FORWARD PLANNING
Forward planning always begins with assessing your past. We all have aspects of life we know we manage well and some that we could manage better.
Unless we regularly take stock of our current situation, review what we have done to get to this point and determine how we can improve our future outcomes, we stagnate and miss out on beneficial opportunities. Super is an area where this is especially true.
MONEY MANAGEMENT
There is more to life than money, and becoming a multi-millionaire may not be our life purpose, but if you do not manage your financial affairs wisely, life can be more difficult than it needs to be.
Learning how to manage/mismanage money usually starts when you obtain a job that provides a steady income. It is financially wise to use earnings to buy an asset that appreciates rather than depreciates, yet most people tend to look for a car first, which is an asset but one that is worth less in the first week of ownership than what you paid for it.
Most people take a decade or more to develop a financially sound perspective on their cash flow, savings and acquisition of assets, and many opportunities to improve their circumstances during this time inadvertently fall by the wayside simply due to unawareness
FINANCIAL AWARENESS
Phrases such as financial education or financial wisdom are popular phrases often heard in different situations within Australia. People develop different levels of financial awareness depending on what they are responsible for.
Various levels of government play a role in the management of the Australian economy and initiate a range of priorities that do not benefit all but do benefit some. The segment of corporate Australia, be it large or small businesses, and the impact of decisions made around the national economy requires consideration, and so does the family unit or the individual trying to struggle upward through parenting efforts and then future generations.
If we all are to move forward and upwards in life, financial awareness is as much a necessity as care for your community, with the balance between both finely judged by someone or a body who has both financial wisdom and skills.
REFLECT AND REVIEW
Financially, what you do not do will always come back to haunt you. How many times in life will you be able to start again? The answer to that question depends on your age and the time available within your life horizon.
Effective management of your financial situation demands you base decisions that impact your future on knowledge acquired from reviewing your past.
Decisions made and implemented without adequate information are almost always wrong. An opinion backed up with the acquisition of evidence equates to fact-based knowledge. Making informed decisions increases the probability of achieving life goals.
SITUATIONAL ANALYSIS
Earn some money through employment, spend some or even all you earn, maybe save some before you spend that too, and accumulate an abundance of debt. The summary of life for too many well-intentioned individuals.
If this is the treadmill you are on, the first step in taking control of money is always to analyse the situation as it is. It is easy to make financial mistakes without even knowing you are making them, many of which are damaging in some way or other.
Growth (whether personal or financial) requires you to acknowledge what you do not know, analyse the positives and negatives of the current situation and create an improved pathway forward.
DECISION MAKING
Having developed and even documented a new or heavily modified perspective around the management of your income, savings, assets and liabilities, changes in behaviour will need to be adopted involving the rules you want to operate to and the goals you want to set for yourself and others who might be somewhat dependent on you.
Your future financial outcomes depend upon you knowing what you are doing, a process that requires considered steps in deciding what to do from here and engaging the services of a trusted professional who can answer your questions and help you make fully informed decisions can be beneficial.
CAREER DEVELOPMENT
Most people earn income plus super from employment, yet many do not actively develop their careers sensibly. It is critical to the development of your future financial situation that you succeed within your chosen line of employment.
Nowadays, every employee in their thirties will have accumulated $100,000 plus in super, a personal asset that likely would have already been spent if paid out as wages.
Very few people endeavour to adopt the right wealth creation strategies with their super, displaying a lack of financial awareness that arguably pervades the overall management of their money.
GET STARTED
Do not let any further opportunities to create more wealth for yourself pass you by. Set the intention to become more aware and develop financial management skills in 2024.
To attend a free financial awareness webinar email yoursuper@superwise.com.au
Or visit www.superwiser.com.au and complete a free super review.
SUPER AWARENESS
Depending upon your age, opportunities, and life experience, you might not yet realise the importance of your super relative to your financial future. Many individuals fail to ask the right questions regarding super, and even fewer consider how to make more super for their retirement.
Optimal super outcomes do not happen by accident. There are steps to take and informed decisions you must make.
STEP 1: REGULARLY ENGAGE WITH YOUR SUPER
You accumulate super via contributions made on your behalf by your employer. So, your employer funds your super, but ultimately, you are responsible for managing it as a personal asset.
The 2018 Royal Commission identified that, in general, the financial services industry paid more attention to maximising company profits as opposed to providing individuals with relevant, value-adding services at accessible prices. The resulting increase in regulations means the financial services industry now makes less revenue.
