Some lifestyle upgrades just make sense, especially as we enter new phases of life.
Just like choosing to upgrade your run-down old car to something newer and more reliable as you become more established in your career and family life, your financial plan should change and evolve as you move between life stages.
Life is full of major changes, both foreseen and unexpected, from getting married and combining your finances with a partner, to experiencing unforeseen layoffs and navigating uncertain economic times. Financial plans and goals that made sense for you three years ago may no longer apply in the same way.
It’s important to have a financial plan at any life stage, and it’s likely that your financial plan in your 20s will look vastly different to your plan in your 40s or 50s. This is why it’s important to think flexibly about your financial plan and ensure it remains relevant to your current goals, needs and priorities.
Investing your time and effort to cultivate necessary financial plan updates will enable you to continue enjoying your current lifestyle and safeguard your ability to spend on assets that make your life better; like that shiny new car, for example.
Signs that you need to upgrade your financial plan
It’s inevitable that your financial needs and goals are going to shift over time. Changes in your personal life, financial markets and regulatory decisions can all have vast impacts on your financial prospects.
- Starting a family
- Buying a home
- Getting a promotion
- Launching a business
- Receiving an inheritance
- Preparing for retirement
1. Personal-driven changes
Changes in your personal life can be both exciting and terrifying, and more often than not bring on marked shifts in your financial needs and priorities. For example, when you get married and combine your finances with a partner, you’re operating in a whole new financial ballpark; while you gain a whole new salary, you also take on your partner’s debts and obligations. In any case, your financial plans are bound to change significantly.
Of course, marriage isn’t the only reason we might need to re-hash our financial plans. Other personal events that often necessitate a large-scale financial overhaul include:
Changes in your financial planning can even simply be triggered by a shift in mindset, such as realising you’re at a life stage where you’re ready to build wealth.
2. Market-driven changes
Market forces can have vast impacts on your financial goals and outcomes, especially in terms of tax and investment incentives.
For example, you may have experienced recent growth in your home value or investment property, which could enable you to expand your portfolio. Central bank decisions such as interest rate changes can also dramatically impact the returns you get on certain investments, or take a hit to your hip pocket.
As market incentives change, your financial plans should change to make the most of the current situation.
3. Regulatory-driven changes
Regulatory changes, such as changing tax rates or super contribution caps, can also have impacts on your income and expenses. These have the capacity to affect both your current take-home pay, as well as your future savings.
When the financial world changes, your existing plan may no longer be the best option to achieve your financial goals. Some changes bring new opportunities, whereas others might require a complete rethink of your existing strategies. This could mean changes to your investment strategy, risk management strategy, asset protection strategy or even your superannuation contributions.
Benefits of upgrading your financial plan
We all know it’s important to plan your finances ahead, to ensure you can afford to have nice things in life on an ongoing basis – and potentially even better things in the future. Part of this planning process includes upgrading your financial plan when necessary, given that so many changes occur throughout life.
Sometimes, the things that affect your financial fortunes aren’t even in your control.
For example, this coming year there will be numerous regulatory changes that will likely affect your financial outcomes in some way. These include the incoming Stage 3 Tax cuts to income tax rates, an increase in mandated employer super guarantee rates, as well as changes to depreciation rebates in the building sector.
The Stage 3 Tax cuts essentially bring on a big tax reduction for anybody earning above $120,000, with minor gains for anybody earning above $ 45,000. Essentially, these tax cuts will knock out the entire 37% tax bracket on income in the threshold between $120,001 to $180,000, meaning those earning from $45,001 to $200,000 will pay up to a 30% marginal income tax rate.
Depending on your income, this could spell some serious extra cash flow. In this case, an updated financial plan may leverage this cash flow into greater investments, leaving you financially better off in the future. Otherwise, it may give you more wiggle room for discretionary lifestyle spending, or allow you to achieve your savings goals faster.
Another important change is the Super Guarantee rates, which have risen to 11% from 1 July 2023, and will increase again to 11.50% on 1 July 2024. This means your employer will have to contribute a greater percentage of your salary to your super, which could spell a bigger nest egg for yourself but also potentially a smaller take-home pay in the meantime. This may have implications for your financial planning in both the short and long term.
Regulatory changes, such as the government’s changes to build-to-rent housing development incentives, can also alter the potential returns of investments. For example, the capital works tax deduction was increased in May 2023 for properties being built to rent, meaning that you can get greater tax deductions when investing in these types of property. It’s smart to keep an eye on these and update your financial planning accordingly.
It’s clear that regulatory changes can take a direct hit to your take-home pay, savings and investment options. As the financial times change, it’s important to review your financial strategies and ensure they still make sense over time.
How Cooee Wealth Partners can help you upgrade your financial plan
It’s easy enough to say that you need to keep your financial plan updated with the times – but how do you keep track of all of these regulatory changes, and navigate the best next moves given your financial and personal situations?
A good option can be working with a financial adviser, such as Cooee Wealth Partners. Financial advisers can help you cultivate an updated financial plan that’s smart, savvy and considers recent developments in the financial world.
At Cooee Wealth Partners, we help our clients gain a sense of confidence, control and certainty over their finances. Given the ever-changing nature of financial needs and situations, it can be hard to figure out the best course of action and to consistently update your financial plans as circumstances change. As Wealth Partners, we’re clued into the relevant changes to markets and regulations that may impact your financial outcomes. We can see the ripple effect these changes can bring over time and update your financial plan accordingly.
For example, three years ago, it was a no-brainer to borrow against your home at two per cent to invest in shares, which is paid with a dividend yield of six plus the capital growth. But now that people are paying almost seven per cent interest rate on an investment loan, the risk vs return isn’t quite justified.
When we review clients’ financial plans, we try to look at them with fresh eyes. We ask ourselves, “What would we do differently or what would we recommend if you were a new client?” This doesn’t mean we’ll uproot the entire financial plan and start from scratch, but it helps us avoid the status quo bias and allows us to consider client needs in a clear, unbiased manner.
At Cooee Wealth Partners, we recommend our clients get a fixed-term agreement for at least 12 months so we can have a scheduled review of their financial plans. This allows clients to have the peace of mind that we’ll be with them to help out, even as personal and financial situations evolve.
Financial situations change all the time.
Creating an initial financial plan is just the first step in your journey. Regularly reviewing it as personal and broader economic circumstances change is the key to long-term financial success. Keeping your financial strategies up-to-date will ensure you can maintain your ideal lifestyle now and into the future.
Book a meeting with Cooee Wealth Partners today to hear more about how we can help you achieve financial peace of mind, and make the most out of your money. Already working with us? Think about establishing a fixed-term agreement, so we can help your financial plans change and grow with your individual circumstances.