This article is an excerpt from the Shortform book guide to "The Barefoot Investor" by Scott Pape. Shortform has the world's best summaries and analyses of books you should be reading.
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What do you want your financial future to look like? What can you do to secure your financial future and ensure yourself a comfortable retirement?
Being financially secure in retirement may be the last thing on your mind if you are in your 30s or 40s. But if you want to retire comfortably, it is important to start thinking of ways to secure your financial future many years in advance.
Here are three ways you can secure your financial future so you can enjoy a comfortable retirement.
Secure Your Financial Future
The cost of living keeps rising due to inflation, so you’ll need more money to cover the cost of basic expenses in the future. For example, a loaf of bread will cost more when you’re 90 than it does now. With this in mind, it is important to think ahead and plan for the future many years in advance. To secure your financial future and ensure yourself comfortable retirement, consider the following three strategies:
1) Increase Your Super Contribution
One of the simplest, surest, and most risk-free ways to secure your financial future is to increase your super contribution. In Australia, the government mandates saving for retirement by requiring Australian employers to divert 9.5 percent of each employee’s pay toward their super fund—but this isn’t sufficient for employees to retire on. The average Australian runs out of retirement savings 13 years before they die.
In Australia, call your super to direct more of your income there. Choose one of these approaches, depending on your income situation:
- If you earn more than $52,697, call your super and arrange to pay additional pre-tax money. If you’re under 75 years of age, you can claim a tax deduction for contributing additional funds to your super.
- If you earn less than $52,697, call your super and ask to contribute some of your after-tax money. The Australian government will pay 50 cents for every after-tax dollar you invest in your super. For example, if you invest $1,000, the government will contribute $500.
- If you’re self-employed, call your super and arrange to pay 15 percent of your pre-tax dollars. As a self-employed Australian, you’re not required to pay yourself super at all, but since you need a retirement plan and it’s one of the best retirement investments out there, it’s a good idea to do it.
(Shortform note: In U.S. employer-sponsored plans, you can often set or adjust your contribution rate by logging in to the plan’s website. Some employers will match your contribution up to a certain amount.)
2) Invest in Shares
Investing in shares (stocks) is one of the simplest ways to let your money grow for you with little management. The stock market and superannuations (retirement plans) use compound interest—when your investments earn interest that you then reinvest—to grow your wealth. Some funds will automatically reinvest your dividends, or the twice-yearly payments your fund makes.
One of the hardest parts of investing is starting, but it’s worth it in the long run due to compound interest. The sooner you start, the more you’ll earn, as this chart based on an 8 percent annual return shows.
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- A 10-step plan to eliminate debt and build wealth
- How you can increase your income
- Why you need to focus on cultivating long-term investments
