5 foundations for financial security (regardless of age)

Statistically speaking, women face greater risk of economic insecurity in retirement than men but we can all aspire to lay down strong financial foundations.

Like happiness, financial security can sometimes seem elusive: a faraway dream of 'one day’ when income, investments and planning magically align. But there is reassurance in knowing your future is well taken care of. Author and financial advisor Helen Baker explains her 5 foundations of financial security, especially for people who think the dream of financial security is too far away.

By Suze English from Flying Solo

Women and financial security

Financial advisor Helen Baker says there are 5 foundations to financial health that should underpin and support the money decisions we make.

“Lots of people have started some investment, but they didn’t have the right foundations. So as soon as something goes wrong, whether they lose their job or get sick and can’t work, or just want the opportunity to make certain choices, they haven’t got things in place to protect what they’ve built. Then they get to a point where they’re forced to sell an investment or don’t have the choices they want.

“It’s about putting these five foundations in place before building on top.”

According to Helen, these foundations are:

Financial foundation #1: Have emergency funds stashed away

“The emergency fund is your money tucked away for a rainy day or challenging times such as job loss or illness,” says Helen.

Financial foundation #2: Get a spending and investment plan in place

“Some people might use the term ‘budget’,” says Helen, “but budgets to me feel a bit like handcuffs or like going on a diet, which can become stifling."

We need to be realistic and include things like getting our hair done, petrol, groceries and holidays – all those things that we need.

Then aside from that, what’s left over, and what do we do with that money?

Do we put it on a home loan or into an investment? Do we put it in super? Your goals will be different at different stages of life.

”You can always change the plan, too,” reminds Helen. “The plan gives you an idea, but it’s a living strategy. Things will either hit the target or go above or below the target, so you keep adjusting as you go. It’s always evolving.”

Financial foundation #3: Insure what you can't afford to lose

“This looks at general insurances like home contents and cars, and personal insurance like income protection and private health,” Helen explains.

“Insurance has become even more complex and costly recently – costs have gone up around 30% on insurance."

It’s a massive issue for people to continue to afford it versus the risk of not having it. It’s important to remember that income protection is tax-deductible (though might not always be relevant as you get older).

“Also, a lot of people think they’re insured, and they’re not because they’ve either consolidated super, or they just don’t have enough. A financial advisor can help you find some balance to take risks with informed decisions, rather than finding out too late.”

Financial foundation #4: Superannuation matters

“Super is protected against bankruptcy and creditors if something goes wrong, so it’s a great addition to have,” says Helen.

However, she warns about jumping on the super consolidation bandwagon too quickly.

“It’s worth getting good advice about super. There’s a lot of talk about consolidating superannuation, but I’d say you don’t do that until you’ve got advice because if you do consolidate, you may lose certain essential insurances.“

Super is also something we tend not to pay ourselves if we run a business, because we focus on cash flow and the ebbs and flows that come with business.

But you want to ensure you’ve protected yourself.

And the good news is, putting contributions into your super is usually tax-deductible, so you get a tax concession along the way.

These are recommended savings targets to have in superannuation from Super Consumers Australia. These numbers assume you will own your own home. There are other superannuation savings targets from the Association of Superannuation Funds Australia (ASFA).

Financial foundation #5: Estate planning

“Estate planning is about wills, powers of attorney and special trusts that might be appropriate for families and advanced health directives.“

It’s also important to look into our super nominations,” Helen says. By this, she means the people who will benefit from our superannuation.

“Who have we left it to? Are they an eligible beneficiary of super? Because that can be restricted.”

You can read more about advance planning on Citro.

Take control of money rather than let it control you

Helen says that taking control of our finances now is the first step to the freedoms we look forward to as we head into retirement.

“If we get all those foundations in play, then we’ve taken control over what we can control. And then, we build on top of that to make sure we aim for the lifestyle we want to achieve.“

Financial planning is about enabling you to start doing the things that build your wealth and buy you choices down the track – to dial down the hours that you’re working, or have a year off and travel – because you have put those foundations in place to protect yourself, even around things like divorce.

“It’s not that you need to be fearful, but it’s about being in control and having wisdom and knowledge around the elements that decide what your life will be like.“

If we get finances right, we usually make quality decisions in all areas of our life. People are less likely to stay in violent relationships or not pursue a business because they feel trapped from a financial perspective. Having your finances sorted gives you the freedom to get out and live the life you want and to try your hand at things that you’re passionate about.

Grab your copy of On Your Own Two Feet now. Proceeds from each book sale go towards charities helping women become more financially literate.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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