Mention the word “superannuation” and many people begin to yawn. Which is a shame, because a small degree of active interest in your superannuation fund now can potentially make tens of thousands of dollars difference to your retirement nest egg down the track.
Tens of thousands of dollars. And it’s crazy not to make the effort, because the money has to sit there anyway.
As an example, for a 25 year-old on an average income, a 1% reduction in fees on their super fund could potentially mean an extra $50,000 in today’s dollars at retirement. That’s a damn nice world tour, just for the effort of choosing a lower-cost super fund.
Or another example – that same 25 year-old on average income could potentially increase their nest egg by more than $140,000 in today’s dollars by choosing a fund that provides an extra 2% per annum return. Surely that extra return is worth just a little bit effort on your part, in choosing a fund that suits you?
The problem with superannuation (I have decided, based on my decade of experience as a financial planner, not to mention the hundreds of discussions I have had with readers of my blogs and columns) is twofold. Firstly: legislative change. Since superannuation became compulsory in 1992, the government has made over two thousand changes to the legislation. Changes to the amount you can put in, the amount you can take out, the degree to which it is taxed, not to mention the age at which you can access your superannuation. There has been no long-term consistency to the way that superannuation has been regulated and hence many people have no real confidence that they will be able to access the money, down the track, when they need it.
Secondly: financial literacy. While many Aussies are quite financially savvy, there is still a reasonable proportion who simply don’t understand how superannuation works. Which isn’t surprising, given the aforementioned legislative change! Personally I believe that, since our money is compulsorily taken from us and placed into a superannuation fund until we reach retirement age, there should also be a level of compulsory education provided by said superannuation funds.
Still, that’s a hobby horse for another day!
In the absence of compulsory education, there are some fantastic resources out there for workers to get a bit of a head start. The government’s MoneySmart website has some great general information on superannuation. They also run some excellent retirement planning calculators, to show you in dollar terms the reward of lower fees/higher returns. The Association of Superannuation Funds Australia (ASFA) also runs the Super guru website for consumers which has some useful information. And then, of course, there’s my latest book Money for Nothing!
The sad fact is that only 20% of investors take an active interest in where their superannuation is invested. Sad – because of the potential difference that that interest could make. And the only cost to you in taking that interest? Well, maybe an hour or two of your time, every year or so. Surely that’s not too large a price to pay?
I’d love to know your thoughts though. DO you take an interest in your superannuation? If not, what is holding you back?
If the only money-based resolution you make this year is to follow these tips from finance expert Justine Davies, you will already be hundreds of dollars better off!
- Do a written budget. Yes we all know that we need one – but few of us actually sit down and do it! Having a written budget is invaluable because it tells you how much money is coming in, how much is going out and, most importantly, where it is being spent.
- Have a good filing system for tax. It doesn’t matter whether you keep it in a shoebox, a folder or an old handbag, but keeping the paperwork for everything and anything that you might possibly be able to claim as a deduction on your tax return can save you significant dollars.
- Have a good filing system for your bills. We waste a lot of money in overdue fees when we forget to pay our bills on time. Having a central place to file them (in due-date order) can avoid “forgetfulness” and save you some serious cash.
- Keep an eye on your grocery bill. We spend, on average, 12% of our income on groceries, which is a huge amount. That’s just what we buy; we also waste around $5 billion worth of food each year! The easiest way to save on groceries is to have a weekly menu and a shopping list. It helps avoid both wastage and impulse buys.
- Review your car insurance. Sometimes you can make the biggest savings from those “set and forget” costs. A 2011 CHOICE report found that young drivers could save up to $980 per year on the cost of their car insurance by shopping around. And technology means that it’s easy to do! Jump online and try comparison sites such as CANSTAR.com.au to find a good-value policy.
- Review your health insurance. Ditto with health insurance; there are hundreds of dollars in savings to be made by shopping around. Try the government’s privatehealth website (privatehealth.gov.au) as a good place to get started.
- Work out how much your mortgage is costing you. A $350,000 mortgage on average rates can cost you over half a million in interest payments alone over the life of the loan. Ouch! But just a modest increase in payment or decrease in interest rate can mean tens of thousands of dollars in savings and with the government introducing new mortgage comparison fact sheets this January, it’s never been easier to shop around.
- Read your superannuation statement. Only 20% of workers take an interest in where their superannuation is invested. But for a 25-year old on average income, a 1% per annum difference in return could make $50,000 difference to their nest egg. That’s a fantastic round-the-world holiday!
- Pay off your credit cards. We owe around fifty billion dollars on credit cards at the moment, and three-quarters of that accrues interest, which is a nice little earner for the banks. It’s also a big drain on your monthly cash flow so work out how much you owe, divide it by 12 and try to start making regular payments to get rid of it! If you can’t get them paid off quickly then shop around for a lower interest rate card – that alone could save you hundreds of dollars each year.
- Get your partner on board. There is no point in you working your butt off to reduce your costs if your partner doesn’t help you. So put aside an hour to sit down together to work out a financial plan that you both agree to, going forward. (Note: a nice bottle of wine can help this process!)
Justine Davies is a financial planner, journalist, blogger and author who loves educating people about money. Her latest book, Money For Nothing (RRP $24.95), is published by Wrightbooks and is out this month.