5 steps to take control

Achieving financial independence doesn't have to be complex. Five commonsense steps could help you enjoy the life you want to lead.

1. Take control of your money

I know life is expensive. And, you probably think you’d be okay if you earned a few thousand extra dollars. But we are humans and the truth is we always seem to be able to spend 10% more than we earn, no matter how much we earn!

That’s why it’s so important to budget, regularly set aside money for savings and avoid high-interest debt that funds purchases of no lasting value. Easier said than done I hear you say? Talk to your financial adviser for professional support to take control of your cash.

2. Avoid silly risks

When it comes to investing, higher returns generally come with greater risk. Yet humans seem to instinctively want an easy way to make money with little effort, which explains those get-rich-quick schemes that flood our email inboxes.

Consider investing regularly and manage risk by diversifying across a range of quality assets. If you’re not sure where or how to invest, your adviser can set a clear path for you to follow.

3. Own a home debt-free at some stage

Home ownership might be a goal worth aiming for. If you’ve achieved it, the next target could be to pay off the mortgage ahead of schedule.

I know that dipping into home equity can be a low-cost way to fund a myriad of goals, but think about how you will manage if you’re still paying off a mortgage in retirement. Owning your place debt-free is financially liberating, and something worth aiming for – preferably before you retire. You adviser can suggest a range of strategies to help you do just that.

4. Learn to love your super

Don’t wait until you’re in your 40s, 50s (or even 60s) to get serious about your retirement savings. Choose a super fund that works for you, take it with you from job to job, and think about adding to your retirement nest egg wherever you can.

As part of a long-term plan, superannuation often makes tremendous sense. It’s tax efficient and you can’t readily get your hands on the cash while you’re in the workforce, which is a huge plus. Plus, with the help of your adviser, your super can be invested in high-quality assets that may help fund your future lifestyle.

5. Protect what you have

Many of us understand the need to insure assets like our home, its contents and other valuables. This type of cover is often essential. Another asset you should consider protecting is you. The start of the year is an ideal time to catch up with your adviser to discuss whether you have sufficient life cover and income protection insurance in place to protect your family, yourself and your financial wellbeing.

One final point. I believe the value of money is to give you options, and you should plan to have fun along the journey. I would also hope that one day, when you do stop work, you recognise that all your hard work was to give you freedom later in life. Sure, that may mean eating into your capital. But that’s okay – that’s what it’s for.

 

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.

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.