Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.
With life's big financial milestones just around the corner getting off to a good start in your 20s and 30s will help set you up for financial freedom later in life. We asked senior financial adviser, Nga Vu CFP®, from Kearney Group, for some simple ways to manage your finances each step of the way.
Q: Transitioning from ‘my’ money to ‘our’ money can be tricky. What are some ways to successfully manage money as a couple?
A: The most important thing is to be really honest about the way you both think and feel about money. In particular, when you’re in a relationship which may not be financially balanced (i.e. one person earns more, or has a bigger pool of assets), there needs to be a change in mindset that you’re now working together rather than wasting your energy operating as two separate individuals. That’s not to say you need to lose your financial independence when you become a couple, rather it’s about recognising that perhaps you could be doing things better if you looked at your finances jointly.
Buying a home
Q: Owning a home is still a major life goal for many Australians. What are some practical tips for young people who want to get onto the property ladder?
A: Firstly, identify what your savings capacity truly is. If you understand how much is coming into the household ‘bucket’ (income), and then how much is going out (lifestyle expenditure and other financial commitments), then the leftover part is what you’ve got to work with in terms of developing a savings plan.
Once you know how much you can save, you can then start to figure out how much you want to spend on the property you’re looking for. It might be worthwhile breaking down your criteria into two distinct categories; the ‘must-have’ list and the ‘nice-to-have’ list.
Then it’s essentially working backwards to find out how long it’s going to take you to save up for the deposit. There are plenty of savings calculators out there, which can assist with this.
Starting a family
Q: Are there any key financial must-dos for expecting parents?
A: It’s so important that you get thinking about it early on! Firstly, have a look into your leave entitlements. Do you or your partner have any paid or unpaid parental leave benefits? Also check out your private health insurance before you fall pregnant, ideally 12 months before, as there are typically waiting periods.
Next, make sure you understand what your upfront costs are going to be. There will be expenses relating to the hospital, and of course all the stuff for the baby. Then consider what the ongoing expenses might be. It’s not only the nappies and baby food that you need to factor in, but also the increase in other household expenses.
If you’re thinking about upgrading the house or car, make sure you plan for it as soon as possible. Also what can you do to build up your savings now? For instance, you could look to reduce your home loan repayments to interest-only rather than principal repayments, and negotiate a lower interest rate on your debt.
Starting a business
Q: Our 20s and 30s are a time for big career moves, and for some of us that means striking out and starting our own business. Any advice for budding entrepreneurs?
A: Be sure to get good advice from an accountant about how you should set up your business. They should be able to advise on whether a company, partnership, sole-trader or trust should be set up to aid future growth. They will also talk to you about the most appropriate structure that will best protect your personal assets.
Make sure you understand your costings. What are the setup costs going to look like? What are the ongoing expenses of operating your business? And what sort of activity do you need to focus on to make it a profitable business venture? How long is it going to take before you start to make a profit?
Finally, you need to have a contingency plan. If things don’t work out, you need to set yourself a limit on how much you’re prepared to invest into the business from a time and money point of view.
Creating and protecting wealth
Q: Is it really possible to start building wealth from a young age? And once we do get some savings in place, how can we protect and grow that wealth into the future?
A: Absolutely! At the end of the day it’s not how much you earn, but what you do with your money that makes a difference. Like most strategies, it involves getting your budget and cash flow system down pat. Once you have identified how much you can save and invest, then it’s about looking at how you best build the wealth. If you need the money within a relatively short period of time, then you’d be looking at a high interest savings account that can be accessed readily. If you don’t need to rely on the money for at least five years, then you could start to look at shares or managed funds as an option.
Once you’ve got an investment program underway, what would happen if your income stopped because you fell sick or had an accident? Having high quality income protection means you could still receive up to 80 per cent of your income while you’re unable to work. This means you don’t have to compromise on your future wealth creation program.
Just putting a few things in place while you’re young can have a huge impact on your future wealth.
Nga Vu CFP® is a senior financial adviser with Kearney Financial Planning Pty Ltd, a Corporate Authorised Representative of Securitor Financial Group Ltd, ABN 48 009 189 495, AFSL 240687.
Regardless of your age or stage of life, financial planning can help you reach your goals. Learn more about how a financial plan can help you here or use our Match My Planner tool to locate one near you.
This article contains general financial advice only. It is provided by an Australian Financial Services licensee (AFS licensee) or the employee or authorised representative of an AFS licensee as identified in the article. General financial advice does not take into account your objectives, financial situation or needs, and you should consider seeking professional financial advice before acting on the general advice provided.
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