Professional services are highly respected careers and generally well recognised for earning high incomes. What is less talked about is the problems they face. The one that stands out the most for us is that they are time poor (a problem that we all can identify with). Having worked with these individuals for many years, we notice some common elements. If you identify with one or all of these, don’t leave it too late to get some help.
Failing to plan. This one will affect everyone in different ways. Failing to plan may involve taking a splatter gun approach to your investments. Perhaps someone mentioned an investment property they bought and so you rang the same agent and bought one too? Perhaps you overheard a discussion about some shares and jumped online one evening and bought the same shares without doing any research on the company you were purchasing? This approach relies purely on luck and the chances of success can go either way. For other’s failing to plan can mean doing nothing at all – spending all of your income and not setting up systems to create future wealth.
Making investment decisions solely based on tax. And whilst I agree that many of you pay extremely high levels of tax, it’s just one consideration when it comes to investing.
We’ve seen many make investment decisions with the primary objective of saving tax. The reality is that most often, not only do they save tax but they lose money too. There have been many schemes in the past that offer to reduce tax, but that have instead cost investors greatly.
Negative gearing of properties is another example where the focus is often on the tax deduction, rather than on whether the property itself can deliver long-term capital growth for you (which is what you ideally want).
Forgetting about Super. Superannuation has many benefits that will reward you at retirement, however it is often ignored until the countdown to retirement. Leaving it too late may limit your ability to build up your super balance as contribution limits apply. Planning to use superannuation as one of your major income sources in retirement will require time to build wealth in this structure. Superannuation can be complex so understanding how to make the advantages work for you should be something you start well ahead of retirement (like 15-20 years ahead if possible).
Not considering personal insurance. Your biggest financial asset is your ability to earn an income throughout your career.
Many professionals don’t adequately protect their incomes from disruptions caused by sickness or injury. As your career and income grows, it is likely that your debt and responsibilities will grow. Without sufficient personal insurance (life, disability and income protection), this can leave you hugely exposed.
Getting adequate cover in place early is also critical. The older you get, the more likely you are to accumulate health issues that insurance companies won’t cover, which can impact your insurability in time.
Personal insurance should be reviewed on a regular basis to ensure the level of cover is still appropriate to your needs and that it is structured in a way that suits your situation.
Doing it all yourself. You have spent many years studying and training to master your career, you are well read and intelligent. But you are time poor. You may also be prone to procrastination or impulsive actions. Making investment decisions for your future takes time and consideration. It should be stress tested and modelled. Getting assistance is key to keeping up momentum, staying disciplined and accountable to your goals and ensuring that your structuring is suitable to your circumstances. In our experience this works best when collaborating with your accountant and other experts.
Taking on too much debt. You may have access to private banking facilities with special lending terms however its important to consider your time frame and goals to ensure debt can be repaid.
Debt can also cause stress and worry and as busy professionals you may get enough of that at work. Give consideration to your tolerances levels and goals.
Whilst this doesn’t cover everything (we didn’t even get into structuring and complexity) collaboration is key – get your financial professionals working together to create a plan that works for you and your family.
General Advice Warning - This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial or tax adviser before making any investment decisions.