This document discusses financial independence and the role of superannuation in achieving it. It defines financial independence as having investment earnings that exceed monthly living expenses, allowing one to live off investments without working. It identifies consistently saving 10% of income and never spending investment principal as keys. Superannuation is described as a retirement savings scheme where employers contribute and earnings are taxed concessionally. While superannuation offers benefits like tax breaks and forced savings, its rules can be confusing and funds vary in fees and returns.

1. GENC3003Personal Financial PlanningAndrew Hingstonandrew.hingston@unsw.edu.auUnit 7: Superannuation and independence

2. 2DiscussionWhat do you think most Australians think it means to be “financially independent”?How do they think they can achieve it?

3. 3Financial independenceWhat is it?When the cash that you receive from your investments each month is more than your monthly living expenses.You don’t have to work to pay for your living expenses!“Rich” ≠Financial Independent“Rich” could mean high income from workBut … are they spending all that they earn?What happens if they lose their job?“Rich” could mean lots of assets or a nice houseBut … how much money have they borrowed?Your home does not generate cash to put food on table!

4. 4Financial independenceHow to get it?Two ways to get cash for living expenses“People at work” – your salary from labour“Money at work” – your investment earnings Source: “Rich Dad Poor Dad”The keys to financial independenceConsistently save/invest 10% of your salaryNever spend the “capital” of your investments… until cash from investments > living expensesKeep savings for a car or holiday completely separate to these “investments”

5. 5Financial independenceWhy I don’t want it in the next 5 yearsWhat personal sacrifices would I have had to make?100% leisure time gets boring pretty quicklyPeople seem to lose self-respect and significance when they are not busy doing things.Other people don’t respect others who are not busy doing things.

6. 6Financial independenceThe role of superannuation“Superannuation” are savings set-apart for retirementCalled “pension plans” in other countriesYour super is kept separate from your other finances.You can’t use it on holidays and cars while you are young!Your employer makes regular contributions for you (9% of your people-at-work income) which are concessionally taxed.

7. 7Your super investments build up over 40+ years through contributions (people-at-work) and returns (money-at-work). The returns are also concessionally taxed.When you stop work (no more people-at-work income), your superannuation investments generate cash flow to cover your living expenses (money-at-work). This regular cash flow from your super investments is tax-free (after 1/7/07).

8. 8Chunks of a piePlan to beGenerousPlan to beContentPlan for theFuture1. Plan to be GenerousTaxes support the communitySupport family and charities2. Plan for the future House paid off

9. Super for financial independence

10. Insurance to protect family and assets

11. Plan for death

12. Save for big expenses