can, it will still be an unsatisfactory investment unless your capital gain ultimately covers the cumulative net cash shortfalls you have experienced over time and makes a return of at least 6% p.a. above these shortfalls.
This is where it is important to obtain professional help. If you need medical help you see a doctor, the same thinking really should apply to your finances.
For professional assistance visit: www.bellpartners.com
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