30s

6 common financial mistakes people make in their 30s

Updated on Finance

Climbing the career ladder, perhaps buying a home and starting a family – the 30s are an exciting stage of life. However, decisions made now can make a big difference to future financial wellbeing, and with so much going on it is understandable, even inevitable, that the best decisions won’t always be made. So what are the common financial mistakes that 30-somethings should be alert to?

1. Buying an expensive car

New cars plummet in value when driven off the showroom floor, and the higher the price tag the greater the fall. Buy with borrowed money and you’re paying interest on an asset of diminishing value. Settling for what you need in a car, rather than what you want, can add hundreds of thousands of dollars to your future nest egg.

2. Living on plastic

If you don’t pay off your credit card balance in full each month you’ll be paying a high rate of interest on the carryover balance. Over time, the growing interest bill makes it increasingly difficult to clear the debt. If not used carefully, buy-now-pay-later schemes can also become something of a debt trap.

3. Forgetting to save

A rule of thumb is to save at least 10% of your income, but saving even a small amount is better than doing nothing. And in your 30s you have time on your side. For instance, when you turn 30 if you put away $200 per month at an interest rate of 5% per annum (after tax), by the time you’re in your 60’s the savings will grow to $166,452. If you wait until you’re 40 to start your savings plan you will accumulate just $82,207.

4. Getting caught up in investment fads

Tulips, alpacas, ostriches, the tech boom, crypto-currencies. Investment fads have come and gone, making fortunes for a few, but big losses for many. It pays to heed tried and true rules such as only investing in things you really understand, and diversifying investments to reduce risk.

5. Not insuring your most important asset

For most 30-somethings your biggest asset is the ability to earn an income. Most health-related absences from work are due to illness or non-work related injuries – things that are not covered by workers compensation. Income protection insurance can replace much of the income lost due to accident or illness.

6. Being too hard on yourself

Let’s face it. We’re all human, and we all make mistakes. Unfortunately, if we beat ourselves up about a mistake we have made it may compound the problem. The sour taste of a bad investment, for example, might put us off making a good investment. That would be a pity because the 30s is a decade of huge potential. Good advice now can help you unlock that potential. To find out more, contact us today!

 

This is general information only

 

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Does the value of the Aussie dollar affect you?

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What to consider when withdrawing your super early

What to consider when withdrawing your super early

Updated on Finance

[fsn_row][fsn_column width=”12″][fsn_text] As the COVID-19 virus took a sledgehammer to the economy, the federal government rapidly introduced a range of initiatives to help individuals who lost income as a result of the measures taken to control the virus.   One of those initiatives was to allow qualifying individuals access to a portion of their superannuation to help them meet their living costs. Withdrawals are tax free and don’t need to be included in tax returns. Most people can withdraw up to $10,000 in the 2019/2020 financial year and up to a further $10,000 in the 2020/2021 financial year.   For many people this early access to super will prove to be a financial lifesaver, but for others the short-term gain may lead to a significant dip in wealth at retirement. And the younger you are, the greater that impact on retirement is likely to be.   Alexander provides an example that many people will be able to relate to. He’s a 30-year-old hospitality worker, and due to the casual nature of his recent employment he is not eligible for the JobKeeper allowance. He is eligible to apply for early release of his super under the COVID-19 provisions, however before going down this route he wants an idea of what the withdrawal will mean to his long term situation.   Taking the maxMuch depends, of course, on the future performance of his superannuation fund. However, if Alexander withdraws $20,000 over the two financial years, and if his super fund delivers a modest 3% per annum net return (after fees, tax and inflation), then by age pension age (currently 67), Alexander will have $39,700 less in retirement savings than if he doesn’t make the withdrawal.   At a 4% net return, he will be $65,360 worse off if he makes the super withdrawal.   But that’s not the only disadvantage for Alexander. A smaller lump sum at retirement means a lower annual income. If Alexander draws down his super over a 20 year period, at a 3% net return, he will be around $2,670 worse off each year as a result of making the withdrawal. Over 20 years that adds up to a total loss of $53,375. At a 4% return, his youthful withdrawal will cost him over $96,000 by the time he reaches 87.   Reducing the riskOn the plus side, if Alexander is eligible for a part age pension when he retires, his smaller superannuation balance may see him receive a bigger age pension.   There are other things Alexander can do to reduce the financial consequences of accessing his super early. One is to only make the withdrawal if he absolutely has to. Or if he does make the withdrawal, to use the bare minimum and, when his employment situation improves, to contribute the remaining amount back to his super fund as a non-concessional contribution.   COVID-19 is adding further complexity to our financial lives, so before making decisions that may have a long-term impact, speak to us.   The information provided in this article is general in nature only and does not constitute personal financial advice. [/fsn_text][/fsn_column][/fsn_row]