Here's one young couple who think ahead. Natalie Simpson and Mark Stewart have saved $10,000 for their wedding, want to buy a home in five years and are already fretting about how much they'll have to live on in retirement.
Natalie saves about $1000 a month from an annual income of about $60,000 as a district nurse.
Mark eventually hopes to manage the pool where he's a part-time instructor, but is also training as a bike mechanic as a back-up, so at the moment he's earning about $20,000.
They aim to buy a home in five years and, Natalie says, "have at least one child in that time", in which case she'd take six months off work.
Natalie has $1500 in a home-saver account, and estimates they spend about $700 a week on living expenses, including rent.
"Our financial goal is to aim for a 20 [per cent] to 30 per cent deposit on a house, so around the $100,000 mark," Natalie says.
The couple want to know when they should speak with an adviser about investing in shares. "I don't want a portfolio of properties," Natalie says.
They also figure there won't be a pension by the time they retire, so how should they plan for their retirement?
PAUL MORAN: CFP, Paul Moran Financial Planning
The job of a good financial planner is always to consider all of your goals and help you to prioritise.
Financial goals have two key components - how much do you need, and when do you need it. Let's see how we go here:
- Wedding - how much do you want to spend, and when is the wedding planned for?
- Home purchase - you need $100,000 in five years;
- Family - you will need to budget to be on one income for probably a year;
- Mortgage repayment - $300,000 (for example) mortgage over 20 years;
- Retirement - average retirement needs about $45,000-$50,000 in today's dollars in 40 years.
- Now the prioritising starts. Is it more important to have a big wedding or get into a home?
Saving $12,000 a year, it will take you eight years to save your deposit, although I would expect that when Mark gets his qualification your savings capacity will increase. Saving for another year for a wedding will push the home purchase back a few years.
I'm not about to start suggesting when you should start a family, but you will need to be sure that you can afford to meet your obligations while Natalie is on maternity leave.
Extra super payments are a lower priority than getting into a home. And don't invest your house deposit in shares - the time frame is too short.
SUZANNE HADDAN: CFP, BFG Financial Services
Natalie and Mark's major financial goal is to save $100,000 over five years and then buy their first home. Natalie has already opened a first home-saver account (FHSA) and has a balance of $1500.
The advantages of the FHSA are a government contribution of up to $1020 a year and a 15 per cent tax on the interest earned. However, strict rules apply, including the requirement to contribute a minimum of $1000 in four financial years before a withdrawal is allowed. Also, the funds must be used for building or buying a first home, otherwise the funds will be transferred to super.
Mark should also open a FHSA, then the couple should contribute $6000 a year each to their individual accounts. It is more beneficial to have an FHSA each rather than just use Natalie's, as this doubles the annual entitlement for the government contribution from $1020 to $2040.
Based on their current saving capacity of $1000 a month and utilising the FHSA, Natalie and Mark should have saved about $81,500 in five years. To achieve the goal of $100,000, the monthly saving will need to increase to about $1275 a month.
At this stage Natalie and Mark should focus on saving for their home deposit then repaying the home loan as quickly as possible. After the home loan has been repaid, maybe build a share portfolio.
TONY HARRIS: FIRSTFOLIO
You've got to be realistic about how much you can save. It'll take about 10 years to save the $100,000, twice as long as Natalie is planning. You could do what you need to do with half the savings in half the time. Don't wait 10 years to buy. Save a lower 10 per cent deposit in five years and perhaps buy an apartment but, realistically, you can't have a baby beforehand. I'd also tone down the wedding and use the savings for a deposit on a home.
When she has a baby, Natalie will get the new maternity leave payments, but will still lose about $35,000 in income. Mark should consider setting up his own business as a mechanic rather than aim to manage the swimming pool.
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