Last week I brought you a community question and covered off part 1 of my answer. Here’s a reminder:
“Hi Tash, I’m separated and we have just sold our property. Something that I would love advice on is where I should put my money that I receive from the sale. I can’t afford to buy, but want to know what is best? I do want to purchase a couple of items of furniture but what percentage should I budget for that? I’ve also been told to put money into super (I’m 40) as I haven’t been working full time since I had a baby who is almost five. I’ve been working two jobs and building a small business of my own – but money is tight!“
Once the basics are sorted, then you can start thinking about investing your money. (Though technically you’ve already started investing – in your business! Well done!)
Tip # 1: Make sure you have a plan
Usually the first question people ask when they meet me is where they should invest their money but unfortunately there is no silver bullet. Choosing where to invest your money depends on a number of factors like:
- Timeframes – how long before you need the money?
- Risk – how much risk can you afford to take? And how much are you willing to take?
- Both balanced against returns – how much does your money need to grow each year in order for you to achieve your goal?
Most people invest with the aim of just generally growing their wealth, without a clear plan. I think you’re better off having a realistic target to aim for and then working backwards from there. That will help you choose the investment vehicles that will give you the risk and return you are after.
Tip # 2: Start small
The best money lessons come from experience. To dip your toes in the investment pool you could consider starting off with a basic and diversified investment like a managed fund. Exchange Traded Funds (ETFs) and Listed Investment Companies (LICs) are a good start for beginners as they are listed on the stock exchange (making them easy to buy into and sell out of) and tend to have lower fees than retail managed funds (ie those offered by the banks).
Basically these are managed funds or companies that invest your money in other companies listed on the Australian Stock Exchange and by doing so offer a spread of investments in different markets. You can learn more about them and other investments in our Making Cents of Money program if this is a step you are ready to take, or by talking to a financial adviser and checking out the ASX website.
Tip # 3: Think about property
I know you said you can’t afford to buy a home right now (which in the current market is not necessarily a bad thing) but you do want to think about housing in the long term. Whether it is in the form of rent or a mortgage, a roof over your head is your single largest expense so the sooner you can knock that off, the sooner you have more freedom of choice. How you achieve that is up to you:
- You could keep renting and invest your money until your investments grow to the point you are receiving enough in passive income (like interest, dividends from shares or rent on an investment property) to cover your rent bill every year, or
- You could buy a home and work on paying off the mortgage as quick as you can.
Either way, once you have found a way to not have to work to afford a roof over your head, you will be a huge step closer to achieving financial freedom.
Tip # 4 : Consider whether to invest inside or outside of super
Super is certainly the most tax effective way to save up for retirement, as any profit made in super is taxed at 15% while (for those earning over $18,200) any investments held in your name are taxed at 19% or above, plus 2% medicare levy.
However, super is not without it’s limitations, such as restrictions on accessing the funds before you reach retirement age as well as limits to how much you can contribute into super each year without incurring penalty tax (these rules are also prone to regular changes with each Government).
So before deciding on next steps revisit your goals first – why are you investing and are you likely to need access to the money before you retire? Is it worthwhile investing some money inside super and some outside?
Be sure to do your research and get advice on the best way to go about it if investing through super is something you want to do – your super fund will have lots of information on their website as well as offer financial advisors you can talk to.
I hope that has helped give you some clarity around what to consider when making your decision. Good luck! (And remember, our Facebook group is always there if you want to explore these ideas further).
Submit a Question!
Have a finance question you’d like answered? Why not drop me a line! Each week I would love to answer a question from the community. Click below to get in touch.
The information provided by Women with Cents is general in nature. It doesn’t take into account your objectives, personal financial situation or needs. Think of it as educational material in which to help you make more-informed decisions. We recommend you obtain financial, tax and credit advice specific to your situation before making any investments or financial decisions.
Sova Financial Pty Ltd Trading as Women with Cents. ABN 71 163 435 836 | Sova Financial is an authorised Credit Representative Number 443432 of Finsure Finance & Insurance Pty Ltd, ACL 384704, ABN 72 068 153 926| Sova Financial is a corporate authorised representative no 468977 of Shartru Wealth Management, AFSL 422409, ABN 46 158 536 871