Wealth

Case study: settting long-term financial goals

Find out how Emily planned for her future by setting long-term financial goals.

Emily, 32, is at a turning point in her career and in need of direction after a break-up. Here’s how Emily consolidated her debts and started to plan for a healthy and independent financial future.

Making the most of a difficult time

Break-ups are never fun, but they often provide the opportunity for personal growth. For Emily, a break-up was the impetus to get herself on track financially, first by eliminating her debts and then by setting savings goals. After meeting with a licensed financial adviser, Emily walked away with a clear plan and the financial strategies to achieve her long-term goals.

Reduce debts first

Emily’s first action — get rid of her debts. Paying off a $3,500 credit card debt allowed her to put more money towards her car loan. In doing so, she managed to reduce the term of the loan from three years to 12 months, saving her a considerable amount of interest in the process. Emily also created a budget to help her get debt-free faster, which helped her to find additional funds to further knock down the loan.

Start saving, slowly and steadily

Given Emily’s specific goals and circumstances, her licensed financial adviser recommended she consider:

Focusing on her company’s salary-sacrificing scheme to top up her superannuation with pre-tax contributions. The projections showed the impact on her take-home income was minimal, but because she is just 32, there was a significant difference to her super over the longer term.
Saving as much as she could towards a home deposit over a two- to three-year period. Emily’s Active Saver account paid a bonus if she left the money untouched, giving her a further incentive to lock it away.
Once she has bought a home, start investing to add flexibility and diversity to her wealth-building activities.

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Focusing on the long-term

Wherever you are in life, getting financial advice is a good option. For Emily, it allowed her to focus her attention on her long-term financial goals and put practical and methodical steps in place to get there.

Tips for setting yourself up financially for the long term

Like Emily, you might be at a turning point in life, or you may just want to get ahead financially. Below are some tips to help you on your journey.

Tips for setting financial goals

Focus on paying off your debts first

While there are debts that are considered “good” debt, such as a mortgage because their interest rates are lower, constantly directing payments to “bad” debt, such as credit cards with high interest rates and depreciating assets like cars, gets you nowhere fast. If you have savings goals, aim to pay off your “bad” debts first. This approach means you’ll quickly reduce the amount of interest you need to pay, while being debt-free means you can focus on your savings goals.

Choose the right savings accounts

A savings account can provides a dedicated spot to save for those big-ticket items. But it’s important to choose the savings account that best reflects your personality and habits. For example, if you know you’re the type to dip into your savings, pick an account that offers bonus interest if you leave it alone. It will act as further motivation to leave funds untouched.

You’re never too young to start saving for the future

We get it — retirement is a long way off. But put away a small amount on a consistent basis and you’ll be high-fiving your future self. You might not notice that extra $25, $50 or $100 a month directed into your super or an investment fund, but it can grow significantly over time.

Understand and embrace compound interest

Saving early and often leads us to the beauty of compound interest, often described as the eighth wonder of the world. Compound interest works in your favour, because the interest you earn is added on to your initial savings, which then earns even more interest, which means your nest egg can grow substantially over time.

Start investing

If you’re looking for a long-term approach of 10 years or more, consider the benefits of investing. Investment products such as 10Invest and other investment bonds give you choice, flexibility and tax benefits, without the restrictions of savings strategies such as super, which can only be accessed after meeting a condition of release.

Get dedicated financial advice

Seeing a licensed financial adviser can feel like a big step for some people, but it doesn’t need to be. Getting financial advice early on can put you on the path to financial wellbeing sooner.

Further help and information

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