Financial mistakes made now could affect your long term financial security.
When it comes to creating financial independence, starting with the fundamentals and starting early could make all the difference.
#1 Spend less than you earn and invest the rest
Investing small amounts over a long period of time can really make a difference when it comes to achieving financial independence.
Too often we hear “We are earning good money but we don’t seem to be getting ahead.” Harnessing the power of compound interest means that even a modest capital investment can significantly build your wealth over time. For example, investing just $200 a month at an interest rate of 5% pa for 20 years could result in savings of $82,207.[1] Investing is also an important financial planning tool for building a passive income stream to replace your employment income in retirement.
#2 Have an “in case of emergency” fund
In a 2016 Global Survey findings report completed by a leading insurance provider, 29% of Australians indicated that if they were unable to work due to illness or injury, their savings would only be able to support them for one month or less, with 65% only having savings to support them for less than six months.[2]
Emergencies do happen and without an easy-to-access emergency fund, you may be forced to borrow money, which could leave you under additional financial pressure. As part of any financial plan or strategy consideration of an emergency fund is important.
#3 Protect your most important assets
Having insurance in place for you and your family can help safeguard your financial position and provide you with peace of mind should the unexpected occur.
It is estimated that 20% of mortgage defaults are due to an accident or illness of a person in the household.[3] Your ability to earn an income is one of your most important assets and yet while 83% of Australians have insurance for their car, only 31% insure their ability to earn an income.[4] If you would suffer financial stress if you were unable to earn an income, securing income protection insurance should be something you consider as a matter of priority.
When it comes to personal insurances, including Income Protection Insurance, Total and Permanent Disability Insurance and Life Insurance, the devil is in the detail, so it is always recommended to seek professional advice.
#4 Manage your debt
Your debt position can have an enormous impact on your financial well-being and a good debt management plan is as important as a wealth creation strategy when it comes to achieving financial success.
Australian household debt has tripled over the last 25 years,[5] and it is estimated that the average household owes $250,000, with mortgages representing 56.3% of all personal debt in Australia.[6]
Seeking advice from professionals such as financial advisers can help identify strategies to manage your debt more effectively. Strategies may include understanding your expenses, prioritising debt repayments (good debt/bad debt) and identifying inefficiencies in the structure of your debt.
#5 Have a plan in place and start early
Implementing a financial plan is about establishing good financial habits, making the most of your circumstances and safeguarding your financial position so you can work towards achieving long term financial security.
Seeking financial advice may not be as overwhelming as you think and is a positive step forward. Consider capitalising on the experience of a professional to help you avoid unnecessary financial difficulty and set strategies to help you achieve your financial goals.
Don’t put off planning for your future, the sooner you start the better. Simple steps taken now can have enormous benefits for your future.
If you would like to know about financial strategies to help you create financial independence, I encourage you to contact us now on 07 3720 1299 or email admin@wealthfundamentals.com.au
1 This calculation does not take fees or taxation into account. Assumes that deposits are made monthly and interest is credited monthly.
2 https://www.zurich.com.au/content/dam/au-documents/news/income-protection-gaps-challenge-and-opportunity.pdf
3 Mortgage default in Australia: nature, causes and social and economic impacts, Australian Housing and Urban Research Institute, March 2010
4 NS/IFSA Investigating Income Protection Insurance in Australia, July 2006
5 BankWest Curtin Economics Centre – Household Savings and Debt in Australia Report – June 2015 (p iv & 12)
6 https://www.finder.com.au/australias-personal-debt-reported-as-highest-in-the-world
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
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