You don’t need to be a financial expert to manage your money well. But understanding some of the basics can make a big difference to the decisions you make.
University of Western Australia research using the latest 2024 Household, Income and Labour Dynamics in Australia (HILDA) data, found that around 61% of Australian adults could correctly answer three basic questions about interest, inflation and investment diversification. That means almost two in five adults couldn’t answer all three correctly.
The results also revealed a sizeable gender gap. Around 69% of men answered all three questions correctly, compared with 54% of women. While financial literacy generally increased with age, the research found women had lower financial literacy rates than men across every adult age group.
Financial literacy goes well beyond knowing how to stick to a budget. It can affect how you manage debt, how you invest, what you do with your super and how well prepared you are for retirement.
These decisions can become particularly important from your 40s onwards, when you may be earning more but also juggling a mortgage, family costs, wealth creation and longer-term financial goals.
So, where are some of the gaps that can start to make a difference?
Common financial mistakes Australians make
1. Waiting too long to start planning for the future
When we’re younger, wealth building can feel like something to get to later – once the mortgage is paid off or the kids are older. But time is one of your most valuable assets. The earlier you start investing and structuring your finances deliberately, the more time compounding has to work in your favour.
Your thirties and forties can be important wealth-building years. You may be earning more than earlier in your career, but higher income doesn’t automatically translate into greater wealth if your spending creeps up with it.
A Gold Coast financial adviser can help you:
- set clear, long-term financial goals
- invest surplus income strategically
- make additional super contributions where appropriate
- reduce debt
- build wealth both inside and outside super
2. Avoiding investing or not diversifying
Some people don’t feel confident about investing, so they keep savings in cash or offset accounts indefinitely, missing out on the long-term growth that’s central to wealth creation. Others concentrate most of their wealth in a single asset.
Both approaches carry risks.
Cash loses purchasing power to inflation over time, while a concentrated portfolio is more exposed to a downturn in any single market. Diversification spreads your money across different assets and markets, reducing your reliance on any one investment for returns.
A financial planner can help assess your risk tolerance and build an investment strategy that spreads exposure across appropriate asset classes, suited to your goals, timeframe and broader wealth-building strategy.
3. Thinking superannuation is all you need to retire comfortably
Superannuation plays a central role in retirement planning, but assuming it will be enough could leave you with a gap you may only notice close to retirement age – by which point there’s far less time to close it.
Many Australians underestimate how much they’ll actually need in retirement. According to the ASFA retirement standard, a “comfortable” retirement currently costs around $56,000 a year for a single person and $79,000 for a couple.
Some may assume the Age Pension could cover any shortfall, but even the maximum pension for those who qualify for the full rate sits well below ASFA’s comfortable retirement benchmark.
A financial planner can help you more accurately estimate how much retirement income you may need based on your circumstances, lifestyle and goals. From there, they can develop a strategy that looks beyond superannuation to personal savings, investments and other assets, giving you a broader retirement income base to draw from.
4. Underestimating aged care and later-life costs
Many people may not think far enough ahead to consider what happens if they eventually move into a retirement living community, need home care or face rising medical costs.
With retirement potentially lasting 20 or 30 years, it’s important to consider how your income and assets could support your needs over such a long time.
Aged care can involve substantial costs, and the fees involved can affect your income, assets and the family home in ways that aren’t always obvious upfront. Seeking aged care financial advice before a crisis gives you and your family more time to consider the financial implications of different choices.
5. Trying to make every financial decision in isolation
One of the challenges with money management is that one decision can affect another.
Putting extra money towards your mortgage, for example, may reduce debt faster, but may mean giving up the opportunity to invest that money elsewhere, which, depending on the circumstances, might have been a more effective use of those funds.
Making additional contributions to super may offer tax and retirement benefits, but generally means locking that money away until you meet a condition of release.
Every financial decision carries potential risk, cash flow and tax implications.
Rather than considering each decision separately, an experienced financial planner can look at your complete financial position and bring all these pieces together in one coordinated strategy.
Are there gaps in your financial plan?
Avoiding common financial mistakes isn’t just about making the right decisions once. Your income, goals, family circumstances and financial position can change over time, as can investment markets, superannuation rules and other factors outside your control. Regular reviews can help you identify whether your strategy still reflects where you are and where you want to go.
A few honest questions, depending on your goals and stage of life, can reveal a lot:
- Building wealth: Are you being intentional with your surplus income, or is it being absorbed into lifestyle spending? Are your investments diversified, or is too much of your wealth concentrated in one asset or sitting in cash?
- Working towards a major goal or approaching retirement: Do you know how much you may need, when you’re realistically likely to reach your goal and what steps you can take to strengthen your position?
- Managing an established portfolio or already retired: Are your investments and income sources still structured appropriately for your needs? Have they been reviewed recently to account for changes in markets, rules and your circumstances?
You don’t need to become an expert in every aspect of money. But it is useful to understand whether the financial decisions you’re making are taking you towards the future you want. A financial planner can help you bring the different parts of your finances together in a plan that balances your priorities today with the goals you’re working towards for the future.
If you need financial planning advice, we can help. As Gold Coast financial advisers, RFS Advice works with clients building wealth, preparing for retirement, or already retired. Contact our team to discuss how we can help you develop a strategy tailored to your circumstances.
Frequently asked questions
Common mistakes often come from delaying important financial decisions, overlooking how different parts of your finances interact, and trying to navigate complex choices without professional guidance. Regular financial planning can help identify potential gaps and opportunities early so you have time to adjust your plan, if necessary.
Understanding investing is useful, but financial planning involves more than choosing investments. A financial adviser considers the broader picture – your super, investments, cash flow, tax considerations and retirement goals – and builds a coordinated strategy around your needs, adjusting it as your circumstances change.
Improving financial literacy starts with understanding the basics of budgeting, investing, retirement planning, debt and risk. But it isn’t just about knowing how these concepts work; it’s also about understanding how they apply to your circumstances. Partnering with a financial adviser who can explain your options, the trade-offs involved and how different financial decisions work together can help you make more informed choices.
There’s no fixed rule, but an annual check-in is reasonable to ensure your plan still reflects your circumstances, goals and financial position. It’s also worth reviewing your plan whenever something significant changes, such as a new job, a pay rise, a growing family, market downturns or a shift in your goals.
General advice warning:
The information and any advice provided in this article has been prepared without taking into account your objectives, financial situation or needs. Because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to those things.
