Young families and the value of financial advice
07 Aug 2014
Modern life for young families generally equates to two parents working full-time to support their 2.3 children and a hefty mortgage. For young families, investing and planning for the future often revolves around one day being able to buy an investment property, perhaps having their own business, or saving for their children's education. Many people in this position consider using the services of a financial adviser as something to be considered later 'when we actually have some money to invest.'
In reality, these are the very people whose lives a financial adviser can make a significant difference in by assisting them to make sound financial decisions from an early age. You don't need to wait until you have saved a certain amount or your children are grown to start considering and planning for your own financial future. In the long run, financial planning can help you save and grow your wealth.
Below are some of the key areas to focus on to help young families start preparing for a successful financial future.
Expense reviews initially relate to general household budgeting, which is an essential component in extracting more out of what you already have. Creating a budget necessitates a review of current debt arrangements (including mortgage) and insurance policies, often resulting in either savings or more value for money via alternative relevant providers, or better prioritising. This process provides a better understanding of the costs and cash flow and is particularly relevant to investment properties.
Perhaps most importantly, reviewing your expenses and thinking about investments helps sort through the myriad of schemes and products that are presented to us on a daily basis. In my experience, a lot of bad decisions made by new investors relate to these types of offers. A better understanding of our expenses means we are more likely to avoid making poor financial decisions.
Wealth generation and preservation
Wealth generation can be achieved through savings and investment strategies decided upon after your expense review. Once you are generating wealth, it is then time to focus on preserving what you have worked for. Wealth preservation begins with an assessment of the risk to your key sources of wealth, in most cases, employment income. Forecasting a family's position in the event of an unexpected illness or injury that prevents one or both parents from working is often a sobering experience. By putting appropriate strategies in place, the negative financial effects of these types of events can be eliminated.
Wealth preservation will lead directly into estate planning. As it can be difficult to face the reality of our own mortality, Wills are often thought of as something to address later in life.
However, Wills are an essential tool for young families. In the event of death or incapacitation, a Will provides instruction on the distribution of assets, preferences for the guardianship of children and the allocation of insurance money for children.
Additionally, it is essential to ensure you have a Binding Death Benefit Nomination in place that is up to date. Many assume that their super will default to their spouse, but it is actually necessary to name them the beneficiary in a Binding Death Benefit Nomination, which must be updated every three years.
Financial planning can help you form a holistic view of your finances, taking into account your incoming and outgoing expenses, discerning your risk profile, and tailoring an investment strategy that is right for your unique situation. A long-term financial plan puts you in a position to chase your personal dreams while knowing what to expect financially. With the support of a financial adviser, you could even achieve savings in areas you perhaps wouldn't have thought of. When thinking about your financial future, there is no such thing as starting too early, but it is possible to leave it too late.
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