Noel Whittaker's Blog Today we focus on financial success strategies for people aged 25 to 45. A new year is always a good time to make a new start. Unfortunately, research shows that Australians under 25 typically think it’s too early to start investing; those aged 25 to 45 believe that home loan repayments and school fees take all their spare money so they can’t invest, and the over-45’s think they have left it too late. Of course, none of these beliefs are valid, so today let’s make a plan to get you on track for a great financial future.
First, you need to realise that at your age you have a precious resource – time. It’s compound interest that drives investment returns, and because of the way the maths work, a portfolio will increase exponentially with time.
Imagine you invested $2,000 a month into a fund that matched the All Ordinaries Accumulation Index, returning an average 9% per annum. After five years the portfolio would be worth $143,000; after 15 years, $705,000; after 25 years $2.1 million; and after 30 years $3.3 million. There is more growth in the last five years than in the first 15 years. And that’s no accident.
The big lesson is: the sooner you start, the better the long-term result will be.
So decide now that you will take your future into your own hands, set some goals, and get on track. A great starting point is my website www.noelwhittaker.com.au, which contains some fantastic resources. I recommend you first go to the “free downloads” and download Noel’s Action Plan.
This asks you to list your financial assets, your debts, detail your income and expenditure, and set some goals. Then it prompts you to think of actions you can take to achieve your goals. For example, when you write down your home loan amount, the interest rate and the monthly payments, you may decide that you can save money by switching lenders, and pay it off much faster by maintaining or increasing the repayments.
If you are aged 35 now, with young children, you may wish to set up a fund to pay for their education. There are various products around which enable you to do this, but one simple method is to set yourself up to pay off your home loan by the time the kids get into the expensive years.
Suppose your home loan is $400,000, with an interest rate of 3%. Make sure your repayments are at least $8 per $1000 per month – that’s $3200 a month. This will bring the mortgage down to a 12-year term. Imagine what a great feeling it would be if the home loan is paid off when the kids are in their early teenage years, and you’ve got the use of the loan repayments no longer needed to fund their education.
The name of the game is to get as many assets under control as possible at as early an age as possible. If you don’t have school fees to worry about, you could look at borrowing to invest, once your mortgage is under control. Start by investigating the regular gearing products now available, in which you combine a monthly investment with a matching borrowed sum. It’s a more conservative approach than borrowing the whole lot in one go and can be a good way to start.
Above all, don’t miss the opportunity to get your finances in order, and your money working for you, while you still have plenty of time on your side. The next 15 years will be gone in a flash.