If you’ve paid off your home, have a healthy stash of super and take an overseas holiday each year, you’ve made it financially. That’s the view of many Australians according to recent research.
A study by comparison site Finder found paying off the mortgage is the financial milestone 74% of Australians value most. Having enough in super to retire comfortably comes a close second for 59% of us, and one in three people see the ability to jet-set overseas each year as a sign of financial achievement.
These are all reasonable goals, and definitely a lot more sensible than owning a sports car, which 5% of people say indicates financial success (for the record, cars are a dreadful investment!).
No matter what your financial goals look like, you’ve got a far better chance of achieving them with a plan of action in place.
Let’s say for instance, that you’re keen on paying off your mortgage early. It’s a smart strategy that will leave plenty of spare cash to devote to overseas travel. And it can be done.
The trick is to plan how you’ll get there with clear steps you can stick with over time. A good starting point is to check the rate you’re paying. The average variable rate is currently 5.3% - that’s a terrible rate when you consider there are plenty of loans costing less than 4%.
If you’re sure your loan is competitive, one of the easiest yet most effective strategies to be mortgage–free sooner is to pay a bit extra off your loan each month.
On a mortgage of $400,000 with a rate of 4.0%, tipping just $20 more into the loan each week could see you clear the slate 18 months ahead of schedule and pocket savings of $17,217 on overall interest.
If you’re keen to grow your super, talk to the boss about contributing to your fund through salary sacrifice. This is where part of your before-tax wage or salary is paid into your super rather than receiving it as cash in hand.
Before-tax contributions are taxed at just 15%, which is below the personal tax rate of most workers, so salary sacrifice can be a very tax-friendly way to boost retirement savings. Chances are, after a few pay days you won’t notice the difference in your pay cheque but it can have a valuable impact on your final nest egg.
The start of the new financial year is a good time to think about the money milestones that matter to you – from building a portfolio of investments to starting a successful business or being able to retire early. Don’t just nut out some goals though, think about how you will achieve them, and start putting plans in place to make it all happen.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
More cash on hand often comes down to a bigger salary, but sometimes it also comes down to money smarts.