A basic principle of wealth accumulation is that at least some of the income you generate throughout your working years should be utilised towards growing your wealth. By accumulating growth assets such as properties, businesses or shares that increase in value over time, in retirement those same assets may be used to either partially or wholly replace the income you currently generate via your job or business profits.
No matter what your age, the actions you take today (or lack thereof) are either helping or hindering your ability to accumulate real wealth. There is a saying in property investing: “Don’t wait to buy property…buy property and wait!” In most cases, the earlier you start your journey, the better the outcome.
Normally, at this age you are just finding your way in the world. When you just start out in the work force or work part-time whilst studying, you may not earn a whole lot of money. So it may seem implausible to start thinking about retirement so soon.
Any money you earn will normally be allocated to things like paying rent/board, going out, buying a wardrobe of new clothes, getting a phone, laptop or other toys/tools of your chosen field that you need, travel or your first (or second!) car.
However, there are a number of really practical things you can invest in at this age:
- Invest in Your Education! It is never too early to start to learn about investing. There are many low-cost or free resources both on and offline that could help get you started.
- Develop Good Money Habits. Learn how to create a budget (and stick to it). A valuable skill is to keep a handle on how much you earn Vs how much you spend. If possible aim to save 10% of your income and live only off what is left.
You’ve probably been in the work force now for a few years. Hopefully you’re starting to get on top of your personal finances. Perhaps you have even joined up with a life partner and have doubled up your income.
- Buy A Less Expensive Car. Try to go for the least expensive car your ego can afford. Why? Because cars are generally a depreciating asset. This means their value starts dropping as soon as you drive it off the showroom floor. Consider driving a less expensive (but safe and serviceable) secondhand car and allocate those funds towards growth assets instead.
- Rentvesting. At this age it may be more advantageous, both financially and from a lifestyle perspective, to buy an investment property BEFORE buying your own home. That is, rather than buying your first home, buy your first investment property instead and let the tenant and the tax man help you pay for it!
If you have not already done so, this might be a good age to consider buying your first home. There is nothing like having a mortgage to focus you towards better money habits and building wealth over time.
- Pour Excess Income Into an Offset Account. Typically this is the age where you will probably have some of the greatest expenses, as you start raising a family. Having your money readily available via a Line Of Credit, or Offset, facility means you should have the flexibility to absorb any of life’s unexpected bills whilst continuing to keeping your mortgage costs as low as possible.
- Build Your Portfolio! For example, a good quality investment property, after accounting for the rent from the tenant, and any tax deductions, may only require $20, $50 or $100 a week to own in partnership with a lender. In fact, the right property could even put a similar amount of money back into your pockets each week.
Now is the time to take advantage of all the hard work and sacrifices you have put in over the last 20-30 years. So, what can you do to accelerate your wealth position?
- Use Other People’s Money (OPM). This is generally the time when you will be at your peak earnings capacity. It is also often the time where banks and lenders are happiest to partner with you on your wealth journey. Given that you may never have the ability to borrow more easily than now, consider your relationship to debt and decide if safe degrees of leverage can help you get to your wealth goals sooner.
- Supercharge Your Superannuation. Assuming the kids have flown the nest (or are at least not leaching off you to the same extent as when they were younger), you may now have more disposable income to start accelerating your asset purchases. You might also want to consider salary sacrificing, or making voluntary contributions to further boost your superannuation throughout this decade.
For those that have seen good gains in equity on their home &/or investment properties now may be a good time to look at consolidating your asset position &/or maximizing your cash-flows.
- Go Smaller for a Bigger Retirement. Now is the time in life where you might be able to consider downsizing the family home. For example, you might look to sell the 5BR family home on a larger block and move into a low-maintenance smaller property such as a 3 BR Villa or 2 BR apartment for example in an amenity-rich location. Or perhaps it is time for that sea or tree change you have always wanted?
- In Retirement, Cash Is King. Perhaps now is also the right time to look at rebalancing your portfolio or reducing your debt levels to provide for the income you will need to fund your ideal lifestyle into retirement. Unless you were late to the party, or have missed the boat altogether, and are still in asset accumulation mode, now is when you may want to start to realign your assets to be more focused on income rather than growth. Or at least have plans in place as to how you are going to transition effectively into your retirement years.
- A Lasting Legacy? Assuming that you have followed a carefully constructed wealth plan, started your asset accumulation early enough, and been well invested over the long term, now is really the time to look at enjoying your golden years and/or leaving a legacy. That could be as simple as helping out others with your time or any extra money that is surplus to your lifestyle requirements. Or it could be about bequeathing a large sum of money, creating a scholarship, or starting/contributing to a meaningful charity that will continue to benefit others in perpetuity.
3 Things We All Can Do To Ensure A Great Retirement
- Have a Plan. We travel all around Australia educating thousands of Australians every year on how to use property to better help them achieve their financial goals and are consistently shocked with how few people actually have a considered property investment plan. If you need assistance in creating your property investment plan, reach out! We are here to help.
- Start Early. According to an urban legend, Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it!”
- It Pays To Get Educated. Unfortunately, things like the collapse of Storm Financial, Westpoint, Opes Prime, Trio/Astarra, Sonray Capital and Great Southern Plantations (not to mention decades of financial and banking scandals) have shown us that it can be hard to know who and what to trust. That is why we always recommend you increase your knowledge base and get well educated in any markets you want to invest into.