Time for a rich list reality check

Share

The web is full of blogs and articles telling you how to get rich through the stock market. Investor strategies, new apps to invest your spare change, online investment platforms... It all seems easier than ever – and some say that’s leading to an increasingly short-term view of playing the markets.

But how much do you really need to be earning to be able to invest?

The truth is, for most of us our biggest and most important assets will be our superannuation and our home. And here’s why.

Recent analysis of Australian tax returns for 2011-12 found that less than 5 per cent of people lodging a return earned over $150,000. Just 11.1 per cent earned over $100,000.

Meanwhile, the median house price keeps on rising – in mid-2015 it ticked over the $1 million mark in Sydney, and it’s not that far behind in Melbourne. Even for that top 11.1 per cent, it’s not always easy to raise the first home buyer deposit.

What’s also interesting is that those earning $150,000 or more are the only group less prone to financial stress, according to our research in 2015 for the Financial Fitness of working Australians report. While almost half of all Australians are worried about their financial situation, 54 per cent of those earning over $150,000 said they were “doing well and feeling comfortable” and 42 per cent “doing OK and making ends meet.”

Anyone earning below $150,000? They could be suffering financial stress simply due to the decisions they make in three key areas:

  • Control over your personal finances (do you pay regular bills and pay of your credit cards?)
  • Planning for your future (do you have a plan, and enough knowledge to make financial decisions?)
  • Ability to absorb a financial shock (are your possessions, home, life and ability to earn an income protected? Do you have savings for an emergency?)
  • Those three things will in turn influence our fourth factor for financial fitness – a feeling of financial freedom. The ability to do what you want, when you want to.

    So before you set up that investment account, make sure you have those foundations in place first.

    If your income isn’t enough to stay on top of your bills (and avoid paying interest on your credit card) sort that out first. If you don’t have some insurance in place and a regular savings plan, put that on your to do list.

    If there is any money left over at the end of each month, you may want to think about topping up your superannuation, and letting the magic of compounding take its effect over the next few decades. You could even benefit from a co-contribution from the Government.

    Or you may be better off paying down your mortgage first– top up your variable loan payments, and you could shave years off your loan.

    A financial planner is more likely to suggest you invest in shares – because they’ll make a cut on the amount they ‘manage’. But nine times out of ten, you’re better off putting any spare money into your mortgage. Reducing your interest is a guaranteed return.

    Sure, it may not be as exciting as checking your portfolio prices on your phone. But it’s the reality of life – you need somewhere to live, and you need an income when you finish working. Get that under control, and enjoy the exhilaration of financial freedom in the future – no matter how much you earn today.


    A roadmap before investment journey

    There are now more automated investment providers on the market than ever, targeting the 80% of Australians who are not seeking advices from financial planners. Whilst a good tool to have for first time investors, most of these ‘robo-advisors’ tend t

    read more >

    Gen Y housing affordability concerns can be ignored for only so long

    Late last week the Turnbull Government-dominated Parliamentary Economics Committee released its report on housing affordability. Rather than reforming negative gearing or other demand side drivers, the Report suggests the housing affordability proble

    read more >

    2016 Financial Fitness Report

    Personal finance issues are the leading cause of stress in Australia, and financial wellbeing is recognised as an integral part of overall wellbeing. Yet, to date, very little research has been done in Australia to measure the state of our financial

    read more >

    What’s the new story with super?

    Its been said there are two certainties in life: death and taxes. The government's federal budget introduces a third: changes to super

    read more >

    Financial advice needs a client-first crusader

    Currently, the [financial planning] industry is over-servicing the fortunate 20% while almost completely neglecting the 80%. Wealthy people get wealthier while the average Joe doesn’t have access to the advice and tools needed to advance

    read more >