'Great Income, No Assets' The GINA Curse
If you are under 40, earn a good income, but are still renting and have no assets of any real value, you could well be a GINA (Great Income, No Assets).
So you're not saving for or paying off a property. So what? You earn good money. Drive a nice car. Wear nice clothes. Travel to exciting places. Have a great lifestyle. You have compulsory super for the future. What's wrong with that?
Unfortunately, there is big fly in the ointment. Your quality of life depends solely on your income. If that stops, life as you know it stops. And in this world, there are only two sources of income: exchanging your labour for money, or saving and creating capital that earns you an income.
If you are a GINA, all your income comes from selling your time. But that is only the first stage of your financial journey through life. The next stage is transitioning the source of your income. That is actually what financial planning can be about. The slow, gradual transition of income from labour to capital. A property (home or investment) is the most common and effective way to convert your income into a capital base.
What happens to you if you don't make that transition? If you continue to be a GINA, you will never accumulate a capital base from which you can sustain yourself. In effect, this means that the writing is on the wall for the GINAs. They may have a great income (that is taxed) and a great lifestyle right now, but 20-30 years later are looking down the barrel at decades of difficulty.
Australia has one of the best superannuation systems in the world but it can lull you into a false sense of security. In fact, a 35 year-old with a reasonable income of $85,000 and compulsory super contributions of 9.5% p.a. until 65, ends up with only enough capital in retirement to generate about $25,000 p.a. (assuming markets behave themselves and a reasonable real rate of return was achieved). So if you are not socking away far more than your employer super using effective financial strategies then you can forget about a comfortable retirement.
It is worth asking what turns someone into a GINA. The root cause seems to be a mental attitude of “I can't afford to buy a property, can't manage to save for a deposit” that leads to giving up on the idea altogether. It's a live in the present mentality that perpetuates the problem of having a great income and no assets.
This is a chicken and egg problem. Capital is the chicken, and eggs are the income. That's what being a GINA is about - eating that chicken and then wondering why there are no eggs.
The only escape is to change the attitude. To stop thinking about the now only and make a conscious decision to consume less and save and invest more. There needs to be more concessions and compromise. To make that work, you need a goal and a plan. You need purposeful action. Better still, you need an adviser, who will help you define your goals, develop a plan to achieve them and keep you true to your vision and on track. Good intentions are not enough.
A financial plan is about growing the chicken, not eating it, to a point where its eggs will sustain you.
Frank Paul is Chief Operating Officer & Head of Advice Services with Spring Financial Group. Frank has over 20 years' experience in financial planning and investment advisory.
|Frank has extensive experience in private client advising and the management of financial services operations. Frank is actively involved in the recruitment and management of advisory personnel and heads the advisory panel. He holds a Master of Commerce (Financial Planning) and a Dip. Financial Planning and has authored literally dozens of financial education publications.|