Retirement planning may not be something you’re thinking about too seriously yet, but your future depends on the now.
What you do now – how much you earn, spend, save and invest – determines how much money you will have in retirement.
How much money you will need depends on the kind of lifestyle you want.
Do you want a frugal retirement, living week to week on the pension?
Or do you envision yourself debt free, living in comfort off your own savings and investments?
It is never too early to start working towards a financially liberated retirement no matter what stage of your life you are in.
Create your wealth road map
No one can guarantee what their future will be.
But you can understand and manage the risks by creating your wealth road map.
A wealth road map considers various financial scenarios – good and bad – and uses the numbers to create a sound financial strategy bolstered by wise investments.
Improve your current financial position
Before you can start planning for the long term, you must take an honest look at your present financial situation.
What needs improving? What bad habits need nipping in the bud?
Do you have credit card debt and little or no assets, equity or savings?
Even a small amount of debt can snowball over time and ruin your chances of saving enough for a self-funded retirement.
If you are renovating, building, selling or upgrading the family home, this must be finalised before you commit to a long-term financial plan.
If you currently struggle to budget and save, chances are you’ll struggle in the future, too.
Failing to live within your means places long-term strategies and investments in jeopardy.
To invest and build your assets, you must first work out your expenses, commit yourself to a realistic budget and regularly save money from your disposable after-tax income.
Effective banking practices allow you to control your household expenses and manage your financial goals. For example:
Have no more than one credit card or debit card. Use this card to pay all the household expenses. Ensure the limit is no more than $2000.
If you have a spouse or partner, ensure both incomes are paid into your home loan/offset account.
Create separate accounts for holiday savings, household budget, education and investment/property. Set up monthly or fortnightly direct debit payments into each account.
Consider your age and retirement goals
If you don’t allow yourself ample time to grow your wealth and assets, you may need to adjust your lifestyle at retirement.
People who start planning in their 40s have a 20-year horizon to work with.
This gives them a much better chance of achieving their retirement goals than someone who is in their 50s with limited assets.
However, when there is a will, there is a way. It starts with an honest money conversation.