By Jo Stephens, Financial Adviser. As featured in The Country Web 2016 Annual
Life is ever-changing. During our lifetime many aspects of our lives will change, bringing highs and lows of certainty and uncertainty, comfort and fear of the unknown.
There are many agents of change— graduating from high school or university, getting married, having children, changing careers, death of a partner or divorce and retirement. Whether these transitions are expected or out of the blue, each one has the potential to change our lives as we know them.
Whilst this angst cannot often be eliminated, forward planning may minimise the impact, particularly financially.
As a financial adviser many people assume my role is solely as an investment adviser, and whilst that is definitely one small but significant facet, my primary role is to explore what is important to my client and understand what it is they wish to achieve. Financial advice is a multifaceted discipline that draws from many different knowledge areas and life experiences. My role includes educating the client so that when they make a decision they are making an informed one that gives them the best possible opportunity for success.
Agents of change
Graduating high school is an exciting time as we take our first steps into the adult world and is a time of great opportunity with many paths open to us. Do we continue with our education? Do we enter the workforce or even take a gap year and explore the world?
Once we are past the pain of HSC results and selecting a university, choosing to continue our education may also mean accessing Centrelink payments to assist with accommodation needs and supplies. How will the course be funded? What will that mean for the future?
Entering the workforce means thinking about superannuation, perhaps a first car, or moving out of home and becoming truly independent for the first time. What is the right way to choose a super account? Why is it important to worry about something that won’t happen for another 40 or 50 years anyway? Budgeting and saving can become a priority to assist in buying that car or to pay rent and other bills.
Choosing to go down the path of a gap year, whether spending the year at home or abroad, also brings in the need for budgeting and saving. A gap year can assist you through the tough decisions of continuing with education or moving into the workforce.
The transition from single to married life is often the beginning of joint finances and perhaps the purchase of a first home. Understanding each partner’s financial philosophy, including budgeting and saving habits can make a big difference. Protecting your own lifestyle can become a priority.
Married life can evolve into married life with kids; bringing with it more considerations and responsibilities. Saving for future education costs and learning to survive on one income are two considerations many of us have been through or will go through. The extracurricular costs of children has a large impact on the family budget. Ensuring your income and lifestyle are well protected is essential.
Unexpected life changes such as the death of a partner are often emotionally overwhelming. This is not the ideal time to begin thinking whether you can now afford the mortgage. The loss of an income from the death of a partner will have a financial impact. You may also need to consider what to do with any life insurance payout, how to make it last. The surviving partner needs to consider their future—can their current lifestyle be maintained? Refocusing on budgets and savings plans is essential.
Retirement is one area where people often seek my advice too late. Retirement means you will be reliant on your superannuation, savings, investments and wealth created personally over your working life with perhaps some government assistance thrown in.
Funding one’s own retirement should be of paramount concern for those of us aged less than 45 years as access to the aged pension may gradually become more restricted. Retirement savings can be more easily achieved by doing a little for a long period of time rather than a lot in a small amount of time. Many people believe they can put in lump sums of money as they approach retirement to ensure their financial future in retirement, and while this may be the case for some, many of us will need to use the benefit of compounding interest on top of our contributions if we wish to have a worry free retirement. Seeing an adviser five years before retirement does not allow for many wealth creation strategies to be effectively employed, whereas those who see an adviser quite early in their careers or even 10 to 15 years before retirement, are more likely to have a higher success rate of living the retirement they desire.
Many considerations go into retiring, especially for farmers and business owners. What to do with assets held such as farmland or a business and its premises? How do you effectively use these assets to fund retirement? As financial advisers, we can assist in succession planning for farmers to pass land onto the next generation. We can provide strategies that will minimise capital gains tax for assets sold and assist you to use the benefits of the sold assets to fund your retirement.