Don’t wait until your 60s to see a Financial Adviser
Ask most people in their 30’s who their financial planner is, and the typical response might be huh? Most younger people have the perception that financial advisers are for older people with plenty of money to invest.
Whilst it’s true that people nearing or in retirement will benefit from sound advice. so will younger people. With the benefit of having time on their side, and with some help from an adviser, a 30-something can easily create a wealth formation plan that can provide a substantial payoff in the future.
Exploit compound interest
It’s been called the most powerful force in the universe. Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest and it can deliver dramatic results.
If you invested $10,000 for 5 years at 5%, with interest calculated and added monthly, you would earn $2,834 in compound interest after 5 years, giving you a total of $12,834. Returns would be higher because you’d earn interest on the interest. The longer you go and the more that you contribute the bigger the ultimate balance so starting investing at a younger age will give you a bigger return.
The wrong sort of debt can have a huge impact on your future wealth. High interest debt such as credit cards and payday loans should be avoided if at all possible. Combining several debts into one lower interest loan can help get debt under control and save you a large amount of interest.
Even with ‘good’ debt, such as a home loan, simple strategies can pay big bonuses.
For example, repayments on a $500,000 mortgage at a 4% pa interest rate over 30 years will be $2,146.90 per month. Increase mortgage repayments by $166.67 per month ($2,000 per year) and the loan will be repaid in just under 25 years, saving $80,144 in interest. Making extra repayments can cut your loan by years and can save you thousands. It is really worth looking into.
In these two examples the savings plan would deliver the bigger result overall due to the higher interest rate. However, paying down the mortgage is a low risk strategy. The higher return from a long-term savings plan is likely to come with a higher level of risk. An adviser can help you find your investment risk comfort zone.
Where will the money come from?
While some people in their 30s can certainly find a couple of thousand dollars a year for savings and debt reduction, for other that’s not such an easy undertaking. However, substantial savings may be hiding in plain sight. For example, the average Australian household throws away over $1,000 worth of food every year. There’s half the target already. Buying lunch each day can easily cost over $2,000 a year. Taking lunch from home occasionally could provide you with the rest.
Don’t forget protection
Regardless of age, bad things can happen. The financial consequences of death, illness or disability can be shocking, and the younger you are the bigger the potential effects. Have you considered how will your retirement look if you’re no longer able to earn an income or contribute to super?
Most Australians have much less life and disability insurance than they need. Your financial adviser can help you ensure that your family’s wealth creation plans are well protected.
Financial Planning and Accounting Services under the one roof.
Simple savings plans or increases in mortgage repayments are simple strategies that anyone can put in place. However, we live in a complex financial environment, and expert advice can really help you make the most of the wide range of opportunities available. This includes choosing the right savings structures (superannuation or non-superannuation), and investment products that suit your resources and priorities. A planner can also help you find hidden savings and run the numbers to help you choose between different strategies.
John Sciacca will provide an initial appointment free of charge.
Please call 07 3357 5553 to arrange an appointment with John.