Instead of reviewing their existing market propositions and offering more beneficial services to clients, an exercise of cost-cutting has ensued within the industry, endeavouring to protect profit margins.
It is a mistake to assume anyone other than yourself will optimise your super asset. You must regularly review your superannuation strategy and make informed decisions that align with your circumstances and expected market conditions.
STEP 2: INCREASE YOUR FINANCIAL AWARENESS
Most individuals are arguably not as financially aware as they need to be, especially those at the beginning of their careers. One of the most important financial skills needing acquisition early in life is efficient money management. Most people can benefit from analysing the proportion of their income wasted on discretionary spending rather than using that money to repay debts quicker, increase savings or invest.
Various perspectives on money are necessary to develop your financial future. Super is a personal asset you will access in retirement, which may seem far away for some, but time passes quicker than you think. It is essential not to waste time as this can significantly reduce the amount of super you end up with. Even those with only a few years until retirement should ensure their super has the right strategic balance between growth and defence.
No one in the pre-retirement phase of their career wants to be caught unprepared in a market downturn.
STEP 3: MANAGE YOUR CAREER AND EARNING POWER
A significant determinant of your future financial position is your career. It dictates your earning capability. Irrespective of your occupation, you will face many choices and opportunities to seize the moment and maximise your earnings.
It also pays to be efficient with your spending habits and engage with beneficial services that can help you create more wealth from your assets, with super being one of them.
Simple ideas for managing your career to your advantage:
- Obtain the necessary qualifications.
- Be reliable in your employment.
- Focus on solutions as opposed to problems.
- Develop a dependable reputation.
- Talk about your desire for promotion with your manager.
- Learn new skills and seek out relevant training.
- Consider your goals and plan out how to get there.
STEP 4: ACTIVELY MANAGE YOUR SUPER ASSET
Active management of your super asset requires every individual to make an informed decision around the following:
- Choice of product
- Contribution strategy (in particular, salary sacrifice)
- Investment strategy
- Insurance needs
- Your nominated beneficiary
While the above decisions appear straightforward, there is much misleading information in the financial services industry about the best decisions to make and when to review them.
Every product provider is currently reviewing their default offering around investment and increasing the proportion of unlisted assets included in MySuper. Why? According to certain product providers, unlisted assets provide superior returns.
Interestingly, these product providers claim unlisted assets are less volatile than listed assets. Most individuals don’t know the distinct difference in the frequency of valuation between listed and unlisted assets or why it matters. Listed assets are revalued daily, with unlisted assets formally once a year.
The market examines the annual performance of comparable MySuper default products every July and assumes that higher returns must signify the preferred product. But is this true?
For the following reasons, individuals should not rely solely on super product providers to help them optimise their super, because:
- They do not encourage salary sacrifice early.
- They do not advise you when insurance premiums take a hike after age 50, damaging your contribution strategy.
- They do not expose your super to growth assets when appropriate, and likewise, over-expose your super to growth assets when you are approaching retirement and your time horizon is short.
Super products change every year, and without a significant amount of time spent reviewing and a technical understanding of super, no one can expect to know what product is most appropriate or how to tailor their ongoing super strategy for optimal outcomes. So, it can be valuable to engage with a professional service that can help you in this area.
SUPER SERVICE
Having awareness is essential because you cannot fix what you do not know is broken.
You can examine the quality of your decisions around super to date by completing a free Super Review at www.superwiser.com.au
You can then decide whether (or not) it is in your best interest to further engage with our services.
Alternatively, if you would like to speak to an adviser call 1800 467 467.
Whether you are 20 or 60 years old, time progresses in the blink of an eye and arriving at your desired financial situation at the point of retirement does not happen by accident. The phrase, wasted time is wasted money, holds a lot of truth, especially with super.
Individuals who effectively manage their super from a young age are more likely to achieve long-term financial goals than those who waste decades before taking appropriate strategic action.
No matter what age you are, if you want to do what is best for yourself, you must consider your level of financial awareness and seek appropriate advice and services where you have knowledge gaps.
Super is complex, and most people have knowledge gaps in this area but fail to take action early enough, thinking they will do it later, closer to retirement. A classic example of wasted time resulting in wasted money as they miss out on opportunities to significantly impact their super outcomes.
START EARLY
Whenever anyone starts their first job, an increase in financial awareness is required. Financial mistakes early in your career are common, and most people remain unaware of the damage they are doing long-term.
