Our goal in this post is to make sure that you get the right foundations in place to save and invest to secure your financial future. We give you key financial goals to aim for in each decade of your life along with general tips and guidance.
Please note – We haven’t provided ‘specific financial goals’ to target as they vary greatly from one person to the next. You can check our Tools Page to help devise specific goals for yourself.
In your 20s – Developing good money habits
Your 20s are a time for learning, gaining experiences and living off modest earnings. This is no excuse to not to start saving, quite the opposite! Now is the time to be very savvy with your money. It is vital that you get into good financial habits now, as they become the foundations of future financial life.
Good habits for your 20s:
- Paying off credit cards in full every month – if you can’t afford to do this, you can’t afford a credit card
- Spending less than you earn
- Contributing to a savings program every time you get paid
- Making sure you have a safety net of funds
- Regularly tracking your cash-flow – income and expenses
- Educating yourself about money
- Taking advantage of lower costs. For example, if you are still living at home, put aside what you would otherwise pay as full market rates for rent and food
- Starting to carve out a career and not just a job
- Developing short, medium and long-term financial goals and be accountable to them.
The biggest mistake at this stage of your life is falling into a debt spiral. It is so easy to splurge with a credit card that will see you paying large fees and interest. Once you find yourself lumped with debt and few growth assets, it becomes difficult to get ahead.
**Best tip** – Save first, spend later. By saving a portion of your salary (before you spend a cent) and putting it into a long-term savings account, you will immediately see your savings grow.
In your 30s – Locking in your foundations
Turning 30 is a critical milestone. You know that it’s time to shift your focus from the party life and start building a sound financial life. Chances are, the regular bills are much higher than in your 20s, but are compensated by the additional salary you now earn. If you are taking on family responsibilities, this will be a major cost that only seems to inflate with each passing month.
With the extra financial responsibilities it’s hard to see beyond the next payday, but deep down you know you must.
In your 30s you will need to consider:
- Insurance, especially income protection
- Paying down mortgages/debts (or starting a mortgage)
- Education funding for the kids
- A bigger safety net for when things go wrong
- Implementing a budget plan and your retirement plans.
**Best Tip** – Find the right financial planner. In your 30s it is too difficult to digest the financial responsibilities which is why most people don’t ever get around to making a decent financial plan. This is where a good financial planner can make a positive difference.
You can use our Find a Financial Planner Checklist to help find the one financial planner that is right for you. Getting a financial planner who is independent of your emotions will help put you on the right track.
In your 40s – Peak earnings
The 40s is the peak earning period for most people. Expenses can also be high, especially if you have children at school and you still have a mortgage. You should be building a good portfolio of investments and own equity in your home.
You are also at your most vulnerable time of life. One slip up here and your financial life could be over. If you lose your ability to earn an income, those bills won’t stop and you could be forced into selling assets, such as your home, at the wrong time. If you are not careful, you could get wiped out like many people did during the Global Financial Crisis (GFC).
What people in their 40s should do:
- To avoid being financially wiped out when something goes wrong, you need to take on some risk management starting with insurance. Income protection, life insurance are crisis cover are vital
- Make sure you review your financial and investment plan
- Have a tight budget on those expenses that easily blow out, such as schooling, holidays and the utility bills
- Your retirement planning should start taking greater priority. You need to get it on target to produce a comfortable income at retirement.
By now, you’ve no doubt built up a nice portfolio of assets and are at the peak of your earning potential. There will be greater financial responsibilities like children and mortgages and this is where your money goes.
The key is to balance a budget against a lower income expectation, this strategy will give you more funds to save. Many people make the big mistake of upping their lifestyle expenses to meet to new incomes, often referred to as ‘lifestyle creep’. The danger is that when your income drops, it is very hard to drop the lifestyle expenses.
Most recommendations for people in their 40s would focus on reducing debt. At the time of writing (2015), the cost of debt is very low and not showing signs of getting much more expensive for a few years to come. The key with debt is to make sure the expensive debt is paid off, usually the credit card debt and personal loans. Make sure you have your home loans under control and by all means, pay them down fast.
