Written by Hudson Adviser Kris Wrenn
Many of you reading this will have children in their 30’s (or thereabouts). In their 20’s they may have travelled the world, hopped from job to job and quite possibly haven’t saved a cent. In most cases though when the 30’s roll around, some financial, geographical and relationship stability tends to occur. This doesn’t mean that they’re not making mistakes and below may be a few things for them to consider.
1/ Forgetting to save and/or invest. The classic rule of thumb is to save/invest 10% of your income but ANY saving/investing at this stage of life can result in a huge difference by retirement thanks to compounding. If you don’t have kids, then 10% is probably the bare minimum you could afford to squirrel away and 20% would be better.
At age 30, put just $200 a month away, achieve (a very conservative) 5% p/a, and by age 60 you’d have over $166,000. Wait until you’re 40 though, and that figure drops to below half of that, at just over $82,000.
2/ Don’t go too hard. Investing is great, but you don’t have to go hell for leather and buy 4 investment properties. I have spoken to plenty of members in their 40’s that have found themselves in a pickle, over-leveraging into highly negatively geared properties and eventually deciding they cannot manage it and are forced to sell up at a loss.
3/ Avoid investment fads. Agricultural schemes, the dot.com boom, ATM machines, car park spaces … more recently medical marijuana and crypto-currency. Investment fads will always come and go but they always seem to have one thing in common – a few get rich, and 20 times that number lose all their money. We like shares and property because you have over a century of historical returns to look back on. But whatever you do investment wise, diversify, and only invest in things you fully understand.
4/ Buying the dream car. It is very easy to get duped into buying a new car when companies sell you on the idea of low interest rates and it not impacting the cash flow too badly. What they don’t tell you is that the value of the car plummets when it is driven away from the dealership and continues to depreciate every day that you own it. Buy the car you need, not the car you want.
5/ Insure your most important asset. NO, it’s not your house. Your house is probably worth $500,000. Your most important asset is YOU, and more specifically your unearned income. If you’re 30 and earning $50,000 p/a after tax, then between here and age 65, you’re worth $1.75 million. Take out a decent income protection policy that will cover you for 75% of your income if you can’t work due to accident or illness, and pays until 65. (Most income protection policies under Super only pay for 2 years).
6/ Avoid credit cards, store cards, and any other form of debt other than homeloans. Rather than use any cards, you could even try taking out CASH each week and allocating parcels of money to different expenses. Using Cash when you pay for something really makes you think about how much things cost and whether you should or shouldn’t be buying it. I think as Cash becomes increasingly less used, generations are becoming increasingly detached with the actual value of things.
7/ You’ve got a spouse and/or kids – MAKE A WILL. You may be 35, but you’re not bullet-proof and a Will protects your family and also makes things so much easier during a time of grief.
8/ Don’t get “burned” and jaded by mistakes. You will make them. So you bought shares in November 2007 and then the GFC struck. It doesn’t mean shares are bad. So you bought a cheap investment property in a low socio economic area and the tenants stopped paying rent and then trashed the place. Get back on the horse and learn from your mistakes.