Advice for the ‘not-so-average’ woman: Key financial decisions to make at every age - Women's Agenda

Advice for the ‘not-so-average’ woman: Key financial decisions to make at every age

The Australian Bureau of Statistics recently painted a picture of the “average” Australian.

Apparently, she’s 37, married and has two children. She has a certificate in management and works a 32 hour week as a sales assistant. She pays $1800 a month for her mortgage on a three bedroom house in the suburbs, where she spends five hours a week on housework.

Does that sound like you? Maybe it does, but if it doesn’t you’re certainly not alone. The trouble with ‘averages’ is that so many people are simply NOT average. What about the rest of us? Some of us are younger and just starting out in our careers, some of us are older and have reached a few professional milestones.

Dishing out financial advice based on averages may not be helpful to the many not-so-average Women’s Agenda readers. Instead, let’s talk through the key financial consideration at each life stage so that even if you don’t fit the average Aussie mould, you can still make sure you’re financially fit.

Just what people should be thinking about financially at any age depends on many factors, but there are some major turning points in life when most people need to reconsider their circumstances.

Age 20 – Young adult just starting out

Long-term planning for a 20-year-old usually revolves around what is happening next weekend. However, it is never too early to start thinking about financial planning.

In previous generations our grandparents would advise their grandchildren that when they got their first real job they should put away 10 percent of their income for the long-term and start saving now for a block of land. While the times might have changed, those guiding principals have not. Learning to be a disciplined saver is very important – regardless of a person’s goals.

Identifying goals and saving towards them is an important part of ensuring financial fitness. Don’t endlessly ride the financial rollercoaster throughout life – take our grandparent’s advice and start saving by opening a bank account and saving 10 percent of the weekly wage

Age 25 – Single and career in full swing

With a solid career path and an attractive salary, now is not the time to just blow it. While it is nice to have a flash car, travel overseas and party, letting another decade pass with nothing financially to show for it could have significant financial ramifications in later years.

Sure, young people should have fun and reward themselves for their hard work, but in moderation. This is the time to build a solid foundation by being careful about debt and controlling the credit cards. By now people should not only be thinking about how to buy their first home but they should also be starting to be financially savvy and have a disciplined savings approach to the medium and long term – even if they don’t know exactly where life’s ferris wheel will take them.

Age 30 – Couple thinking about getting married

We know from statistics that one in three marriages in Australia fail and that 60% of those failures can be traced back to financial issues.

Before walking down the aisle, couples should make sure they are financially compatible by:

  • Understanding how each person lets money flow through their hands. Is one a spend thrift and the other a scrooge? Opposites don’t always attract when it comes to money.
  • Being clear about what assets, and liabilities, each person is bringing into the marriage.
  • Identifying each person’s goals and aspirations as well as prioritising them.
  • Preparing a budget individually and then as a couple to find the common ground.
  • Having honest and open communication when it comes to money matters.

Young couples should also not fall in to the trap of wanting all the consumer toys of today and paying for it with tomorrow’s money – this is the fast way to the big dipper of debt which can take a very long time to be rid of.

 Age 35 – A couple with babies

This is a ride that could make your bank account scream but financial planning and family planning actually go hand in hand. The importance of re-doing the budget at this time can’t be overstated – there is a lot more to consider than a new little mouth to feed.

A budget is the cornerstone of good financial planning and it can relieve some of the monetary stress around this life-changing event. There are so many things people should consider such as the loss of an income (maternity/paternity leave) and the addition of health, life and disability insurances to protect their loved ones.

Saving for these additional expenses, and buffering against the income drop, should happen at least a year out from even thinking about starting a family.

Once the baby arrives it also pays to start thinking about their future education. They might still be in nappies but if parents are contemplating a private school education they may not only have to enrol them now but start a disciplined savings regime as well.

Age 40 – A couple with school-aged children

If people didn’t know it then, they will know it by now – children cost money.

It’s not just the school fees but all the extra curricular activities and social happenings on the weekend – sports clubs, birthday parties and not to mention what it costs in petrol to be the full-time weekend taxi driver.

People should be accounting for all of the above and more. Usually this is the time when people have the biggest mortgage, the kids are the most financially dependent and there’s also considerable outgoings. Insurance is paramount to protect you against loss of income or – worse still – the total loss of the income earner.

The worst financial mistake people can make during this phase is trying to “keep up with the Jones'”. Having the biggest people mover, the biggest house and the best TV can put people under senseless financial pressure.

If people can keep focussed, this is the time to accelerate their wealth creation strategies towards retirement. The tax concessions on superannuation, coupled with the recent federal budget announcements, make super one of the most attractive methods of funding retirement.

Age 45 – Going through divorce

Nobody stands at the altar and plans for divorce but the facts are that not all marriages are going to make the distance.

The cost of divorce can cripple either party with often the custodial parent having to struggle to raise the children and the non-custodial parent having to budget for child support. This can be complicated with subsequent relationships, blended families and estate planning issues.

Financially speaking, when going through divorce people should consider:

  • Super is now treated as a matrimonial asset not a future resource – which means it can now be split or flagged to be spit at a future date.
  • Ownership of illiquid assets, such as property, need to be considered.
  • Ownership of insurance policies can cause a headache when they are cross-owned. Self-ownership of insurance policies may prevent this.

Sometimes a hard ask, but often a better financial outcome during divorce results from trying to stay on civil terms with an ex-spouse using methods such as mediation. An ugly fight-to-the-death in court could financially put both parties at ground zero.

 

Age 50 – 60 Empty nesters/ pre-retirees

The kids have flown the coup and now is the time for aggressive retirement planning. Not only is this a time when people consider superannuation more seriously, estate planning should hit overdrive as people think about making sure the right money is in the right hands at the right time after they’re gone.

People should ask themselves, “Do I really need to rattle around in a big four-bedroom house?” What landlord would want to have three empty bedrooms every night of the week collecting no rent? Now is the time to think about down-sizing to a more manageable property that could also free up investable capital or pay off any residual mortgage.

This may be also a time to scale back on insurances due to the kids leaving home and the clearing of debt. These freed up funds can be ploughed back into super and other retirement strategies.

Age 60 – Retired

By the time a person retires they should have cleared their debt.

In this phase of life people should be enjoying the fruits of their labour. However, it is also a time to be well informed and aware of any possible entitlements from Centrelink, Veterans Affairs and the range of concession cards from the Department of Family and Community Affairs.

People may also need to take a more conservative view on their investments to reduce risk as there’s no winding the clock back 30 years to build up wealth all over again.

Quality financial planning can help people sail through the sea of complex superannuation and pension issues.

Retirees should think about:

  • Careful budgeting – to avoid outliving capital
  • The big trip – spend carefully. People should be realistic about how long they can afford to travel for.
  • Lifestyle and health issues –plan ahead when considering retirement villages, hostels and nursing homes.
  • Estate Planning – this should be well and truly in place to protect loved ones.

Retirement should be enjoyed – not everything has to be preserved for the kids!

But to ensure people are in a position where they can make the choice between the kids and the caravan, they should make sure they seek out quality financial planning advice along the way. It can make all the difference – from protecting people from life’s unexpected but inevitable dips and turns to living the life they want for longer.

 

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