Avoid ‘lifestyle creep’, establish good saving habits and pay down debt to get ahead.
f you’re young and trying to build wealth, there’s one thing you simply must do: Ditch the debt.asked four wealth advisers what those in their 20s to 40s need to avoid when it comes to building financial foundations, they all agreed that the biggest mistake is to have bad debt.
Set and stick to savings goals in your 20s, says HLB Mann Judd’s wealth management director, Lindzi Caputo.Many young people don’t know the answer. Nearly 60 per cent of Gen Z women feel overwhelmed by their finances, as do 41 per cent of Gen Z men, according to a survey by the Australian Securities and Investments Commission conducted in October.
“If you … are in debt from credit cards, personal loans, car loans or BNPL, the first step is using your budget and a loan repayment strategy, like the snowball strategy, to get to the point of not carrying this kind of debt,” she says.The snowball strategy means paying off debts in order of smallest to biggest. The idea is that by starting with the smallest and working your way up, you can gain momentum. As you clear each debt, you put that minimum payment you were making into the next debt.
Avoid Afterpay-type commitments and recurring credit card balances, along with high-interest car loans, when a simpler vehicle can do the job, he says.“New cars are a rapidly depreciating asset, and over one’s lifetime they typically are by far the largest semi-durable expense item. Savings on smarter choices of vehicle purchase and use can be substantial at the time of retirement.”
“Consider your goals when deciding how to invest your savings. For instance, where working toward a deposit for property in a shorter time frame of less than five years a high-interest savings account may be best .” Lot has a slightly different take on this. He says you need to think carefully about the pros and cons of pouring all of your spare cash into your property, when maximising your super is also an option.
If you’re having kids, make sure you have a plan to protect your finances, says Dawn Thomas of The Wealth Designers.Adds Thomas, if you have or are thinking of starting a family, think carefully about how this will affect your income now and into the future, and what you need to do to best protect yourself.
And consider catch-up contributions. Currently, savers can carry forward unused concessional contribution limits from the previous five financial years, as long as their super balance is below $500,000, says Caputo.
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