The typical life cycle of an investor

Webinar on 26 April 2023: https://us02web.zoom.us/webinar/register/6216810883661/WN_aJkDP06iQq2lqmJkMlj7vw

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Most people struggle with knowing how to invest their money. Do they upgrade their home, contribute more into super, buy an investment property, invest in the share market, or something else? 

In fact, this common challenge was the reason that I decided to write my book, Investopoly. I knew that if people understood the fundamental financial planning concepts (i.e., the 8 rules outlined in Investopoly), they might be able to figure out the answer themselves. 

Whilst everyone’s situation is different, this blog sets out some common steps that people take at different stages in life. 

Starting out…

The first thing you must master, is cash flow management. Once people have their first full-time job, they must learn how to effectively manage their money to create good saving habits. I recommend paying all discretionary expenses from a separate account so that you can track your total spend every week, fortnight or month, as discussed in this blog.   

The goal with establishing good cash flow habits is twofold. Firstly, good cash flow habits will serve you very well for the rest of your life. Secondly, if you can save regularly, it proves that you have surplus cash flow which you can use to service a mortgage i.e., you are ready to buy a property. 

Once you have mastered your cash flow management, your next most important goal is to buy your first property. Buying property is the best thing to do because of the leverage it allows (i.e., borrowing). People starting out may have a decent income but few assets. Therefore, their main goal should be to accumulate a stronger asset base. Borrowing allows you to use a relatively small deposit to increase the amount you invest. It’s not about property per se, it’s all about gearing, as explained in this blog. 

If you have demonstrated that you have surplus cash flow but don’t have enough deposit, you should investigate whether you are able to use a family guarantee to allow you to get into the property market sooner. 

Before you start a family 

Typically, people in most occupations enjoy relatively regular promotions and higher incomes after they have more than 5 years of work experience. And if they are managing cash flow well, this higher income should translate to more surplus cash flow. 

The question is what to do with that additional cash flow.     

According to ABS data, more than 75% of couples ultimately choose to have children. This needs to be a considered because starting a family is expensive. Your family’s income will fall, as one or both parents stop working to look after your child and expenses are higher, particularly if you use childcare. You must plan for this in advance. 

If circumstances allow, I typically counsel clients to upgrade their property as soon as possible but certainly before starting a family. This could include retaining their existing property and converting it into an investment or selling it to crystalise the equity and reinvest that cash into a better-quality property, albeit a home.  

If they do this in advance of starting a family, it leaves them enough time to accumulate a cash buffer (savings), which they can utilise in the future. 

Whilst you have young children (starting a family) 

Building wealth whilst you have young children (babies) is almost

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