Long-term investor reveals 10 simple ways Millennials can save up for a healthy retirement
There may be talk about raising the pension age, but by following these simple tricks Millennials can clock out into retirement sooner rather than later.
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Retiring ahead of the pension age may seem like wishful thinking, but a long-term investor has delivered a glimmer of hope for those prepared to get finance-savvy.
In light of new modelling suggesting the country’s pension age should increase to 70 years by 2050, Millennials have grown increasingly concerned about how they’ll fund their future.
Low birthrates and an ageing population are to blame for the need to increase the age of retirement, according to research by Macquarie University’s Business school.
As a result Australians will be forced to work longer before they’re eligible for the pension or make an effort to save more superannuation so they can retire earlier.
And with the cost of living soaring, salaries plateauing and rent and loan repayments going through the roof, the latter option has become a difficult pill to swallow for some.
However, entrepreneur and author Kim Northwood says it’s not time to give up just yet, explaining an understanding of financial literacy could be the key to clocking out of work for the last time sooner rather than later.
“It is getting tougher for people, we‘re getting hit from all directions at the moment,” he told news.com.au.
“Taking control of your finances now as a younger person is just so important (and) the key thing to do is to get on top of your finances and understand financial literacy …(especially) given there‘s no guarantee things are going to get better.”
10 tips for getting on top of your finances
It may seem like rocket science to juggle a home loan, student debt, credit card repayments and the basic cost of living, however Mr Northwood said there are several approaches one can take to boost their future fund.
The first step – which is one most can say they’ve heard before – is to add extra contributions to your superfund while you’re still at work. This could be as much as $100 per week.
“If you’re on the average earnings in Australia – which is about $71,000 per year – and you put an extra $100 per week into super, over 40 years or so that would amount to an extra $400,000 for retirement,” Mr Northwood said.
“And then when you get closer to retirement, you have all this extra money in there which you can use for things like holidays and potentially paying off the remainder of your house so it’s such a simple thing to do to make additional contributions.”
On the same topic of superannuation, Mr Northwood said Australian workers should check if they’ve got any unclaimed super from MyGov.
As of February this year, there was $16 billion in lost and unclaimed super – an increase of $2.1 billion since last financial year, according to the Australian Taxation Office.
The third tip applies to homeowners, with the Work Less, Make More author encouraging mortgage holders to think about refinancing their home loans to get a lower interest rate, particularly if they’ve been with the same bank for a long time.
He noted new customers tend to get better deals than existing customers, with some banks willing to re-evaluate current customer home loans to prevent them from moving to a different bank.
Tech-savvy Millennials are also encouraged to invest in the share market, with Mr Northwood noting it’s now easier than ever to access stock exchange and brokerage platforms online.
“At the touch of a button we can own virtually any of the major companies of the world through those apps … so I think it’s quite important to understand how you can get involved if you have extra money to invest,” he said.
Mr Northwood’s fifth piece of advice is directed towards credit card holders, with the investor shining a light on one of the biggest misconceptions regarding the payment card.
“So many people don’t understand how interest-free periods work. They see 55 days interest-free and they think it’s 55 days after the date of any purchase when it’s not, it’s up to 55 days,” he said.
Consequently, he urged credit-card holders to grasp a greater understanding of how the billing cycle works otherwise there’s a risk consumers could face interest charges every month or late fees.
He also recommended paying the bank more than the minimum fee and provided the example that a $4000 balance could take up to 40 years to pay off if just the minimum repayments are made.
A lack of insurance or rather having unnecessary insurance can also cost you big bucks in certain situations, particularly in regards to travelling overseas and health insurance.
“I still know people that travel overseas without insurance and they’re just rolling the dice when it comes to their personal finance – the types of things that can go wrong overseas and how much it can cost. I mean it can just be just an unbelievable amount of money,” he said.
Alternatively, with health, home and contents or car insurance, Mr Northwood said it’s important to look at the extras and what’s covered as you may be able to get a cheaper deal if you don’t necessarily need all levels of that cover.
The seventh tip – which older generations are particularly vulnerable to – is to be weary of the growing number of scams.
“There’s some really bad stories about intelligent people getting caught up in scams because they’ve also seen these stories about crypto increasing so much and people making all this money and then they think that they can do the same, but it’s actually a scam,” Mr Northwood said.
“Once the money goes, it’s so hard to recover that money … and your options are so limited particularly when the money has gone offshore.”
To date this year, Australians have lost more than $194 million to scammers, with an additional $568 million lost to fraudsters last year.
Mr Northwood’s third-last word of advice is for those paying utility and personal bills, particularly in relation to technological services like mobile phones.
“So people are spending over their lives, between $70,000 to $80,000 on a phone and that’s including the phone, the bills and the apps,” he said.
Rather than forking out a fortune for a new phone each year, Mr Northwood advised buying a phone outright and searching online for cheaper deals through smaller telephone providers.
He also noted the same concept applied with cars, arguing sometimes it’s better to purchase vehicles second hand opposed to brand new as they tend to depreciate “as soon as they drive out of the dealership”.
“Cars are just a real sinkhole because you’ve got potentially a car loan, which are usually at expensive rates plus you’ve got maintenance and fuel and again some sort of typical costs,” he said.
Finally, the two last important tips are to learn how to budget and improve your understanding of financial literacy.
For example, when it comes to shopping, Mr Northwood said not many consumers understood the strategies supermarkets use to make them spend more.
This includes storing confectionery at the checkout, keeping essential items like milk a fair walking distance so you have to see other items first, and the idea that buying in bulk can help save money, when it doesn’t always help.
Meanwhile, in regards to utilities, there are a number of comparison and consumer websites that can assist people with finding a better deal.
“It goes back to financial literacy … and absolutely one of the best things that young people can do is just improve financial literacy because if you’re not managing your own money, someone else will do it for you but, like the banks, they will charge you interest and they won’t tell you about it,” he said.
“It‘s just critical that young people start to learn more about managing their money, so they don’t get taken advantage of and can start putting aside some money for themselves.”
The pathway to a healthy retirement
While Mr Northwood’s tips sound great in writing, the only way they’ll help boost a worker’s retirement fund is if they’re put into practice.
The long-term investor said there is “absolutely no reason” young workers can’t start saving for their retirement “straight away”.
“(Starting early) makes such a difference many years later, and it will be the difference between being able to retire early and comfortably for some versus having to work until they’re able to get the age pension at 70,” he said.
On the contrary, Mr Northwood said it’s never too late to start, noting that working Boomers and Gen Y can use some of the tips to save a little extra money for their retirement.
“Retirement is a very, very sensitive topic, but people are living longer and government finances are going to be stretched when it comes to age pension,” he concluded.
“So I think what I say to young people is, there’s just no guarantee about what’s going to happen when it comes to whether they raise the age you can get the pension.
“You’re best off doing everything you can to protect yourself and build your own wealth now so that you’re not as reliant on that in the future.”
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