Two significant things happen when you commence working, you earn money and start accumulating super.
Initially, your super balance may seem small and insignificant, yet by the time you retire, if wisely managed, you can end up with around a million dollars in your account (in today’s dollars).
The golden rules of super are:
- Understand the super product you select and the various risks associated with it.
- Ignore marketing boasts and make decisions based on factual information and calculations.
- Wealth creation requires you to be in control of what you are doing, so you must have an appropriate level of financial awareness.
- Identify where you lack the necessary skills to manage your investment in super and identify a service that provides those skills.
- Consistently evaluate the performance of any super service you are paying for.
- Salary sacrifice a modest amount early in your career.
- Understand that your salary is the key driver of your super asset (the more you earn, the quicker your super will accumulate).
- If you want a promotion, improve your prospects by talking to your superiors about it and finding out what you can do to add value within your current role in the interim.
- Consider investing 100% of your super asset in shares and property (growth assets) whilst you have a long time horizon until retirement.
- Review the appropriateness of your super strategy annually and make relevant changes as required.
- Interact with your super as a personal asset early in your career.
- Set long-term goals and objectives and monitor progress against calculated milestones.
FOR THE OLDER GENERATION
I am sure you know by now that life moves quickly, and some of you will be wishing you had listened earlier.
Whatever you may have done right or wrong so far in life, you must take the perspective of learning from experience and facing reality as it currently is.
Just as there are golden rules for the younger generation, the older generation must ask themselves the following questions:
- Have I accumulated enough in super and other assets to retire on?
- What is the time horizon to my preferred retirement date, and how much super do I want to have accumulated by then?
- Are there risks that might damage my accumulated wealth and disrupt my plans from here?
- Is there a service that can assist me to grow my super wealth yet protect it from risks?
- What is my level of financial awareness?
- Do I know what I should be doing with my super from here?
- Do I have a robust strategy for managing my super until retirement for an optimal outcome?
- How much have I got, and given my retirement plans, how much is enough?
- Is there an alternative to expensive, traditional financial planning services that I could benefit from?
MOST AUSTRALIANS
Unfortunately, most Australians have limited experience and financial awareness before life after school/TAFE/university takes over, and they have to learn by making mistakes.
Traditionally, the financial services industry only serviced Australians who could afford to pay for expensive financial planning advice (approximately 20% of the top 20% of individuals classed by earnings and assets). Often, these financial planning services only talk to prospects if their assets are $3m or more, meaning that over 90% of the working population does not qualify for traditional financial planning services.
Generally speaking, most Australians do not seek to become financially aware, often choosing the path of doing their best but without the required skills, an approach that most often results in significant financial underperformance.
SUPER MANAGEMENT
If it is possible for almost everyone starting in the workforce today to accumulate a million dollars in super by retirement, how do you get there, and what common mistakes can prevent it from happening?
Misinformation is a word commonly used in recent times, and there is a lot of misinformation (i.e. misleading claims) in the superannuation market about what solution is best for everyone’s super. Super product providers do not service super at an individual account level, and, in some products, most individuals sit in the MySuper investment default and do so without understanding market risk.
The truth is that product providers only provide general advice to individuals and fail to fully explain the limitations and risks of their service model to the market. A product provider will never tell you that another super product is better than theirs, and this is why individuals need to access a service not aligned with a super product.
In searching for such a service, cost is a genuine consideration for most working Australians.
With the rise of technology and automation, quality advice and service specifically focused on super has become more affordable than ever. Look for a service that can review all super product options appropriate to your circumstances to optimise your super and, thereby, lifestyle in retirement.
SUPERWISER
Check out www.superwiser.com.au to examine the value proposition for helping you manage your super more effectively.
Alternatively, if you would like to speak to an adviser call 1800 467 467.
YOUR SUPER
Ten years ago, the government introduced MySuper as a regulatory requirement, and interestingly neither the government nor the regulator has criticised or noted any inadequacies in the design of any platform’s MySuper investment default option since then.
However, as a wealth creation strategy, it is observed that there are design flaws present within all MySuper offerings, which can lead to sub-optimal super outcomes for individuals.
There are three basic MySuper designs:
- A fixed investment strategy, is typically balanced between growth and defensive assets until the point of retirement.
- A glide path strategy, where the asset resides in a growth investment portfolio until a certain age, at which point contributions get directed into a lower-risk portfolio.
- Then there is the life stages/cycles strategy, where the asset is methodically and progressively de-risked into defensive assets after reaching certain ages.
