The sad reality for many couples is that divorce is a real possibility for about one-third of Australian marriages. If you’re going through this tough time, you’re not alone. I’ve seen many clients face this situation, and I want to share some advice that could make a significant difference to your future.
Let’s say you’re a single parent, starting from scratch after a separation. You might have a solid job, but after selling your family home you’ll likely be left with perhaps a few hundred thousand dollars in cash and not much else.
You might be tempted to immediately go out and buy a home and focus on paying off the mortgage. While that security might be something you need right now, it’s probably not going to be the best approach in the long run.
Here’s why.
Most people tend to get divorced when they’re right in the middle of their lives. On average it’s going to be somewhere around the age of 50. You’ve likely spent 15-20 years building your previous life. Now, you might have another 15-20 years until retirement. That’s not a lot of time to build wealth from scratch.
If you put all your money into buying a home and spend the next two decades paying it off, you’ll end up with a valuable asset, but no income. A $1.5 million house doesn’t pay the bills in retirement.
Invest first
Instead, I recommend putting that cash to work through investments. If you grow your current cash into $1.5 million in investment assets, you could potentially generate $100,000-$120,000 in annual income. That’s a game-changer for your retirement.
Renting allows you to keep your living expenses low and your options open. As you get older, you might not need as much space, so you could downsize to an apartment and reduce your housing costs even further.
The goal should be to grow your assets to a point where they can support your desired lifestyle. Don’t get stuck in the mindset of just “having a roof over your head.”
Many people reach retirement with a paid-off home but no other assets or income. They can’t sell because they need somewhere to live, leaving them asset-rich but cash-poor.
My advice is to focus all your attention on growing that money you have as much as possible. Keep your living expenses low, but prioritise investments that will generate income in the future. This approach gives you the best chance of achieving financial independence and the lifestyle you want in retirement.
Remember, you can always buy a home later if you reach your financial goals early. But by focusing on income-generating investments now, you’re giving yourself the gift of options and financial security in the future.
Think long term
Starting over isn’t easy, but with the right strategy, you can build a solid financial future for yourself and your children even if you have to do it alone.
Don’t let the emotional pull of homeownership derail your long-term financial well-being. Stay focused on growth, and you’ll thank yourself in the years to come.
Getting divorced is not easy. In fact, it’s the second most stressful thing you’ll ever go through after the death of a loved one. But the good news is that you will be OK and so will your kids. Now is the time to start thinking about yourself and your kid’s future and focus on building wealth that can sustain you over the long run.
Engaging a trusted buyers advocate through Henderson’s buyers advocacy service is your best chance at navigating the competitive real estate market.
