We probably all know people who have been on low to medium incomes but amassed considerable wealth and have become financially independent.
Conversely, many of us are probably aware of high income earners who mismanage their money which highlights the need for sound financial advice.
Your financial objectives will differ throughout your life:
- If you are young, it is important that you commence a savings investment plan at the earliest opportunity to assist you to meet your financial goals. This may include saving for a deposit for your first home or simply investing for a rainy day.
- Those with families are generally looking to reduce their mortgage and fund their children’s education needs. At this stage in your life your most valuable asset is your capacity to earn income – most people wouldn’t dream of leaving their home, contents and motor vehicle uninsured so it is imperative that you have adequate personal insurance to provide financial protection for your family in the event of death, disability or serious illness.
- Empty Nesters should focus on paying off their mortgage and investing for their retirement. This should include building up assets within the tax effective superannuation environment.
- Retirees have different needs and objectives, some like to continue working part time whilst others prefer to catch up on the things they couldn’t do while working full time such as traveling or spending more time with family and friends. For retirees it is essential that their asset base maintain purchasing power for as long as possible to avoid being reliant on Age Pension benefits.
Throughout your financial life you must ensure that your asset base is not eroded by the long term effects of inflation. Your investment portfolio should include an exposure to some assets which provide scope for some long term capital growth. Capital growth is the increase in market value of an investment over time i.e. the difference between the current value and the original purchase price. Property and shares are examples of growth assets.
Quality shares held direct or through managed funds should form part of your investment portfolio. The income generated from Australian shares is also very tax effective as you may receive a cash dividend with franking credits attached (franking credits are equal to the amount of tax paid by the company on its profit) which are then used to offset your personal tax payable or the taxation liability of your superannuation investments.