For many twenty and thirty-somethings, their net worth is negative and heading south rapidly. With good incomes and great lifestyles, financial planning is a distant thought as many continue spending more than they earn and ignoring the consequences might make for fun today, but the repercussions can last decades.
A survey conducted by Leading Edge Trends revealed that the majority of 18-24-year-olds will not own their own property by the time they retire. In addition, a survey by Impact Leaders found that one-third of 18-34-year-olds have no savings and excessive debt. It would seem that the “buy now, pay later” mentality is to blame. Many of these individuals will find themselves excluded from property ownership while others will struggle with mortgages late in life and the financial insecurity this will cause during their retirement years.
You may think that planning finances in your twenties and thirties will mean life becomes less enjoyable, but life is so much more enjoyable when you’re not worrying about money.
Recognising the value of your greatest financial asset, and actually making a start can see your finances perform better than the majority of your peers…
Do you know your greatest financial asset?
Robert Kiyosaki, the author of Rich Dad Poor Dad, provides a simple description of an asset: “An asset is anything that puts money in your pocket and an expense is anything that takes money out of your pocket.”
Your single greatest financial asset, by this description, is your ability to earn income over your lifetime.
When you start earning an income, often expenses are low and disposable income is high, this can change quickly depending on your lifestyle choices.
Earning $180,000 a year is a great achievement, but if you’re squandering your income funding excessive lifestyle choices, then you have less sense than someone who earns $90,000 and saves half. Why? Because money spent is money lost.
If you recognise the opportunity your greatest financial asset represents early on, you can put your disposable income to work rather than letting expenses get out of hand. Even regularly putting aside small amounts can give you a big head start on your more indulgent peers…
But first, a very common way many people put their income to work…
After graduating from University, Dave was fortunate in finding a well-paying job. He was quick to enjoy his financial freedom but failed to think about the future. After all, retirement would take care of itself, right? He had a life to live.
Dave’s first purchases included an expensive wardrobe and a trendy car. He planned on climbing the corporate ladder in style. Enjoying this new and exciting lifestyle, Dave frequently visited restaurants and bars. He also made overseas holidays a yearly habit.
After returning home from one of his grand vacations, Dave was informed that he no longer had a job – his position had been made redundant. Unfortunately, Dave’s lifestyle had not included putting money away for a rainy day. With no savings whatsoever, he had to borrow from family in order to pay his rent and other bills. The next thing to go was his car. Soon, things became so desperate that Dave resorted to using credit cards to manage everyday expenses.
After several months, Dave was fortunate enough to find a new job with a good salary, but the period of unemployment had already done a lot of damage. Dave was now straddled with considerable debt. A large portion of the salary he now had would be going towards paying off that debt – delaying Dave’s ability to generate any real wealth by years.
Small amounts can give you a big head start
A proactive approach early on can see your savings grow exponentially, far surpassing your peers…
The same approach can be applied to voluntary superannuation contributions. Salary sacrificing into super is a tax efficient option for your surplus cash flow and the right attention early on can contribute substantially to your long-term personal wealth.
Common-sense financial advice we all know, but hardly anyone uses to avoid ending up like Dave…
During your twenties and early thirties, thoughts of saving for tomorrow – much less retirement – can seem the world away. As your parents and grandparents have probably already told you “time flies” and it’s never too early (or late) to start planning for your future.
To avoid ending up like Dave, consider the following:
- Saving – The word “savings” is typically associated with thoughts of restrictions and missing out, but this doesn’t have to be the case. Small amounts of your income add up quickly, and while this money may be purposed for a future home deposit or holiday fund, the real gain is financial peace of mind.
- Budgeting – We know budgets aren’t sexy, but neither are money worries. Developing a realistic budget can actually provide financial freedom. It helps you to live within your means without relying on your credit card. You will always know where your finances are and, at the same time, stress less and enjoy life more.
- Protecting your income – Remember your single greatest asset? If you are using your income to forge your head start (and even if you’re not), income protection insurance is a great idea for young people who are starting out in their career. People never think twice about insuring their home, contents and car, but rarely ever consider that that these ‘assets’ are nowhere near as valuable to them (and their family) as their ability to earn income.
To shape a bright financial future like Stacy…
- Seek Financial Advice – Financial advice can help you make smarter money decisions, and it’s not reserved for pre-retires and millionaires. Good financial advice covers tax minimisation, investments, lending (gearing and debt structuring), cash flow management and property investing. The right financial choices have the potential to save you hundreds of thousands of dollars over your lifetime.
Better finances start today!
You will likely never make more money from an investment than you will from your personal income. When you begin earning an income you can ignore the future and focus on living large today, or recognise the impact your income can have on your future and take advantage of here and now to shape your financial future.
Interested in our Top 5 Wealth Creation Strategies? You can download it here