Individuals must realise that MySuper is a generic (one-size-fits-many) super strategy (not an optimisation strategy), with age being the only personalised variable (sometimes) considered in the equation.
IS SUPER A NATIONAL ASSET?
Like the government making it a regulatory requirement for all platforms to name their default investment portfolio ‘MySuper’, the government is now stating that super is not only a personal asset but a national asset too, and suggests using it to invest in Australia.
At some time in the past few years, both major political parties discussed defining the purpose of super in law. The discussion did not progress to legislation, perhaps because super is a personal asset intended to provide income to an individual in retirement.
Throughout the Royal Commission in 2018, there was much commentary about platforms charging ‘fees for no service’, with little attention given to reviewing the appropriateness of MySuper designs as an optimal wealth creation strategy for individuals.
MySuper was designed more like a ‘safety net’ super strategy, catching those who fall through the cracks and fail to take ownership of their super asset. The high percentage of working Australians still in a MySuper default investment option is concerning.
The current government plans to use super to fund social housing and sort out the rental/homelessness crisis developed over the last decade, partly due to record-low interest rates and easy access to credit.
Globally, we now have a cost-of-living crisis, high government debt, high domestic debt, and an unstable geopolitical situation, signalling a less than healthy economy.
GOOD FINANCIAL MANAGEMENT
Many people who borrowed money for the first time in the last fifteen years have misunderstood what level of bank interest is ‘normal’.
Many Australians are struggling financially with interest rates returning to normal levels and the rapid increase in the cost of living resulting from high inflation caused by the flood of money that entered the economy due to unprecedented monetary policies enacted during the COVID-19 predicament.
Good financial management is hard to follow as it is not a lesson well taught in the Australian educational system, and most developed countries have the same standard of education when it comes to money management.
The first wise lesson is to expect the unexpected, live within your means (if you can) and practice discernment regarding political and media rhetoric about affordability.
Budget appropriately, identify any wasteful expenditure and ensuring you only spend what you can afford. A couple with a young family experience many financial pressures and it is probable that both adults will have to work.
Traditionally, the person most able to work and the highest paid will seek promotions to earn higher and higher dollars. This involves using initiative and seeking to add value above expectations, offering support and identifying how to assist those in management positions to meet their goals and objectives.
HOW TO OPTIMISE SUPER
Super is your asset, and you must optimise it (no one will do it for you). To do this, you must get to know your super and make sure it makes as much as possible in every market cycle, depending on your circumstances.
Time flies quickly, and you will find yourself in the latter half of your career before you know it, so it is recommended to take action to optimise your super sooner rather than later. Just ask someone older.
Top Tips for the Younger Generation (Under 45’s)
- When first employed, find a source of opinion that educates you away from bad habits that can damage your career and financial progress.
- Have your super contributions paid into a product you think seems right, but wait until you have accumulated enough of an asset to justify paying for personal advice.
- Initially, opt for cost-effective limited super advice (as opposed to expensive holistic financial advice).
- Examine the cost of the service against the value to be delivered and watch the performance of your account progress.
Good limited super advice will cover four areas:
- Choice of product.
- Cost disclosure.
- Contribution strategy.
- Investment strategy.
It will also provide milestones in performance so you can evaluate whether the promises were true to label (or not).
Top Tips for the Older Generation (Age 45+)
- Make additional contributions appropriate to your specific circumstances. A little over a longer time is better than a lot over a short time.
- Review the insurance coverage you have in force within super to ensure it still meets your personal needs. Consider that the older you get, the higher the premiums. You do not want to pay for insurance cover you may no longer need just as much as you do not want to be underinsured should you need to make a claim.
- Review and update your investment strategy every 12 to 24 months to ensure the right balance of growth and defensive assets reflects market conditions expected for the cycle.
For those aged 60 and over:
- Examine the opportunity to use a transition to retirement strategy to maintain your existing cash flow, salary sacrifice more into super, save on tax and increase your super balance.
SUPERWISER
The SuperWiser client portal provides access to affordable, expert advice and service specifically focused on assisting you to manage your super towards an optimal outcome.
SuperWiser can help you make informed decisions and avoid common (and often costly) mistakes.
Complete a free Super Review.
From there, you can obtain initial super optimisation advice (including implementation) for a one-off low cost of $220 (inc GST).
Alternatively, to discuss your options directly with an adviser, book a time online, call 1800 467 467 or email yoursuper@superwiser.com.au