Financial strategies for life’s most ‘expensive’ years
So, you’ve bought a house and started a family. How do you manage to pay off your mortgage while juggling other expenses and save for your retirement?
The answer is simple: With a plan, and a budget.
Most people who are adept at accumulating wealth have one trait in common: They know exactly how they spend their money.
Once you know how you’re spending money, it’s easier to identify savings, and then make considered decisions about the money you’re saving. Putting some healthy financial habits in place will make a difference.
Small sums, big outcomes
“It’s unlikely that your income levels will change as fast as your expenses do when you’re in the throes of paying off a mortgage and raising children, particularly if one spouse takes time off work to take care of the family,” says Russell Tym of Money Link Financial Planning.
“These are undoubtedly the years when most families find it difficult to save. The key is to be savvy with your money. By doing a household budget, you might be surprised to find that you can shave a little extra off the mortgage, as well as put a little extra into superannuation or other investments for the longer term. Remember that you don’t have to be thinking about big sums of money. Making small savings, consistently, over time, can make a big difference to how much wealth you can accumulate.”
Paying off your mortgage faster.
With mortgage rates predicted to rise, it’s important to consider how you manage your biggest debt – your home loan.
“By paying your mortgage weekly or fortnightly, you can make the equivalent of one extra monthly repayment every year. Another good strategy is to ‘round up’ your repayments. For example, if your payments are $2,800 a month, and you can make them $3,000 every month, you’ll benefit. And then of course, depending on what type of loan you have, you can tap into the funds if you have an unexpected big item expense,” says Russell.
“Review your mortgage regularly and ensure you’re getting the best interest rate and you have a mortgage and a borrowing strategy that both meet your needs,” says Russell. “Also make sure that you’re paying off the principle – this builds your equity which can be used down the track to make other investments.”
Putting more into your super
Get financial advice from an accredited financial planner about the personal contributions you can make, or payments you can make on behalf of a spouse.
“The new superannuation rules mean that there are tax benefits to both, and while you cannot access your superannuation funds until you’re ready to retire (unless you’re making an investment through an SMSF) you’ll be glad that you made extra repayments when the time comes to stop working,” Russell explains.
Consider managed funds
If you’ve done a detailed household budget and have figured out where you can save, then consider putting money into a managed fund. Managed fund portfolios are not expensive to start. What’s more, they’re liquid assets, which means that you can access your money if you need to. Managed funds offer a better interest rate than a bank savings account will offer right now, and it’s easy to set up a monthly direct debit.
“Some parents start managed funds on behalf of their children,” says Russell. “Making small regular contributions and inviting friends and family to make contributions at Christmas or Birthdays. This way, the children will benefit from a nest egg down the track when they need it – perhaps when studying at university or buying a first home.
Make insurance a priority
While none of us want to think about the things that could go wrong, if you have to stop work, or if you die suddenly, financial commitments like mortgages and school fees and electricity bills still need to be paid
“By making insurance a priority component in your overall financial strategy, you can make sure that you’re protected,” says Russell.
The key to getting ahead is understanding what financial strategies work for you, and where you’re at in your life. There is no ‘one-size fits all’ solution and it’s important to make time to sit down with a financial planner who can help you understand where you’re at and provide tools, advice and directions for the financial future you’re trying to achieve.
For personal financial advice, contact us.
This is general advice and should not be treated as personal advice. Russell Tym is an authorised representative of MoneyLink Financial Planning Pty Ltd ASFL No: 247360.
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