Building wealth in this day and age seems like an impossible task. In the past 12 months the cost of living has risen by two per cent, The Bureau of Statistics reports that it’s the fastest pace at which it’s grown in three and a half years. The same report found the cost of living is rising quicker than wages are growing, and another report by the Household Financial Comfort Report by ME Bank found that in the past year, 17 per cent of households couldn’t always pay their bills on time.
Regardless, the Australian people are a resilient sort and many of us have turned to side hustles, hobbies and selling things on eBay or Gumtree to top up the savings fund. While these methods are a great way to increase your income and get ahead in the short-term, it takes long term planning to live a comfortable lifestyle well into retirement.
While a house on a quarter-acre block used to be the Australian dream, an ever-changing population and residential landscape means that dream is more difficult to achieve than ever. In fact, in 2016 former Planning Minister Rob Stokes said, “In 1975… it cost four times the average salary, today, the same home costs at least 12 times the average salary.”
But rather than feeling disillusioned, Mark O'Leary of KRA Wealth Management, an authorised Representative of AMP Financial Planning, suggests that young Australians look outside the box when it comes to building their wealth and a successful financial future. All it takes is a little planning and mindful forward-thinking.
How can young people build wealth?
Set some goals
To get a proper understanding of your money and to bring about real change it’s important to think firstly in terms of goals. Doing so will help you visualise your future and bring structure, meaning and motivation to your life.
Do the initial legwork
Building a basic budget takes a little bit of time upfront but the long-term gain will offset any short-term pain. Knowing what you earn, owe and spend gives you greater control over your money and lets you quickly identify areas where you could be saving.
Many young people mistakenly think they are too busy to budget. In this era of smart banking applications, there are a wealth of options available to provide fast and accurate budgeting solutions.
There's a lot of credit options out there for young people, but it's important to only spend within your means. High interest rates on credit cards and loans can put you on the back foot and make it difficult to even start building up your personal wealth.
Broadcaster Triple J surveyed 11,000 young people aged 18 to 29 and found more than half of young people have less than $5000 saved, and a quarter have less than $1000 saved.
How can young people acquire assets without buying a house?
Build up your savings account
Whether that is through a high interest savings account, a term deposit or some other saving facility will depend on your financial situation. Shop around, check comparison sites and speak to a financial advisor to determine the best option for you.
Invest money into your superannuation
This could be as simple as making a salary sacrifice - meaning the money is moved from your wages to your super account before tax. This will reduce the total amount of tax you pay each year and help you build up your savings. Depending on the type of Super account you have, these funds can be used in a variety of ways, including obtaining investment assets.
If accessing super seems a long way away, maybe your immediate focus could be on building assets for the next 10 to 20 years. An example would be to set aside 20% of your income to a savings plan, and top up your super by contributing 5% of your pre-tax income- the “pay yourself first rule”.
Seek financial advice
There are an endless number of investment opportunities and ways to acquire assets. Everyone is different and has different financial situations and goals, so taking the time to sit down with an adviser will pay dividends in the long term.
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