According to new research, younger Australians are reporting lower financial literacy levels alongside a greater risk of financial hardship. Data has revealed that a third of young Australian women (under 30s) rated their financial literacy as ‘fair’ or ‘poor’, despite 3 in 4 Australians rating their financial literacy as ‘good’ or ‘excellent’. In the June 2024 quarter, financial hardship has risen to 47%, with 5.8 million Australians struggling with mortgage repayments over the past year. Additionally, over the next 12 months, more than half of surveyed Millennials anticipate experiencing financial difficulties.
Information on how to manage wealth in different life stages is becoming more readily available to individuals in the form of books, articles, newsletters and podcasts. Despite this, navigating the financial world may still be daunting. Seeking professional advice and utilising educational resources can provide clarity and guide you toward making informed financial decisions.
Understanding how to manage wealth depending on different life stage can assist in meeting specific goals and navigate challenges, ensuring that assets are built and preserved throughout your lifetime.
Young Professionals
For young professionals in their 20’s to 30’s, adopting a strategic investment approach is essential for setting up future financial success. Effective management of student loans and other debts, such as credit card or buy now pay later liabilities, is a critical first step. Prioritising the repayment of high-interest debt will improve financial stability and increase future lending capacity.
In today’s world, disciplined saving is crucial, especially for those aspiring to enter the property market. Common savings strategies include the “50/30/20 Rule,” which allocates 50% of after-tax income to needs, 30% to wants, and 20% to savings and debt repayment. This method helps balance spending while working towards financial goals. Another strategy is the “Pay Yourself First” approach, where a portion of income is automatically directed to savings before spending on anything else. This ensures that savings and investments are prioritised, assisting in building financial security and achieving long-term goals. In addition, utilising incentives such as the First Homeowners Super Savers Scheme (FHSS) and the First Home Owners Grant (FHOG) can assist those aiming to purchase their first home.
Furthermore, improving financial literacy is equally important; young professionals may utilise various resources such as books, newsletters, podcasts, webinars and workshops to build a solid understanding of financial principles and investment strategies.
Investing in passive investments, such as exchange-traded funds (ETFs) can offer high growth opportunities while diversifying risk. Additionally, reviewing superannuation investment options in line with investment horizons and ensuring multiple superannuation accounts are consolidated, can maximise retirement savings over the long term.
Mid-Career & Pre-Retirement
For individuals during the mid-career phase, typically 30’s and 40’s, the focus is generally on repaying mortgages, managing school fees, and setting up for their children’s future. Additionally, ensuring they have adequate insurance coverage is also essential to protect against unforeseen events that could impact financial security.
As individuals move into their 50’s and early 60’s, the emphasis shifts towards building superannuation. Maximising superannuation contribution strategies during these peak earning years can significantly boost retirement savings. This is a period to take full advantage of tax-advantaged superannuation accounts to grow asset bases.
Investment portfolios during this stage may reflect a balanced approach, aligned with individual risk tolerance. As individuals approach retirement, a gradual shift towards more defensive investments can provide stability and preserve capital. This transition helps mitigate risk and ensures a steady income stream during retirement.
Retirement
As individuals transition into retirement, typically in their 60s and beyond, investment strategies are typically adjusted to reflect a more conservative approach. While every individual’s risk tolerance varies, it is common to favour defensive assets at this stage due to their stability and income-generating nature. This shift is important as retirees begin to rely more on their investment income, replacing previously earned salaries.
Maximising superannuation contributions before age restrictions commence can enhance retirement savings by shifting wealth into the tax effective superannuation environment. Additionally, reassessing insurance coverage is essential; determining if these policies are still necessary and potentially looking at self-insuring.
Planning for the intergenerational transfer of wealth also becomes important in retirement. Establishing clear arrangements (through Wills and estate planning arrangements) can help ensure that assets are passed on in line with wishes, whilst minimising tax implications and other potential conflicts. This comprehensive approach to retirement planning, which includes adopting conservative investment strategies, utilising super contributions, reassessing insurance needs, and preparing for wealth transfer, can provide retirees with enhanced financial security and peace of mind during their golden years.
While these strategies offer valuable ways for individuals in different life stages to navigate their financial journeys, it’s essential to regularly review and adjust strategies to align with evolving personal circumstances and market conditions. Consulting with a financial adviser can help tailor these strategies to your specific needs and provide expert guidance on navigating complex financial decisions. Financial advisers can provide ongoing support to ensure that your investment plan evolves in line with your goals and changing circumstances.
For tailored advice on how to navigate your financial journey and achieve your goals, contact your local Accru advisor today.
