If you earn $90k a year and have children or are thinking about having children, then planning for their future, today, is not as hard as you might think.
In the future, the world is going to look very different for our children. In 20 years time, our children’s jobs will look different, technology will be more advanced and everything will cost more. Let’s face it, we’re already looking at the average home in Australia’s capitals pushing $1 million plus, the cost of childcare has increased 45% in the last 10 years but wages have only grown 23%*, parents are already left out of pocket and our children (or future children) are going to need a lot of financial help.
With our generation struggling to find their feet on the property ladder in 2018, we are facing future generations not being able to afford to move out at all and living at home much much longer… that might seem sweet now but maybe not when they turn 25!
How can you help your kids financially so they can leave the nest?
You could work, save and hope you have enough money and/or assets in 20 years to give them a piece of the pie. But that’s a risky strategy because there’s so much you can’t foresee or control. What if you lose your job, become ill, go through a divorce or the market crashes?
The strongest strategy is to start making plans today to take control and give them the best financial boost you can.
How you can save $100k in 20 years
Would you love to be gift your kids $100k for a house deposit? With the help of Wealthy Self’s strategy – you can! Let’s get started!
What I’m talking about setting up is an investment bond (also known as an insurance or growth bond). If you set one up today and stick to the savings plan, your kids will love you even more for it!
An investment bond is a long term investment strategy with preferential tax treatment. If the bond is held for 10 years or more and if you’re earning at least $90k per year, then this a great strategy for your children’s financial future. To get to the $100k in 20 years, all you need to do is make small, but regular contributions each month.
To get things kick-started you’ll need to make a cash contribution of $2k first and then put in approx $166 per month, every month for 20 years. This is the equivalent of just $2k per year, which is only around $5 a day. So maybe save yourself that daily large coffee and put that into the fund instead!
If you stick to this plan and keep it going for 10 years, then if you want to, you can withdraw the funds without paying Capital Gains Tax (CGT). If you withdraw funds before 10 years then be prepared to pay CGT minus a 30% tax offset.
Either way, if you start on this plan it’s a long term game but your money isn’t locked away forever or until a certain age (like Super is), making it a great option to save for your children’s future.
Why this strategy works:
- It’s a forced savings plan that will routinely help you build wealth using compound interest
- The investment is accessible if needed and isn’t locked away
- The fund is protected from creditors in the event of bankruptcy – just in case!
- You have more control with transferring wealth if in the unhappy event you pass away, the benefits are paid to beneficiaries (aka your children) tax free – irrespective of how long the bond has been held for.
Things to keep in mind: (aka the small print)
- If you withdraw funds before you’ve held the bond for 10 years, then you will be subject to CGT at your marginal tax rate minus a 30% tax offset.
- It’s not as tax effective as Super, where contributions and earnings are taxed at 15% in accumulation phase (this is everyone who isn’t drawing a pension from Super).
A starting balance of $2,000 combined with an annual contribution of $2,000 each year could provide a lump sum in excess of $100,000 after 20 years based on a growth investor risk profile.
It really can be that easy to get your kids off to a great start by starting small today! Book in a chat with David today to discuss how Wealthy Self can help set up your children’s financial future!
General Advice Disclaimer
This blog contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making any strategy or product decision. InterPrac Financial Planning Pty Ltd and its authorised representatives do not accept any liability for any errors or omissions of information supplied in this document except for liability under statute which cannot be excluded.