Young people are costing themselves thousands by putting off their finances

LAZY Australians are putting off something they think only old people have to worry about - and it is costing them thousands.

YOUNG people are making a huge mistake when it comes to securing their future — and no, it isn’t eating an excess of smashed avocado.

Sorting a super fund might not seem like an important thing to organise when you’re backpacking across Europe or graduating from uni but putting it off can leave you thousands of dollars out of pocket.

Dominic Aarsen, 24, an entrepreneur and founder of Make The Most of Your Money, developed an online program to specifically help young people understand and save money.

A huge part of that, he says, is sorting your super fund as soon as you start working.

“Just by looking at your super fund in your 20s rather than your 40s or 50s can mean a difference of around $87,000. You could easily be looking at a $100,000 difference in your super fund account depending on how and when you sort it,” Mr Aarsen told news.com.au.

Australia is moving towards a self-funded retiree system meaning sorting super is more important than ever.

“Super is definitely an important part of anyone’s future and if people take care of it now they know they’ll be sorted by the time they can access it, when they’re 55 say,” he said.

Mr Aarsen, who previously worked as a financial adviser at Woodbury Financial Services for “ultra” affluent clients worth more than $30 million, said he had a number of young clients come in with much less super than he expected.

“I’ve had a lot of younger people come see me and I expect them to have a lot more super but then we’ve figured out that say that cafe they worked at for years weren’t paying super. That oversight might’ve cost them $5000 or something but in 40 years that could easily be worth $60,000 to $80,000,” he said.

Sorting super can mean a big change to a young person’s future.

And research from comparison site finder.com.au confirms exactly what Mr Aarsen is saying.

As of January, only 42 per cent of Australians knew their exact superannuation balance and 11 per cent of surveyed Aussies didn’t know their balance because they didn’t know how to check.

Bessie Hassan, Money Expert at finder.com.au, said that younger people should be paying more attention to their super earnings while they still have time to make significant changes.

“It’s easy to forget about super since retirement is a way off for Millennials, but superannuation funds are an important resource during retirement.”

“Within Australia, the minimum super contributions your employer makes is 9.5 per cent but this can increase depending on your superfund. If you’re earning more than $450 a month, your employer will pay super on top of your wages to a fund,” she said.

Mr Aarsen, who runs his financial advising company from Sydney, said young people needed to get serious about their futures and start making changes as soon as possible.

“Time is your biggest asset but also your biggest enemy. Start making changes and thinking where you want to be in five or 10 years’ time. Those people who think like that are going to be much further down the track if they sort it all now.

“Most people don’t want to work until they’re 80 or 70 and you won’t have to if you do the small things right, right now,” he said.

SUPER TIPS

When it comes to sorting a super fund, Mr Aarsen said there’s a few key things young people need to be aware of.

Working multiple jobs through school or uni means a lot of young people have a lot of super funds floating around — something that’s good only under special circumstances.

“If you have five accounts, you’ll be paying a yearly admin fee on each account each year so you’re paying three or five times the amount of fees for no reason when you can just put them all into one account,” he said.

And of course, a lump sum in one account rather than small sums in multiple accounts equals more interest for you in the long run.

“For younger people, multiple costs across multiple accounts is never a good idea. I’d be happy to say for young people, for people with under $300,000, it’s preferential to sort of reduce the cost of your super fund,” he said.

All your super from each job should be placed in a single account.

Australians change jobs at least five times in their adult life, meaning you’re eventually going to have to be aware of where your super is going.

“As soon as you get a full time job and your employer is paying for your super you need to get on top of it and make it work as hard as possible for you for as long as possible,” he said.

Research from finder.com.au also found nearly one in four Australians are gouged by more than $500 a year in super find fees — nearly twice the average they’re supposed to be paying.

“Fees can really eat away at your superannuation — siphoning away tens of thousands of dollars until you retire,” finder.com.au money expert Bessie Hassan said.

One in six workers pay about $250 a year in super fees with Gen X and Gen Y most likely to be unaware of the fees they’re paying.

A report released by the Productivity Commission last year also found a whopping $150 million could be pumped back into retirement nest eggs — and all it would take is Aussies closing up their multiple super accounts.

Mr Aarsen offered another tip for self-employed people, such as tradies and business owners, telling them to be especially aware of their super.

“There’s a cap of $25,000 a year that you can put into super but often self-employed people forget to pay super to themselves,” he said.

“Say you have two people. One who earns income from an employer and another who takes income from their own business but hasn’t been paying super to themself. The business owner might be better off right now but in 40 years that other person will be way better off in 40 years. For self-employed people, it’s really hard to catch up on if you haven’t done it,” he added.

Tradies with their own business need to be more aware of their super.

Mr Aarsen also said the longer you wait to sort super, the worse off you’ll be.

“Overtime, it gets harder and harder to be on an even playing field,” he said.

Another important tip is to check where exactly your super fund owner is investing your money.

“There are plenty of different investment options out there and you can always change what it’s invested in for example a high gross fund could accumulate you more money. On your statement it should have the investment option there and you can check it every six months,” he said.

“I tell my clients to at least check their fund twice a year — particularly for people employed in small businesses. You get two chances each year to double check your super funds and see what you’re doing. If you don’t know how to, get the ATO to check with Find My Super.”

Originally published as Young people are costing themselves thousands by putting off their finances