While we all drive different cars, we’re all essentially trying to get to the same destination. Whether you know it or not, you’re on a road trip to wealth.
Now your financial situation could be the equivalent of a Ford Capri (everything looks okay on the outside, but when you pop the hood all you find is a lawnmower and some rubber bands). Or you could be stuck on a Macquarie toll road and getting hit with fees (beep, beep).
This week I caught up with three generations to see where they are – and where they’re going – on their journey.
Gen Y – the flashy (second hand) BMW
If you see Ben, 20, cruising about town in his jet-black BMW you’d probably guess he’s an independently wealthy businessman.
Actually he’s a university student living at home with his parents, and he paid for the Beamer badge by working casually at everyone’s favourite Scottish restaurant (‘like fries with that?’). Other than his car, Ben’s assets include $5,800 in savings, plus free food and board till he finishes his studies – courtesy of the Baby Boomer Bank.
Let’s take look at Ben’s roadmap to wealth – and the signposts that people his age will encounter.
When you’ve only had your licence for a little while it’s hard to work out if you’ve actually hit the open road or whether you’re still in the RTA car park. Trust me, you’re on the road. Just because you weren’t taught about money in school doesn’t mean you don’t have to think about it till you have a few k’s under your belt.
All the studying you’re doing is designed to get you into a good job that earns you good bucks. But income doesn’t equal wealth. Learning to manage your money provides the ultimate payoff.
If you invest a thousand bucks a year into the share market from age 18 to 30, that $13,000 will likely grow to $465,000 by the time you’re 60. But if you wait until you’re 30 you’ll end up with less than half that. These are the years that great fortunes are made – and lost.
Flashing light on the console: You’ll earn over a million bucks in your working lifetime. Whether you become a millionaire depends on the habits you form today.
Gen X – The reliable Honda Civic
Ryan, 39, and Tasmin, 37, are about to have their first child – and will soon trade in their Honda Civic for a family wagon. They’ve got half a mill on the mortgage, and two salaries paying it off … well until Tasmin takes off 12 months’ unpaid maternity leave.
For many young families this is the time when things get tight. Two incomes become one, and have to feed three.
That’s why you need to protect your income. What most people don’t realise is that your super fund can in most cases provide income protection insurance, total and permanent disability insurance and life insurance that gets paid out of your super contributions. Which is better than paying for it out of your own pocket when times are tight.
That’s Ryan sorted, but what about Tasmin? Many women take time out of their career to raise a family, and this is reflected in the fact that they often retire on half the amount of super that men have.
One way to solve this problem is to take advantage of the Government’s Co-contribution Scheme. For example, you can put $1,000 dollars into your super and the Government will match it. Over 30 years or more this can really boost your final super payout – going a long way to making up for lost time.
Flashing light on the console: The best way to provide for your children’s future is to have your own finances sorted. While you’re at it, try tapping doting grandparents to contribute to an investment bond for the kids’ education costs.
Baby Boomer: The Ford Focus
Paul, 69, is a semi-retired sales consultant and his wife Judy, 67, works at a doctor’s surgery. They’ve paid off their family home and have a couple of investment properties – but only around $150,000 in super.
Just like their car (practical, good on the gas, focused) they’re on the home straight – like most boomers they’re hoping that their fuel tank light doesn’t flicker before they get to their final destination.
The thing is to work out how much you need to retire – then write it on the fridge. A good rule of thumb is that for every $8,000 of income you need in retirement, you need $100,000 in investable assets.
But if you don’t have that, don’t fret. Look at your options – and there are always options.
Kick your kids out.
Work part time in retirement.
Contribute as much into superannuation as you can in your final years of working.
But more than this, make sure your super is invested properly. At some stage there’ll be another market crash – but by the time it hits the headlines it’s too late. So deal with it now. Where is your money invested? Do you fully understand the risks you’re taking?
Flashing light on the console: Investing, just like life, is all about managing risk. Probably the biggest risk you face is outliving your money. It’s too late to do anything about it when you’re at the end of your life, so act now. Quickly.
Tread Your Own Path!