My mother in law taught me that “it’s not what you earn it’s what you save” in life, but it seems this lesson is not taught as often as it should be anymore. This lesson is applicable to all Australians including those in the medical profession.
During your specialist years in the medical profession, you are in the cream of occupations, with the highest income, but if you don’t plan well, many doctors fail to retire at the standard to which they’ve become accustomed. Nobody wants to work longer in life than they have to. So it is important that people understanding the wealth creation strategies that can complement your ability to create an income with growth.
We’ve sat in front of very successful people who spend every cent of over $30,000 of income they earn each month on lifestyle, leaving nothing to savings that might be able to grow for the future. The easiest way they do damage is through the use of an offset account, a simple tool that keeps your money at your fingertips all the time. Sometimes it is just too accessible. Everyone has an offset account, but it is frightening for some of the wealthier people to see nothing left in it when the credit card payments come out at the end of the month. The travesty is these people could be at the peak of their earning power, and building a powerful asset base that could be used to live off later in life. And this is important given the limitations to Super contributions.
Whilst super is the answer to some savings plans for the future, it may not be the only savings tool for a high earning under 50. This is because, under the current contribution caps to superannuation, someone under the age of 50 can only contribute 30k pa to super, which will, quite frankly not grow to provide the retirement a successful professional will desire. In fact, we see many medial professionals who would have struggled to retire in the manner to which they had become accustomed without a new plan to save rather than spend during their finer years.
Fact is, if you are under 50 and saving well, you wont qualify for the pension by the time you get to 65…and this age is increasing!!!. So you need to consider how much you need to have in your super account to be comfortable for the whole of your life, after you retire.
And in considering this, think about the four strategies you simply should not miss every year as a high earner.
- Meet your superannuation contribution caps every year.
- Take calculated risks early in your life. Investment later in life is great, once you have the balance to lever on, for a return. But before this, you have to build your wealth and that can only be done through saving more than you earn.
- Don’t plan on retiring at retirement age. Why be dictated to by government legislation? If you can build a wealth pool that sits outside of your superannuation it gives you the choice to retire early, spend the earnings from your investment pool during these pre-technical retirement years and then draw down on your tax-effective superannuation balance at retirement age.
- Don’t live beyond your means today. A short term life of leisure might be enjoyable, but it will not a build your wealth pool nor set you up with reasonable living standard expectations that be carried throughout life. Even if you can “afford it” today.
The earlier you start, the easier it is!
This article was written by Tapel Cafer, Principal and Senior Financial Advisor