Article:

How Short-term cash flow management can be built into long-term strategy

19 August 2019

Terrie Wendlend, Associate Wealth Adviser |

Majority of conversations with our clients end up at the same goal - being comfortable in retirement.  However, with more and more financial pressures, from the moment we step into the workforce, younger generations are taking a more active role in their ongoing financial strategy.

Traditionally it was assumed the over twenties were looking to establish a budget and ‘get ahead’ in life.  The over forties were looking to eliminate debt and build their wealth, and the over sixties have largely accumulated their wealth and can begin embracing their retirement.

However, there is a changing of the guard in that the life stages are not as clearly defined as in previous generations.  People are studying longer and starting careers and families later. Where once, in your mid-life stage the focus was on retirement planning, more and more mid-lifers are, by necessity, focused on funding school and university expenses, paying down debt and continuing to build their business and careers. 

Finding that balance between living now and the need to save for retirement requires dedication to your long-term strategy.  Often the short-term demand for funds can force clients to lose sight of the long-term goal.  The risk is thinking you can start saving for retirement ‘after I pay off the house’ or ‘after the kids finish school’.

A client’s goals are often non- financial in nature, i.e. to provide for their children and provide them with the best opportunities, which can mean additional private school education expenses.  Ask them how many years they have left of private school fees and they can answer immediately. 

However, what they didn’t count on was the level of expenditure that continues after their children finish high school.  The funds previously used for school fees are now being used to help fund living away from home costs associated with university education.  Opportunities such as travel have meant those funds are now spent easily.

Many parents elect not to pay their children’s HECs, however their living costs are often still funded by the parents.  If you do not live close to your child’s chosen university the costs can exceed the private school fees you were previously paying.  The University of Queensland estimates the annual living costs for a first year student living off campus will be around $25,000 per annum.  The most common solution to minimise this expense is for the child to get a part time job to help fund the expense.  And so starts the focus on educating the next generation on budgeting and managing money.

For mid lifers, the reality is that children are staying at home longer and the costs associated with teenage children at home can be substantial, whether they are still at school or attending university.  Managing the expenses associated with teenagers whilst still working toward your long-term financial goals is a challenge.

Irrespective of your stage in life, clearly defining your short, medium and long-term goals will help maintain focus on your end goal.  Using projections, we can see if you are on track to reach your long-term goals, providing you with comfort knowing you can enjoy the time you have with your family.

Our goal as advisers is to regularly meet with our clients to remind them that those short-term expenses are opportunities that will make life enjoyable.  With good financial management the short-term cash flow management can be built in to the long-term strategy.
If you would like to discuss your long-term financial strategy, contact a member of the Private Wealth team.

Disclaimer:

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.
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