A common theme in our podcast is the need for clarity around a plan and identifying what your objectives are. Join us this week as we dive into the dynamics of life planning and offer some tips you can use in your own planning:
The accumulation stage in your wealth journey begins as you are starting your career. For some that is straight out of school or trade school and for others that may be university. As you are getting started a common debt people have is their HECS debt if they went down the uni pathway. HECS however, is not necessarily bad debt as it does not incur any interest, however it can increase with inflation. Host Andrew Baxter notes that a common step in the accumulation is also younger people looking to buy their first property. It can seem daunting and out of reach because the required deposits are fairly large and it takes time to save the sort of money. You also need to develop the skill of being able to budget and service debt as needed which is something that can be instilled on an inter-generational basis. Accumulating property has become increasingly expensive and is forecasted to continue to do so. There is no way of escaping this but simply the decision that you will commit to saving as well as you can to bring yourself into a position to buy your first property.
Planning for Kids
Another common step forward is the decision to have kids and this typically comes a little way down the track from where the accumulation phase begins. Host Andrew Baxter explains that having kids is expensive, and there are times where tough choices have to be made. Many will forego accumulating more property or investing more for the future if it means they are able to send their kids to private school but in many cases this might not be worthwhile. This is a deeply personal decision and before making it you would likely benefit from sitting down and really thinking about whether private school is right for your child or whether public school is more suited to them.
With the accumulation phase likely to be the longest of the 3 main periods in your life, you would likely expect to see an external shock along the way. This can include things like inheritance, divorces among a whole range of other things. Some of these are positive while others may not be. Host Andrew Baxter explains that currently the biggest transfer of wealth we are going to see will be from the baby boomer generation to the current younger generations. There is likely to be an enormous shift of wealth, particularly when it comes to property as baby boomers had a great opportunity to accumulate property as they were in the accumulation phase of their lives. You can not bank on receiving money from external shocks, but what you do with it once you receive it is critically important. It’s vital to not only leave the money to your family but to also instill the necessary skills in them to be able to not only retain the money but also to see it continue to grow to keep moving through the generations.
Transition to Retirement
Permitting you have accumulated some wealth, at some stage you would be looking to retire. Retirement is not simple and Host Andrew Baxter suggests being really clear on what your retirement might look like and the sort of funds you might need to service the sort of lifestyle you are envisioning. There are a whole array of things you need to have resolved ahead of time when you move into retirement including having debts clear and having houses paid off among other things. One of the tough things for many is accepting the fact that they are coming to the end of the year as work is many peoples’ identity and it can be a struggle to move into a life in which you do not need to work. Nevertheless, you need to make sure your finances are planned and accounted for as you finish working life and move into retirement.