Will you choose to work in your retirement because you want to, not because you have to, will you play golf, or will you travel? What will you want to do? The reality is that most people will plan a holiday in the greatest of detail, but when it comes to planning their financial future, they procrastinate, limiting their ability to build enough wealth for their retirement and making it more difficult for them to have choices in their retirement.
When they finally do start to develop a financial plan, they realise that retirement is not that far into the future anymore and they wish they had started their financial planning earlier.
It is never too soon to start planning.
Many people over the age of 30 are either in serious relationships or married with young children during this stage of their life.
Regardless of your personal situation, the focus shifts more towards home ownership and increased debt levels.
Not surprisingly, finances will revolve around increasing the household income, securing the best home loan and educating the kids.
Your first priority for your income is security.
If you are able to find ways to move up the company ladder, build up your income or increase your earning potential, you will be able to improve your wealth creation opportunities.
If a spouse chose to stay home to look after the kids, they may now be in a position to consider working from home part time or to find a casual job with flexible hours.
This is the time to concentrate on building your wealth.
Many people may be surprised to learn that they can invest while paying off a mortgage and bringing up the kids by using the equity that you have built up in your own home.
This is the time when you could consider investing into growth assets, eg.
Property, Shares or Managed funds.
You will however need to consider the level of risk you are willing to accept when planning your investment strategy.
Generally, if you take on a higher investment risk, you would expect to be rewarded with a higher return.
The lower the risk, the lower the return you can expect.
The share market is considered "volatile" (goes up and down in value at a rapid rate).
Therefore, an investment in the share market, even in blue chip shares, would be considered a high risk strategy and only suitable for those who are comfortable with and understand market fluctuations.
Over the long term (in excess of 5-7 years), the share market has proven to be a solid investment performer.
Property has also proven to be a solid performer over time, but without the same volatility of the share market.
Beware the "get rich quick" schemes that are sometimes promoted.
The old saying, "If it sounds too good to be true, it usually is", is more often than not proven to be the case.
This is the stage of your life that you should be concentrating on building your wealth consistently over time.
As you increase your level of borrowing for investment, it is important that you also consider protecting your income and family.
Many people understand the need to insure their car, home and home contents but neglect to protect their most precious asset, their income.
At this stage of your life, you need to ensure that you are able to continue to provide for yourself and your family for many years to come.
Personal insurances such as Income Protection, Death and Total and Permanent Disability cover and Trauma cover will ensure that you can continue to meet your living costs and protect your investment strategy if you were to become critically ill or unable to work.
Income protection premiums are generally tax deductible.
Some of these insurances can be held inside your super, so it will not directly affect your personal cash flow, however the premiums will be paid from your superannuation balance which will affect your balance at retirement.
The following are some alarming statics that will help you to understand why it is important to protect yourself:
- 1 in 11 women will be diagnosed with breast cancer before the age of 75.
? 1 - The incidence of breast cancer has risen over 18% from 1995 to 2005.
1 - Each year, around 40,000 Australians have a stroke; for 70% it will be their first? 2
- Around 11,300 new bowel cancer cases are diagnosed every year? 3
- Cardiovascular disease is the leading cause of disability in Australia (20%) follow by cancer (19%)? 4
- One in three men and one in four women will suffer from cancer in their lifetime? 4
- Zurich reported in 2006 that 30% of Income Protection claims were as a result of an accident and of those, 70% occurred outside the workplace.
Accidents outside the workplace would not be covered by workers compensation. - Every working Australian has a one in three chance of becoming disabled for more than three months before turning age 65.
5 - In 2008, $1.
6 Billion dollars was paid out to Australians for Death Cover claims, $370 million was paid out for a Total and Permanent Disability, $697 million was paid out for Income Protection and $334 million was paid out for Trauma (major critical illness).
6
Breast Cancer Australia, 2005 2.
Australian Institute of Health & Welfare, Australia's Health 2002 3.
Australian Institute of Health & Welfare, Cancer in Australia 2000 4.
Cancer in Australia 1998, Australian Institute of Health and Welfare 5.
Calculations based on data from the Institute of Actuaries of Australia 2000.
Interim Report of the Disability Committee.
IA Aust: Sydney 6.
Risk Store 2008