Starting out (20-40)

Our 20s may be synonymous with freedom, but it’s also a time to lay important financial foundations.

For many Australians, our 20s are the period we invest chiefly in ourselves by completing tertiary study, an apprenticeship or traineeship, or commencing employment. Improving your qualifications and career prospects is a tremendous investment. It leads to a better paying job, additional employer-paid super contributions, and ultimately a more prosperous retirement.

As we move through our 20s we tend to settle down, buy a home and eventually raise a family. All these steps work best when they are made within a framework of long term goals. Aiming to pay off your home loan as quickly as possible is a key strategy. Most mortgages feature a redraw facility that lets you access the cash if you need it but the savings in interest and reduction in the loan term will put you ahead financially.

It’s also important to establish which super fund you want compulsory contributions paid into – ideally this is an investment that will stay with you for life.

Along with your home and super, now is the time to build a third pillar of wealth – independently held investments. Shares are an excellent long term investment, and in your 20s to 40s, time is on your side. Over time the market will recover from short term falls, and your income will be supplemented by tax-friendly dividends.

Shares can also be a useful investment for paying your children’s education expenses – a cost many parents fail to plan for. By setting cash aside on a regular basis you should be able to meet education bills when they fall due – without having to resort to credit cards that can leave you burdened with high interest debt.