Welcome to Finance and Fury – Where do you stand in relation to the average Australian financially – To be honest, this is a pretty useless question – as you should only compare your financial situation to yourself from yesterday – but the aim of this episode is to provide a bit of a wakeup call if you are below the averages, and to help provide strategies to close the gaps – if you are above the averages then this is great – but this shouldn’t provide much comfort as many of these averages are pretty low – and may be below what you need to retire anyway

 

  1. What does the average Australians financial position look like? This is a difficult question to succinctly answer – as the data collection on these exact numbers and the methodology of the collection of this data is lacking – but there are a few numbers that can give some guidance – from the census, the ABS, APRA as well as other consumer surveys – but a bit caveat to all of this is that this data is likely incomplete and not an exact representation – but it is the best data that we have to work with
  2. Before we get into these statistics – it is important to note that as humans, we tend to have the unfortunate habit of wanting to compare ourselves to a ‘baseline’ in order to define ourselves – especially when compared to the pack – these baselines can be treated as an average based around our age or socioeconomic status
    1. Just note that this can be a trap – if we feel like we are better off then our peers in a certain age group – what can this do? Make us complacent – the last thing you want to do is become complacent when it comes to your financial independence – you want to be certain
    2. This is where these averages should in a way manifest as a form of reassurance that you are on the right track – that you can achieve financial independence off your own resources – which based around the numbers I have seen would actually be above average – i.e. not relying of the age pension
  3. But remember – It is important to not fixate on the average, but instead on what you need
    1. I get asked the question a lot – what level of income do I need to retire?
      1. Many people base the answer to this question around what they think the average person spends – this is wrong – as the average is not a good representation of you as an individual – it is the collective of millions of people’s actions
      2. Hence – you need to come up with your own level of desired spending and how this can be funded in retirement
    2. This is why at the individual level – averages can be useless
  4. This being said – lets look at some baselines – this can be a bit of a wakeup call – but in reality, can be a useless statistic – On top of this, averages aren’t a great measurement as they take everyone across all ages and personal situations, sums the total of their wealth and then divides by the number of people

 

But what do these baselines look like?

  1. Net wealth- this is simply current assets minus current debts
    1. Current assets may be things like average holdings in superannuation, property, shares, cash, and even the furniture you have. Current debt may be a student loan, a mortgage, or a personal loan you need to repay.
    2. ‘The median Australian’ and what they own – i.e. the average – The Australian Bureau of Statistics estimates that the average Australian household had $441,649 in wealth per person. In total, Australia’s household wealth is $11.35 trillion in total
      1. So, if there are two people in a household – then the average wealth would be around $883k
    3. If we take that as a baseline, we then need to know how old the ‘median Australian’ is – based around the most recent census – this is 38 years old
    4. If we were to not understand how the wealth mobility of age works though a society – this could easily be interpreted as the average Australian aged 38 year old – should have a net wealth of $441,649 – This is simple maths and isn’t accurate in the slightest –
  2. Looking further at data – Data from the Australian Bureau of Statistics (ABS)
    1. Average (Median) Net Worth At 20 Years Old: -$2,430
    2. Average (Median) Net Worth At 30 Years Old: $31,025
    3. Average (Median) Net Worth At 40 Years Old: $97,425
    4. Average (Median) Net Worth At 50 Years Old: $194,850
    5. Average (Median) Net Worth At 60 Years Old: $290,975
  3. Looking at Superannuation – APRA Annual superannuation bulletin – Average super balances
  4. Average (Median) Net Worth At 35 Years Old: Male: $67,179 and Female: $54,765
  5. Average (Median) Net Worth At 45 Years Old: Male: $102,138 and Female: $80,449
  6. Average (Median) Net Worth At 55 Years Old: Male: $168,813 and Female: $132,915
  7. Average (Median) Net Worth At 66 Years Old: Male: $222,337 and Female: $198,163
  8. To take this further – when broken down not into age but quintiles – in total, the top 20% has a net worth of $3,236,800, next is $1,042,300, next is $564,500, next is $231,100, lowest is $35,200 – this doesn’t distinguish age but simply the average wealth across the whole population – it is easily inferred that the majority of this wealth can be attributed to the equity in these people’s home as well as additional wealth

How much does the average Aussie save? Canstar Consumer Pulse Report 2021 – Grain of salt as these are self-reported

