Achieving a state of independence

ID 100294871 150x150 Achieving a state of independence

Still living at home? It might be an inexpensive lifestyle but if you’re not using this time to start planning your future, you’re not doing yourself any favours.

According to the Australian Bureau of Statistics, in 2011 29% of people aged 18-34 were living at home because it’s cheaper; but statistics show that many were no better-off financially, with most in this age group having credit card debt and little, or no, savings.

If you’re not interested in saving for a home, there are plenty of other reasons to save money. Imagine taking an overseas holiday or buying yourself a brand new car.

As with anything, the earlier you plan, the sooner you can have what you want in life.

Meet Jessie

Jessie is 23 and works full-time. She lives at home because she can’t afford to rent her own place.

Recently, Jessie’s parents introduced her to their financial adviser. She doubted he could help her, after-all, she barely made it from pay to pay, but she agreed to see him.

The adviser started by reviewing Jessie’s financial position.

  Income pm Expense pm
Salary $2,000  
Board   $200
Car – petrol @ $60 p/week   $240
Car – insurance/registration   $100
HECS debt   $500
Lunch @ $10 p/day   $200
Coffee @$3.50 p/day   $70
TOTAL   $1,310

After meeting her obligations, Jessie had $690 per month left over which she couldn’t account for.

With a realistic budget, Jessie found she saved $220 each month simply by:

  • leaving her car at home and using public transport
  • taking a “cut-lunch” to work

Her adviser recommended the following:

Take advantage of high introductory interest rates for online savings accounts to build up an initial deposit of $1,000 to invest in a managed fund. Set up an online savings plan for Jessie with an initial $200, and additional monthly top-ups of $200.

After earning 4.5%pa for the first five months on her initial investment plus the monthly top-ups, Jessie would have $1,011 ready to invest. $1,000 is invested in a geared managed share fund that had earned over 50% in the previous year. Her adviser explained to Jessie how this investment worked and that past results are never a surety for future returns. He also advised that a geared investment carries a higher risk of loss.

However, Jessie was rapt to learn that after just two more years earning a more conservative return of 30%pa her initial $1,000 plus continued $200 per month investment would grow to $8,278. Nearly $2,500 of that would be from interest earned on the investment – “free money”!

Jessie’s financial adviser also recommended that she increase her monthly repayments to her HECS debt, maximising the government’s contribution and clearing the debt earlier.

Jessie was surprised by how helpful and inexpensive financial advice was. Even though she still has no home-ownership plans, when she’s ready, she will have saved enough to start apartment-hunting.

And in the meantime, she’s enjoying watching her savings grow.

Note: the case study does not take into account any fees associated with these investments. Figures quoted are just for example purposes only and may not reflective of the current economic climate. Past performance not indicator of future performance.


Disclaimer:

The advice on this site may not be suitable to you because it contains general information that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.  Please also refer to our general advice warning under contact us tab on our website.  The article is based on information available at the time of writing only and therefore care should be taken as to the accuracy of the content.

Image courtesy of [Stuart Miles] at FreeDigitalPhotos.net

 

 

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