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Financial planning mistakes of 30s professionals

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The 3 worst money mistakes that professionals make in their 30s

In your thirties, you’re making decisions that decide what the next twenty to thirty years of your life will be like. What’s my career path? Do I want to have kids? Alongside those big life decisions, you’re making financial decisions that can help set you up for financial security – or leave you scraping to make ends meet.

The secret is time. In your thirties, you have a once-in-a-lifetime opportunity. We’ve all heard that phrase ‘once in a lifetime’ before, but in this case it’s literally true. Your thirties are never going to come again. There’s an opportunity here, so act on it before the window closes for good.

I’m going to share with you the three biggest mistakes I see professionals making in their thirties – and the opportunities that are there for you to grab hold of.

1. Wasting time

Wealth creation plays out over decades; starting sooner puts you in a better position to be further along by the time you retire. Let’s look at the numbers (bearing in mind these are hypothetical calculations only – please get professional advice before applying these calculations to your situation).

Joe and Sandra are busy professionals. If they take a set and forget strategy, and their Superfund only returns 6% per annum between the age of 30 and 66, they would have approximately $800K in their Super. Note that this figure does not take into account any additional contributions they make into their Super.

Now here’s how financial advice could help.

If they received advice that led to an extra 1% (or 7%) return per annum on this same account at age 30, they would have approximately $1.14 million at age 66.

Getting quality advice sooner

Let’s add another layer – wealth creation accelerates when you get quality financial advice sooner rather than later.

Here is a way that financial advice can pay off:

  • By paying a bit extra on the mortgage, Mark could pay off his home loan in 15 years, not 30. That means he hits 45 debt free — and the money that was previously tied up with mortgage repayments can be used to build even more wealth before he retires*.

* There’s some modeling and assumptions behind these figures — they’re hypotheticals for illustration only — but what I’d like you to take away is a very simple message… The best time to get financial advice is yesterday, but the next-best time is today. If you want to find out what could be done to improve your situation, talk to a professional!

2. Making bad investments

In your thirties, you’re starting to make decent money, so often people will start looking at investments.

The risk here is that a bad investment decision in your thirties can set you back decades in lost income.

The most common mistake I see people making is jumping straight to the tactic, like buying a property in Jervis Bay, without a strategy. When I talk to them, they don’t have answers to the most basic questions:

  • How much money are you looking at making?
  • How long did you want to keep it?

Instead, a financial plan can take the tactics you’ve got in mind, and integrate them into an overall plan. Not every financial planner can advise on the specifics of property investing, but they can help you work through all the costs and cashflow. That also applies to shares and managed funds. You’ve got a better chance of avoiding dud investments if you know where you want to go before you start out.

3. Spending to the limit

Having the money (or a bank that’ll lend it to you) doesn’t mean that you should spend it! I see people in their thirties buy a home, or splash out on a car. Finally, they can stop renting – or driving the beat-up Datsun that got them through their twenties. So they reward themselves with the most expensive option possible.

Here’s how that dream car eats into your financial security. When you’re borrowing to the limit of your capacity to pay back, there’s no buffer. Life’s little accidents hit your wallet. The dishwasher breaks. Your kid trashes their bike. You get a speeding ticket. None of these things are catastrophes, but when you have no financial buffer, what happens? The credit card comes out – and that’s when interest rates start eroding your cashflow.

My advice: find out what your upper limit is, and work backwards from that, even by one or two hundred dollars a month. That’s money that you can put into your super, paying off the mortgage faster – or carefully selected investments – and which will start earning, not costing, you money.

Seize the day

In your thirties, you’re in prime position, at the starting line of wealth creation. Making a couple of smart choices now means that you’ll be way ahead of the rest of the pack.

Talking to a financial planner now and finding out your options is a low risk way of getting started down that road.

I hope these approaches are useful — and if you want to talk through your family’s finances, just get in touch.

Important information

The calculations you read in this article are based on the following assumptions:

  • Investment starting balance = $100,000
  • Starting Age for Investor = 30
  • Age of Investor when comparing final balance = 66
  • Set and Forget Strategy = 6% compounded return over whole investment timeframe
  • Improved Strategy after seeing an adviser = 7% compounded return over whole investment timeframe
  • No additional contributions are made to investment throughout the whole investment timeframe
  • Inflation has not been considered in the calculation, therefore the end balance will not provide the same lifestyle as a similar balance in todays money would
  • If $100,000 is invested from age 30 to age 66 at a consistent compounding 6% return the end balance is approximately $814,725
  • If $100,000 is invested from age 30 to age 66 at a consistent compounding 7% return the end balance is approximately $1,142,394

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General Advice (Tax) Warning

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