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Michael Pope Blog post by Michael Pope

A Great Time to Start is NOW

As we begin the new Financial Year, most people can expect to receive some key information regarding their financial situation – employees will be receiving their PAYG Payment Summaries (Group Certificates) for the year and most people will also be receiving statements from their Superannuation Fund(s) which will give an insight into the wealth base they are building for their Retirement.

Many people’s reaction when they receive their Payment Summary will be along the lines of “Where did all that money go?”, while most people’s reaction to their Superannuation Statement will be either to ignore it, file it away for the future, or, if they are approaching Retirement, start to realise that there won’t be enough money there to provide for the lifestyle they had been hoping for in Retirement. (The word “hoping” is used deliberately here, as the numbers show that far more people “hope” for a good standard of living in Retirement than actually plan for it.)

These two questions go to the heart of the subject that we call Money Planning – understanding your current cash flows, and understanding what level of wealth you are likely to accumulate over your working life to fund your lifestyle in Retirement.

Developing an understanding of current household cash flows is the critical first step in the development of a Money Plan (as outlined in an earlier article) and a PAYG Payment Summary provides important information about the Income part of the picture. However, it is only by considering Income and Expenditure together that you can gain an understanding of what surplus cash flow might be available to put towards improving your wealth position.

But what about the wealth base you are already accumulating in your Superannuation?

The Statement that I receive from my Superannuation Fund includes a chart which shows how my balance is going, and whether it is on track to provide for my retirement. But, of course, this chart is not about “my” retirement at all, as the Superannuation Fund has no idea when I wish to retire, or what sort of lifestyle I’m aiming for. The Statement is simply depicting what level of wealth will be required for a “modest” or a “comfortable” retirement1, and so it is actually quite misleading. The only way to understand whether you are actually building enough wealth for the future is to look at these numbers in a lot more detail than your Superannuation Fund can.

This is where the second phase of Money Planning is required – taking the current information about cash flows and wealth position and projecting them forward in time based on a mathematical model ( and a series of assumptions ) to form a picture of where you can expect to be by the time you would like to retire. Only then can you make a decision as to whether you are on track to reach the level of wealth you will need to fund your desired lifestyle by the time you would like to be financially independent, i.e. no longer have to work for your income.

At Empower Wealth, we have developed a series of tools to assist with capturing the information needed to give you a picture of your current financial position and to gain an understanding of your financial potential. These tools were demonstrated in a recent free property Webinar entitled “How to build a Multi Million Dollar Property Portfolio”.

If you would be interested in seeing how these tools and techniques could be applied to your own personal financial situation, please come and see us for a free one hour consultation by going to http://www.empowerwealth.com.au or just give us a call. Armed with the latest information on your financial position, the best time to start is now.

P.S. If you find that you are receiving  statements from multiple Superannuation Funds, it’s likely that you are paying more in fees than you need to, and may benefit from “consolidating” your Superannuation into a smaller number of accounts, usually just one. However, there are a number of factors to consider when choosing which one – not just the fees charged and the returns achieved, but other benefits that you may be entitled to such as lower-cost insurance cover. Our Financial Planning business is fully accredited and licensed to assist you with your choice of Superannuation Fund, and you can find out more about other services at https://empowerwealth.com.au/our-advisory-services/

1 “ASFA Retirement Standard” – http://www.superannuation.asn.au/RS/default.aspx

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