  1. While 25% of Aussies are not able to save any of their after-tax income, 26% are able to save up to 10% each month – The median amount that people have saved is $5,000, although the level of savings varies by age.
    1. Average savings rates – None – 25%, up to 10% – 26%, up to 20% – 16%, up to 30% – 8%, more than 40% – 10%, there is also 15% of people that are unsure
    2. How much Aussies have saved? – 18 to 29 years – $1,450, 30 to 39 years – $5,000, 40 to 49 years – $5,000, 50 to 59 years – $6,500, 60 to 69 years – $11,000, 70+ years – $10,000

These are some stats – but what to do with this data – likely nothing – these numbers are really not important – you will see these sorts of articles and data at least once a year as the data becomes refreshed – whilst it is nice to see that you may be above the average – it is important to not let this get to your head – or become complacent – the only person you should be comparing your financial statistics to is yourself –

  1. What if you are below these averages – in reality – so what? No about where you are now but where you need to go – The most important question – Are you in a better financial position today than you were last year? And do you know what level of financial assets you will need to be able to retire?
    1. Knowing what the averages are doesn’t matter as long as you know the answer to these questions –
    2. Are you financially ahead from 12 months ago? And are you on track to meet your financial asset targets
  2. So, what are the options to get you where you need to be – first you need to know where you are going – Brings up the question of what your target number is?
    1. Between what assets is your net worth target? This is based around the income that you wish to generate by the time you wish to become financially independent
  3. Figure out what you need and plan accordingly – What do you need and by when? You need $80,000 per annum by the age of 60 – which is in 25 years?
    1. Assuming inflation rates of 3% p.a. over this time period – $3,350,000 in assets that can generate 5% as an income yield – $167,500 p.a. in passive income in future value
    2. If you wanted to retire in 15 years, this would be $2,493,000 in assets that can generate 5% as an income yield – $125,000 p.a. in passive income in future value
  4. How do you get there? Work out what you are on track for – many calculators out there to work out what your super in on track to achieve with your SG contributions – Say you are on track to get to $2m with super as a combined couple –
    1. then how to you make up the shortfall of $1.35m over a 25-year period? Investing $1,420 p.m. for 25 years will help to close this gap – assuming your investments earn 8% p.a.
    2. How to calculate – the easiest way way to do it is excel – payment formula – if you have never used excel then all you need to do is hit the = button, type pmt, hit tab and it open the formula for you – then you just put in three or 4 numbers – the interest rate – if you want monthly then you would put 0.08/12 – then comma, number of times this is occurring, so for monthly over 25 years it would be 12 times 25 or 300 – then comma, then 0 for PV if you know your gap, then the future value you need, in this case $1.35m but use negative – then close the brackets
  5. Strategies to look at – not financial advice, but general strategies that are available to you
    1. Pay yourself first:This is a must to achieve financial goals – we have covered this over the past few weeks – but in essence you need to work out what you need to invest and then allow yourself to spend the rest
    2. If you are having trouble in paying yourself first – Look for ways to cut costs:Take a look at your spending – if you don’t how you spend your funds, now is the time to identify areas where you could cut back to get financially ahead
    3. Make sure you’re getting the best possible returns for your money – make your money work for you
      1. Interest rate – If your goal is debt repayment or to save money – make sure your interest rate is the lowest you can obtain
      2. Tax minimisation – If you are looking to invest for the long term, salary sacrificing is a method to boost your wealth in the long term
        1. If you need to invest $1,420 p.m. – this would be in after tax dollars – if you earn $90k or $100k p.a., this means you would need to earn $2,328 before tax to get to $1,420 – but if you sal sac this is only $1,670 p.m. – 15% contribution tax rate
        2. Things to watch out for – preservation age and contribution caps – cant access funds unto 60 – under current legislation – also concessional contribution cap of $27,500
  • Investment returns – review what investments you plan to make to diversify for a consistent return without putting your money at risk
    1. Likely don’t want to be saving for your retirement in cash – in the long term, better to have an investment vehicle to channel your funds to generate compounding returns – assuming cash rates were 2% and investment returns of 8% p.a.
    2. Putting $10k away for 25 years results in $52k more over this time period – Cash savings of $16,400 versus $68,400 –
    3. Always make sure that your funds for long term retirement is working for you

The moral of the episode is to not fixate on the average but look at where you need to be – then look at what you need to invest each month – look at what level of debt you need to repay –

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