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News & Commentary
Financial turning points 16 Aug 10
Are you ready for your next financial turning point?
Probably, most of us would experience life’s financial turning points without being properly prepared. It can be a costly mistake.
The Australian Securities and Investments Commission (ASIC) and others sometimes use the term “financial turning point” to describe events in a person’s life that typically have significant financial consequences.
Turning points which immediately come to mind include beginning a first job, leaving home, getting married, having children, losing a job, buying a first home or upgrading to another, getting divorced, suffering serious illness, and retiring.
“Creating a budget or spending plan is the first step to planning for any financial turning point,” says ASIC. “A budget identifies spending patterns and can free up money to be spent on priorities.” (See ASIC’s online budget planner)
The regulator highlights three turning points as examples, and gives a few tips for dealing with them:
- Leaving home for the first time. ASIC’s basic advice here is to understand the costs of leaving home. If this approach is taken, some people may decide to put it off for a few years.
- Having children. One of the key reasons why women generally have lower retirement savings than men – apart from having lower average incomes – is because their careers are often interrupted to raise families. This means that superannuation guarantee contributions are not being paid during absences from the workforce and the ability to keep on saving would be eliminated in most cases. ASIC suggests that couples discuss whether the spouse remaining in the workforce can afford to make contributions to the super account of the non-working partner. Also make sure you are getting appropriate assistance from government and your employer (see www.familyassist.gov.au).
- Retiring. Apart from the basic retirement strategy of saving as much as possible, the nitty gritty of smart retirement planning includes looking at ways to cut living costs during retirement. A post-retirement budget is a considerable help.
Some of these tips for handling life’s financial turning points may seem a little fundamental to many readers. Nevertheless, such basic motherhood-type tips form a basis of sound financial planning.
* Written by Robin Bowerman, Head of Retail at Vanguard Investments Australia.
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