**Best Tip ** Know your big expenses from minor irritations. This means tracking your expenses and understanding what they mean. For example, we can find ourselves driving all over town to get the cheapest fuel in a brand new car. The depreciation (loss of value) on that new car over the first year will be far greater than any small savings in fuel.
To put this in perspective, a $40,000 new car will likely drop in value by $8,000 in the first year – That’s $154 dollars a week!
In your 50s – Securing your retirement plan
This is the time to start winding down. Yeah right, I hear you say! For most people, winding down will be the last thing on their list. With mortgages still needing to be paid and kids still a drain, your 50s can be a stressful decade.
It isn’t all bad news though. If you have been on track with your savings and investments you will have your mortgage paid off (or close to it). You will also have a portfolio of investments to fall back onto.
There is a big trap that most people fall into during their 50s, one that’s rarely talked about – enforced early retirement.
The Australian Bureau of Statistics shows that most people retire early due to ill health and/or the inability to maintain employment.
As most people plan to retire in their 60s, retiring earlier than planned would be a severe financial cost, so have a ‘Plan B’.
Your goals in your 50s should be:
- Clear all of your debts
- Save as much money in your early 50s as possible in case you are forced into early retirement
- Review your insurance. You may be able to reduce life insurance and look at boosting trauma/crisis cover.
**Best Tips** – Keep educating yourself and build a great circle of contacts for your profession/industry. Keeping up your skills will be vital to maintain employment. Staying in touch with key employment contacts will assist you if the time comes to find new employment. It is often said that most jobs are given to people ‘in the know’.
60s and over – Reaping your rewards
If you haven’t retired, you should be pretty close to it. But then again, you might be one of those people that will never fully retire, preferring to have that work routine as a mainstay to your daily life.
Time is against you for saving more funds for retirement, but on the upside, your major life expenses of mortgages and kids should be behind you. It is a time for contemplation and making the right financial decisions that will see you have a stress-free retirement.
There are some major traps to avoid in retirement so lets look at these first:
Major traps to avoid
- Getting ripped off – Unfortunately, this age group are a major target for fraudsters. So remember, if an offer sounds too good to be true, it usually is. If you don’t understand an offer, don’t take it and always get any offers checked by a licensed professional
- Not spending money – Rather counter intuitive, but hey, you have worked hard and saved some money, so go out and enjoy it. Most retirees remain too conservative and never really enjoy what they have worked so hard for. You should also consider doing things when you physically can. Between the ages of 60 and 75, you are still likely to have the mobility to get around, so make use of it.
What to do in your 60s and beyond:
- Invest for growth – Just because you have made it to retirement, that does not mean you should become a very conservative investor. With life expectancy rates growing every year (we’re all living longer), you will need your retirement nest egg to last for more than 30 years. To protect the buying power of your portfolio over this time period, include growth assets such as shares and property in your portfolio
- Make every use you can out of the social security system – There are many benefits available from the Government but it can be complex. Talk to friends and family who have recently retired and your financial adviser. Between them you will soon learn what’s available
- Securing long-term accommodation – Start looking at the options and get familiar with the services and fees. All too many people shy away from retirement home options, but there are so many great opportunities out there. The trick is long term planning, as many of the good retirement homes will have a waiting list.
**Best Tip ** Enjoy life! No matter what financial shape you are in, make sure you do what you can to enjoy the lifestyle you can afford.
The Wrap Up For All Ages
Good habits die hard
The most important aspects of a good financial plan are built upon the foundations of very strong money habits that are learned from an early age. Building upon the key habits of not spending more than you earn, along with managing your debts will keep you out of trouble.
Your end goal is to build a sound portfolio of investments by seeking professional advice and using your own insights. By improving your investment education and discipline, this will take you to the level of financial security currently occupied by the minority of the population.