Making the most of your hard work
Who doesn't want to be a millionaire? The secret to securing your future isn't a game show, it's applying some basic know-how and making the most of one of the best superannuation schemes in the world.
There are the obvious tricks of finding your lost super (one in two of us have lost track of at least one account) and consolidating your accounts if you have more than one. But if you really want to kick-start your finances, consider these three simple tips:
1. Getting a decent return
Make sure you are in one of the best performing super funds. How well your super fund does each year really matters. And you definitely shouldn't settle for the average return either - most balanced funds have only grown by 6.4 per cent a year over a decade. This isn't good enough. What's more, it falls well short of the 9 per cent growth Australian shares delivered over the same time.
Having more invested in shares and property could have you earning close to 8 per cent every year - a much better return. Take a 30-year old earning $70,000 plus super. If her super was earning a return of 8 per cent compared to 6.4 per cent she would be $350,000 richer by retirement.
What's more, unlike other things in life, paying more for the management of your super doesn't always mean a better return: you need to watch out for fees. The return you get is the final number after your fees are taken out. Making sure you are not paying over the odds is always a good idea.
2. Money is better off in your super than on your mortgage
We have been conditioned to pay off our mortgage as quickly as possible. But putting any extra repayments into super instead is a much better way to boost our overall wealth. If you are ahead on your mortgage you should be considering doing this instead.
Salary sacrificing extra into super will give you more bang for your buck because super contributions are taxed lower than your salary. Our 30-year-old can put an extra $100 into super each week, but it will only drop her after tax income by $70.
What's more, by doing that every year until she retires, she would have an additional $200,000 by the time she retires on top of her million (if she has followed point number one and is earning 8 per cent on her super). Bingo - she's a super millionaire right there.
Depending on what your mortgage balance and interest rate is, salting more away in super could be worth the value of far more than a new car at retirement.
3. Hold on when markets tumble
Falling share markets send shivers through all investors. When the television headlines tell you that that stock markets have tumbled, it's natural to be anxious about what it's done to your savings. But fear can drive you to make rash, short term decisions. Selling when prices move lower is one of the most common mistake of investors and a great way to take out a chunk of your wealth instantly.
Unless you are just about to retire, you're better off letting your nerves take a battering. If you tough out the bumps in the ride, and have good investments, it's likely your savings will rebound to their original prices in time.
