A guide to smart money choices by age group

Life is a journey – sometimes positive sometimes negative – it’s certainly not a straight line. Right now many people are feeling flat, having been whacked with COVID-19 – with many feeling financial pressure like never before. It’s important to keep perspective and realise that your current situation is not permanent. As humans we all share a common valuable resource – time. You have ‘time’ to get things back on track no matter what age. Let me explain…

A good friend of mine has just launched a business aimed at helping the over 50’s. He asked me to contribute to his content by writing a blog relating to money and finance – aimed at the over 50’s. Writing the blog inspired me to write about the different decades we experience throughout life and what sort of smart money choices we should consider making throughout life’s journey.

The strategies I share come from a place of experience and success with money. I hope it helps you in some way.

Setting the right foundation in your 20’s…

In your 20’s, you have time. The money train ahead of you is a long one. You have an amazing opportunity to set a solid foundation for when you are ready to hang your boots and enjoy your wealth in your later years.

In your 20’s life will seem like its never ending – but let me share with you the secret to creating wealth – in a predictable way… time (the most valuable resource we all commonly share).

A concept that’s also important to note here is ‘patience’. As Warren Buffet once said… “wealth is the transfer from the impatient to the patient”.

Basic money principles to consider in your 20’s include:

• Spend less than you earn and invest the rest
• Work harder on yourself than you do on your job
• Learn skills that the marketplace will (financially) reward you for
• Forget credit card debt, personal loans, and unsecured borrowings  – if you can’t afford it, don’t buy it
• Be disciplined and track your cash flow each month (inflows and outflows)
• Set financial targets (e.g. set net wealth targets at various age milestones)
• Save your butt off for a deposit to secure your own piece of Australia (i.e. residential land/property)
• Don’t wait to buy real estate, buy real estate and wait

Leverage is key in your 30’s…

Once you’ve reached the milestone of 30, your career is likely to be humming along and your income is now higher than it was a decade ago. Remember this… if you’re standing still, you’re going backwards.

In your 30’s you still have a lot of time ahead, which means you can take (calculated) risks knowing that you have time to fix any mistakes. The concept of leverage is a key fundamental during this decade – as you should consider being aggressive with leveraging your income sources and equity position (i.e. sow the seeds for a secure financial future).

Basic money principles to consider in your 30’s include:

• What’s working, what’s not working, and what’s missing? Be honest with yourself, you have plenty of time to fix mistakes
• Get inspired – find out who’s achieved what you want to achieve, and find out what and how they did it (success leaves clues)
• Read books, listen to podcasts, but be careful who you take advice from
• Work harder on your mindset as you’re at an age group where distractions are plentiful
• Don’t skimp on the right advice as this will make all the difference in the following decades (Warren Buffet summed it up nicely… “price is what you pay, value is what you get”)
• Leverage your income sources and equity position and be aggressive with borrowing money to buy appreciating assets (e.g. residential property is a great example with runs on the board)
• Keep it simple and avoid fancy glossy investment proposals (e.g. ignore the next property hot spot – stick to fundamentals that have stood the test of time)

Your 40’s is the perfect time to accelerate your wealth plans…

Once you’re in your 40’s, you’ve no doubt made some – or even plenty – money mistakes, but hopefully you’ve learnt from them as well. If you haven’t made any mistakes, it just means you haven’t really tried – have you?

You have at least another 10 to 20 years to be aggressive with your wealth accumulation plans. Sure the money train is shorter, but you still have plenty of time to create a solid financial future.

If you’ve made money and investment mistakes the previous decade, you need to be careful with asset selection during your 40’s to ensure you only buy quality assets that have strong growth prospects. If it’s residential property you are dabbling with, get the right advice and ensure you only buy investment grade property.

Loan structuring is equally important here so be sure to engage a Mortgage Specialist with depth of experience, and hopefully someone with runs on the board when it comes to money success. If this is something I can help you with, please feel free to reach out at anytime.

Upgrading your family home could be on the cards, or upgrading location perhaps? Buying a more expensive home has merit as you can always downsize down the track and enjoy tax-free capital gains. At time of writing, capital gains tax doesn’t apply when disposing of your family home (please ensure you seek tax advice from a suitably qualified and licensed tax professional before acting on any tax advice).

Basic money principles to consider in your 40’s include:

• Ensure your home loan debt is on P&I repayments
• If your cash flow allows, consider making accelerated repayments to extinguish your home loan as fast as possible
• Take stock of all your household expenses and cut out expenses which you’re not making use of
• Be diligent with your money and ensure you’re not spending money on stuff you don’t need
• If your cash flow affords you, consider changing any investment related borrowings to P&I in order to magnify your equity position
• Continue to be aggressive with your investments
• Debt recycling can be a powerful strategy to ensure you recycle borrowing equity into capital growth assets (e.g. buy more property by using productive debt)

A major milestone 50 – time to consider consolidation…

For some, turning 50 can be a mental milestone as much as it is an age milestone. Using a golf game analogy, the question for many at this point is this… what can I do differently when playing the back 9 to what I did in the first 9 holes to win at the game of money?

If you still have a mortgage over the family home, you should consider this as your top priority to ensure you don’t retire with home loan debt. If your plan is to downsize in order to retire the outstanding mortgage on your home – with the surplus funds – then that’s fine if this is your strategy/plan.

At this point you may be contemplating working well beyond 60, which is fantastic as it means you’re healthy, and happy with your day to day work. Perhaps your work gives you purpose?

However you want to be in a position where you have choice – work if  you want to not because you have to.

Basic money principles to consider in your 50’s include:

• Make it a priority to pay off your owner-occupier related home loan
• If your cash flow allows, consider shifting all interest-only investment related debt to P&I to boost your equity position faster
• Seek sound financial advice to ensure you don’t leave any money on the table once you retire (…whenever that may be)
• Get yourself a financial road map to start consolidating your debt position whilst you still have working income years ahead (…as the saying goes, if you fail to plan you plan to fail)
• Make smart and calculated investment choices and stay clear of risky investments
• Keep one thing in mind, retirement is a function of income – not age (…in my opinion)

60 and beyond – passive cash flow is king…

If you still have debt at this point, hopefully it’s investment related debt and your family home is paid off.

Whilst investment debt also needs to be paid off at some point, you should have adequate investment assets which you can consolidate – or dispose of – as a debt elimination strategy. The trick is to have built up a sufficient asset base to provide you with choice.

Your investments need to consider your future cash flow requirements to ensure you continue living your desired lifestyle well into retirement.

Basic money principles to consider when you’re 60 and beyond are more simple and include:

• Track  your cash flows (both inflows and outflows) to ensure you remain on top of your money
• Manage your money closely and be sure you enjoy what you’ve worked so hard (and taken risks) for
• Life’s not a rehearsal, be sure to set lifestyle goals and… just do it..!!

In summary…

Of course your attitude and your relationship with money will be different to the next person. Your money habits will always be unique to you – just like your handwriting is unique to you.

In my daily work I work with all varying age groups. The above strategies are a guide only – as my objective is to help you consider various strategies to ensure you remain on track no matter what noise is going on around you.

In closing I would like to remind you of something which I’m sure you already know – work to live, don’t live to work. Enjoy your money during your life journey (at any age) as life can change for you – just like that.

Some say that money isn’t everything – whilst there’s truth in this believe, money certainly provides options and choice, and allows you to enjoy life’s pleasures and life’s experiences.

Finally I would like to add… don’t become a hostage to money as it can be a trap… but only if you let it..!!

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.