It’s time to take charge of your financial future!

It’s time to take charge of your financial future!

It’s time to take charge of your financial future!

Take charge of your financial future in 2020 and set yourself up for a comfortable retirement. It can be difficult to find the time to set financial goals, especially when their perceived outcome seems so far away. But by reducing your spending now, you can successfully grow assets for your future and pay off debt faster. Imagine living mortgage free in 15 years! Your future self says thank you!

Tips on investing

Before you begin investing, it’s important to clarify how much money you can set aside each month for your financial goals. This way you will be able to;

  • Know what you are aiming for and;
  • Track your financial progress
How do you set financial goals?

ASIC offer a “MoneySmart” saving goals calculator which helps you to determine the amount of money you need to save. You’ll need to add in;

  • The amount you want to save
  • How long you wish to achieve the above
  • The interest on your savings account

The calculator will then supply you with a monthly figure to achieve your financial goal.

TIP* Make sure you add a little for inflation to cover yourself down the track. Adjust for inflation by reducing your expected annual return. If you assume an annual return of 5% and inflation is estimated to be 2%, then your inflation-adjusted annual return would be 3%.


What is a “risk budget?”

Your risk budget is your ability to stay afloat if your investment takes a dive. Most high-risk investments, such as shares, ebb and flow. There are many questions you can consider and questionnaires you can complete to assess your risk budget. For example:

– As mentioned above, share markets can lose value in the short to medium term. Estimate how much of a drop you can withstand.

– Ask yourself how long you plan to invest your money. When do you plan to sell your investments so you can use that money?

The Rule of 72

This is an easy mental shortcut to help you estimate how long it might take to double your money. 

Take the number 72 and divide it by the annual rate of return. 

For example, an investment with a 7.2% compound annual rate of return will take 10 years to double in value. An investment with a 6% annual return will take 12 years; and if you were lucky enough to score an 8% annual rate of return, then you could double your money in nine years. 

Track your investment performance

It is important to keep tabs on your investment. Some assets may have better returns than others, which may prompt you to rebalance. How do you rebalance?

EXAMPLE: Let’s say you want to have 60% shares and 40% bonds in your portfolio. Two years later, shares have performed strongly and the mix has changed to 70% shares and 30% bonds. You could sell 10% of the value of your shares and invest this amount in bonds. 

You can rebalance in two ways:

Top up your investments with money from your savings or;

Sell and reinvest assets as per the example above.

Information above is from the book The Joy of Money: The Australian Woman’s Guide to Financial independence by Kate McCallum and Julia Newbould.

If you need help sorting out your financial goals and planning for the future, contact Aspects Accountants and Advisors in West Perth for a FREE initial consultation.

Ph: 9227 9400