Are you a financial late starter? Here’s how to catch up

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A lot of the financial advice given to people early in their lives makes some key assumptions, namely that you a) get some form of job in your 20s that pays you a steady income stream and b) you save/invest/squirrel that income away into your super. It also tends to make some pretty silly assumptions about homeownership, but that’s a topic for another day.

I’d say for 80-ish per cent of people, these assumptions are pretty safe ones, but for some – including a reader who messaged me this week – that’s not quite how it pans out.

If you’ve hit your 30s and still don’t have a solid financial foundation, fear not.Credit: Michael Howard

Perhaps you chose a degree, such as law or medicine, that takes a long time to complete, or decided to end one degree early and do another, or pick up a trade instead. Maybe you became a parent in your early 20s, or migrated to Australia later in life.

What’s the problem?

In these types of situations, it can be easy to feel like you’re running behind your peers who may have been in stable jobs for five years or more, and likely have larger super balances, a lower HECS debt, and maybe even a home or other assets.

What you can do about it

While that may feel overwhelming, the good news is it’s not too late to get on top of things. Here’s where to start:

• Plan: When you start earning in your early 20s, most people don’t make much of a financial plan because they probably aren’t really thinking about future finances, and realistically, will just work it out as they go along. Starting in your 30s is a different situation, however, and a solid plan can make all the difference, says Wealthy Self financial adviser David Currie. “Map out your goals as clearly as possible and think about what you want to achieve in the short, medium and long term,” he says. This might mean saving for a house, boosting your super balance, or going on a holiday. Outline the cost of each goal and also its priority, Currie says, so you know where to focus first.

• Build your foundations: In a similar vein, once you’ve got a plan together, start putting together a solid financial foundation to build upon. According to Kate Campbell, co-host of The Australian Finance Podcast, this could include putting together an emergency fund, checking on what insurances you have or might need (for example, health insurance gets more expensive every year past the age of 31), or even chatting to a financial adviser. “While you might regret not starting earlier, don’t let that stop you from making progress on your financial future,” she says. “The most important thing you need to do is start, otherwise you’ll look back in 10 years’ time and wonder why you didn’t take any action with your money.”

• Super and schemes: The easiest way to feel like you’re “catching up” to people who’ve got a five- to 10-year start on you in the workforce is to soup up your super through things such as salary sacrificing. You can make concessional contributions (before tax) of up to $30,000 a year, which you could easily max out as a worker on a higher-paying salary. You can make up to $120,000 in non-concessional contributions (after tax) a year as well, though this will be taxed at your marginal tax rate. Adding even an extra few thousand a year can make you tens of thousands of dollars better off come retirement. Currie also notes that something like the First Home Super Saver Scheme could be a good place to start saving for a house, as it provides a low-tax savings environment.

• Reflect: Finally, while it may seem like you’re behind the eight-ball, realistically, you’re probably doing better than you think. Most people are a mess (both financially and generally) in their 20s, so getting started “late” may not be as much a disadvantage as you think. A Finder survey from earlier this year found that just under half of us could live off our savings for only a month or less, so you might be in a better spot than a lot of other people. Also, the time you spent studying or travelling in your 20s isn’t all for naught, as financial counsellor Victoria Vivente says, you probably formed some solid money habits without realising it. “Think about what ‘student money’ habits have served you well and hang onto those,” she says. “Chances are you already have some great habits set up when it comes to managing your money that will enable you to save a lot quickly.”

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.