{"id":7632,"date":"2022-09-12T12:04:12","date_gmt":"2022-09-12T02:34:12","guid":{"rendered":"https:\/\/adelaideprivatewealth.com.au\/why-its-vital-to-grow-wealth-outside-your-business\/"},"modified":"2022-09-12T12:04:12","modified_gmt":"2022-09-12T02:34:12","slug":"why-its-vital-to-grow-wealth-outside-your-business","status":"publish","type":"post","link":"https:\/\/adelaideprivatewealth.com.au\/why-its-vital-to-grow-wealth-outside-your-business\/","title":{"rendered":"Why it’s vital to grow wealth outside your business"},"content":{"rendered":"
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Running your own business is tough enough without worrying if its sale will fund your retirement. Here\u2019s how to sleep easy \u2013 and live out your years comfortably.<\/strong><\/p>\n

If you\u2019ve worked hard to build up a business over a lifetime, you\u2019re probably looking forward to a comfortable retirement funded through the sale of your business.<\/p>\n

Unfortunately, putting your eggs in this one basket could backfire. Studies vary but it has been estimated that only some 20 per cent of small businesses that go to market end up selling1<\/sup>.<\/p>\n

What\u2019s more, our own\u00a0MLC-commissioned research<\/a>2<\/sup>\u00a0revealed only 15 per cent of Australians believe they are \u201cvery well\u201d or \u201cfairly well\u201d prepared for retirement. And, because many owners pour their heart and soul into their business, they often neglect their personal wealth. According to MYOB, one in four small business owners do not make any super contributions3<\/sup>.<\/p>\n

But that doesn\u2019t have to mean your hard work may be for nothing \u2013 by focusing on wealth creation\u00a0outside<\/em>\u00a0your business, you can build a reliable nest egg to help you retire in comfort, and, most importantly, on your terms. Use these four criteria to start thinking about wealth creation outside of your business.<\/p>\n

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1. Researching and goal-setting<\/h3>\n

A key part of your wealth creation plan is identifying your long-term retirement goals.<\/p>\n

Start by asking yourself when you want to retire and how you wish to spend your time. Do you want an annual overseas holiday? Is eating out regularly important to you? According to the\u00a0ASFA Retirement Standard<\/a>, a couple aged around 65 requires $62,828 a year for a comfortable lifestyle4<\/sup>.<\/p>\n

And be ambitious. After all, retirement can last many decades, so make sure you think long and hard about what you want your life to look like once you move into the retirement phase. Remember, too, that\u00a0expenditure is higher in early retirement<\/a>, but then declines slowly over time5<\/sup>.
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2. Spending and saving<\/h3>\n

It\u2019s also important to understand how much you spend by mapping out your monthly outgoings.<\/p>\n

The sooner you can reduce debts, such as\u00a0credit cards, car loans and personal loans, the better off you will be. You can save hundreds, if not thousands each year, by shopping around for a better deal on your insurance premiums, utilities and subscriptions. A\u00a0report by the St Vincent de Paul Society<\/a>\u00a0found households in Victoria, NSW, Queensland and South Australia, for example, were paying up to $200 a year too much for their electricity\u00a0because they weren\u2019t shopping around6<\/sup>.<\/p>\n

Pay extra off your mortgage each month and review your interest rate and lender regularly to ensure you\u2019re getting the best deal and can enter retirement debt-free. According to\u00a0Money Smart calculators<\/a>, by contributing an extra $450 each month on a $300,000 mortgage with a 2.34 per cent interest rate, you can pay off your debt in under 15 years instead of 207<\/sup>.<\/p>\n

It\u2019s also wise to focus on regular savings. There are multiple ways to do this, including directing a percentage of your income into a high-interest-earning savings account, paying yourself additional super, or via a mortgage offset account. Check out MLC\u2019s\u00a0Small Change, Big Savings calculator<\/span><\/a>\u00a0to see the long-term financial gains of simply cutting out that daily cup of coffee or weekly takeaway meal.
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3. The super option<\/h3>\n

According to a report from Association of Superannuation Funds of Australia (ASFA), around 20 per cent of self-employed workers have no superannuation and their total balance approaching retirement is around half the superannuation balance of employees. For example, the\u00a0average super balance for male wage and salary earners is around $283,000 in the 60 to 64 age group, while for self-employed males it is around $143,000<\/a>8<\/sup>.<\/p>\n

If your business is set up as a company or trust, you may be obliged to pay yourself super based on the director\u2019s fee, salary or wage the business pays you, but even if you are a sole trader or in a partnership, one way to invest in your future is by paying yourself at least 10 per cent of your pre-tax earnings in super.<\/p>\n

There are also considerable tax breaks and government co-contributions that come from making super contributions, if eligible. For example, you may be able to claim a tax offset if you make an eligible contribution on\u00a0behalf of a low-income or non-earning spouse<\/a>9<\/sup>. Super contributions are also taxed at a concessional rate of 15 per cent10<\/sup>, which is usually lower than your tax rate.<\/p>\n

The ideal option will depend on your individual situation and goals, so it\u2019s best to speak to your adviser.
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4. Investment beyond super<\/h3>\n

Keep in mind that super is not the only way to build wealth. Property continues to be a popular investment among Australians \u2013 whether that\u2019s the house next door or a commercial property. Meanwhile, more than one in three Australian adults invest in shares or other investments outside of super11<\/sup>.<\/p>\n

Whether you have a preference for property, shares, bonds or something else again, make sure you understand your risk tolerance before you get started.<\/p>\n