Many older Australians anticipate working past the age of 70 instead of retiring at 65. For many, it’s because they simply can’t afford to retire, highlighting the importance of prudent financial decisions and wealth creation.
For people with young families, waiting until retirement is imminent is too late to start considering a financial plan. You must begin thinking about your financial future as soon as possible to set yourself up for a retirement on your own terms. Financial decisions and actions should be based on sound financial planning concepts to establish firm, achievable financial goals that you can benchmark against every year. This can then act as a roadmap to help achieve financial objectives.
There are six pillars of a strong wealth creation plan, which will provide structure to financial planning activities and help people stay on track:
- Manage cashflow: because cashflow is key to personal finances, it’s imperative to record and measure it. This provides evidence to help guide future spending, directed towards savings and investment goals as part of a budget.
- Protect income: the greatest asset anyone has is their ability to generate an income, which depends on ongoing good health. Protecting earned income through well-structured and tailored insurance policies is essential.
- Pay down inefficient debt first: inefficient or non-tax-deductible debt generally includes facilities such as credit cards, personal loans, store cards, and home mortgages. As non-deductible debt provides no tax benefits for any interest paid, it is literally just an ongoing cost. The faster the capital is paid down, the less interest it will accrue, making it even faster to pay the loan off altogether.
- Engage with super: the key benefit of superannuation is that it’s a low-tax environment to invest and grow wealth. To maximise the benefits of superannuation, people should monitor it regularly in relation to their retirement goals. By engaging with superannuation early, setting a realistic longer-term investment target, and monitoring against short-term targets, investors can see how they’re tracking towards their ultimate retirement goal.
- Structure wealth to grow: it’s important to understand the purpose of savings and investments. This will help direct the type of investment, level of access, and tax structures required. More often than not, people will have multiple investment goals, so investment structures are likely to vary to account for the time frame of investment, the flexibility required, and the acceptable risk level.
- Conduct strategic estate planning: it’s essential to have an up-to-date will that specifies how the estate should be distributed, who its beneficiaries should be, and any structures required to administer these benefits.
It’s never too early to start thinking about the future. Laying strong foundations as early as possible is the key to successful financial planning. Keeping these six pillars in mind can help direct financial decisions for the best outcome.
Anthony Riding, Financial Planner, RSM Financial Services Australia
