Determine your financial position now for the your future

Where will you be financially in 10 or 20 years? Determine your financial position now for your future to give you comfort or help prompt action.

There will be three main entities you will want to track and project: property, investments and debt. When you have your current values for these you can then project these figures to give you an understanding of future values. What values you choose to apply to appreciation will be subjective.

Property

For property, a range of 3-10% appreciation per annum could be used, given that properties average growth was 7% over the last 10 years.

Investments

Investment performance could have greater variability depending on the type of investments so that is something to be aware of and potentially seek advice on.

Debt

Finally there will be your debt. Hopefully mortgages are the only debt you have. If you have other, shorter term debt it would be better to tidy that up prior to this exercise. Your mortgage will have a term to it, but this should be your worst case scenario, and realistically you should be able to pay it off quicker than this. If your mortgage does have a long term in it of 20 years plus it’s realistic to improve on this – consider seeking professional advice.

So, let’s illustrate this. Consider a couple with a $550,000 house, $150,000 super fund, and $300,000 mortgage. Assets = $700,000, debt = $300,000, so their net position is $400,000. Their 10 year position might be the following:

Super fund $300,000
House $800,000
Debt $200,000

Total assets are $1,100,000. Net position is $900,000.

Overall this looks promising, however, most of the asset is in the home that is not income producing and cannot really be sold (as you need somewhere to live). If you were looking to see what life after work was like income from just the superfund might be too low. Simply understanding your potential future position will allow you to implement changes, if they are needed. This will be far better than working out in 10 years time that you have a problem.

The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans.