While everyone’s situation will be different, at this life stage, you may find yourself in a position where your work, family and financial life are very busy. By taking proactive steps now to manage and repay your debts, keep track of and manage your cash flow, income and expenses, and ensure you are saving for the future, you are laying the groundwork for a successful and secure future.
To grow your wealth, financial choice and security, you need to know where you’re at today, before determining where you’d like to be in future.
Have you taken stock of your current income and expenses? Your assets such as your home, superannuation or investments and liabilities such as your loans or debts against other assets?
Broadly speaking, your current income less your expenses will give you your current free cash flow. The question then becomes, what are you doing with this surplus income? Some ideas might be to direct some to cash savings, repaying debts, your superannuation or investing elsewhere to grow your wealth.
When looking to invest, it’s important to firstly consider your tolerance to investment risk, and secondly, your investment timeframe and plan or purpose of your investment.
Your risk tolerance, or risk profile, is an assessment of your comfort and tolerance of fluctuations in the value of your investment.
Where you have a long term investment timeframe, and are able to ride out the ups and downs which naturally occur in investment markets, you can be rewarded by high returns by having a diversified exposure to a range of investments. Investors with a shorter investment timeframe, who may need their invested amount available to meet short their term needs, are less likely to have exposure to such assets.
Your home mortgage may be the largest debt you currently have, and planning to reduce it as quickly as possible is a common goal for many individuals in their 40s.
Beyond paying more than the minimum repayment each month, there are a number of other strategies you can apply to help reduce your mortgage debt ahead of time.
Firstly, have you got the right home loan and the right loan structure? With many lenders in the market competing for new business, it’s worth checking if the interest rate and features of your loan still remain competitive every few years.
Many mortgage products offer additional features such as a mortgage offset account, which is generally an everyday savings account linked to your home loan. The balance of the offset account ‘offsets’ your home loan balance on a daily basis, meaning you are only paying interest on your outstanding loan balance, less the amount you have saved in your offset account. Mortgage products with offset accounts may charge a slightly higher rate of interest than an equivalent loan product without an offset account. As a result, you want to be sure you are benefiting by the offset account feature to make having such an account worthwhile.
If you’re disciplined and can accumulate your savings in an offset account, without spending it as the amount grows, you can take years off your home loan.
It’s also worth considering making fortnightly rather than monthly repayments on your loan. Because of the frequency of your payments, paying fortnightly (26 fortnights per year) allows you to squeeze in the equivalent of one extra monthly repayment throughout the year.
Your basic target should be to see your savings going up while you watch your debt go down!
Do you find yourself carrying more credit card debt than you would like? A great approach to managing credit card debt is to ensure you’re able to pay off your credit card in full every month. Spending beyond your means on credit can mean someone else is making money (interest) from your consumption.
From a cash flow point of view, it’s good to understand where every dollar is coming from, as well as, where every dollar is going. Start with a list, a spreadsheet or a mind-map on an A3 piece of paper, and you will be amazed at the clarity gained around your current financial wellbeing.
Finally, an emergency fund is not solely for a rainy day. A positive way to think of this fund is your ‘future choices’ fund, which can allow you to take a career break, some time off work, to study, start a business, take a holiday or explore.
Even though the reasons that may lead you to the choice might be unforeseen, such as a change in health or losing your job, a fund like this gives you more power to choose your response to these events.
Consider your position, your options and take the time and do your research so you can make an informed decision around your goals and objectives. You may also consider working with a financial adviser who has the expertise and experience to provide you with personalised recommendations of the next steps to move you financially forward.
The article was prepared by BT Financial Group (BTFA). BTFA is a division of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714,. This information is current as at 1 February 2019. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. While such material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.
This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it.
Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.”