Paying yourself first can be a simple, straightforward way to get on the road to wealth creation. But when it comes to planning for their financial future, many Gen Xs and Ys are looking for clear financial direction that avoids ‘mumbo jumbo’ and ‘gobbledygook’, according to a recent KPMG study entitled Beyond the baby boomers: the rise of Generation Y by Bernard Salt1.

Who are Gen X and Y?
According to Bernard Salt, Gen X were born in the 15 years up to June 1976. Xs have been labelled as cynical and determined to carve an identity apart from the preceding generation of baby boomers. Much of their cynicism is presumed to come about because they matured in the wake of the 1987 stock market crash and entered the job market when economic rationalism was at its peak.
On the contrary, there has been nothing but prosperity for Gen Ys. Born in the 15 years up to June 1991, these are the children of the boomers. In Australia, Ys have only ever experienced a world of rising economic wealth, therefore assuming this is the norm. They are less likely to make commitments to marriage, mortgage, children or career until their late 20s and early 30s. While highly educated, they are not generally financially savvy or particularly concerned with their long-term financial welfare.

Boomer, Gen X or Gen Y – where do you fit in?
Baby boomers 1946 – June 1961
Gen X July 1961 – June 1976
Gen Y July 1976 – June 1991
Interestingly, both Xs and Ys generally exhibit limited financial savvy, preferring to spend income on consumables that deliver immediate gratification rather than focusing on investment, savings and insurance.

Older but not necessarily wiser
Over the coming 15 years, the shift in generations will have some important consequences for the makeup of Australia’s population. According to the Australian Bureau of Statistics (ABS), our “population is ageing largely due to falling fertility rates and, to a lesser extent, to increasing life expectancy”.

The direct result of this ageing population will be increased pressure on those Gen Xs and Ys in the workforce to support the mounting strain that will be placed on public services such as health and social security benefits. For themselves, too, Xs and Ys will be forced to take responsibility in saving for, securing and building their own successful financial future.
Yet, many Ys, in particular, seem to be ignorant of the need to plan for their financial future. Consider some of the responses from the KPMG study:
• “Saving is something that is at the bottom of my list of important things … I only save if I have something left.”
• “I live for today.”
• “Superannuation is too far away, I will probably be 75 by the time I have it … I’d rather have a dollar today than a dollar then.”

Ys and Xs could start by paying themselves first
One popular way that Xs and Ys can begin to positively plan for their financial future is by ‘paying themselves first’. The concept is a neat reversal of the traditional way of saving and investing everything that is left over after accounting for expenses.
‘Paying yourself first’ means that as soon as you get your weekly, fortnightly or monthly pay packet you transfer a set amount of money into savings that you can’t touch. Many people will suggest paying yourself around 10 per cent of your income, but the decision is a personal one and depends on your regular income and expenses.
Having paid yourself first you can then, as is probably the norm, simply spend the rest of your pay packet on bills, other expenses and entertainment.

Spending guilt-free
Best of all, just by paying yourself first, you will secure a portion of your earnings as savings, which can be invested in your future. This simple action of segmenting your pay packet as it arrives means you’re able to spend the rest of your money guilt-free, without worrying that you’re not saving for your future.
If you need a hand getting your money on track, call ipac on 1800 626 881 today for a no-obligation appointment with a professional financial adviser.

1 ‘Beyond the baby boomers: the rise of Generation Y’, KPMG report on the opportunities and challenges for the funds management industry, Bernard Salt (June 2007).
2 ‘Scenarios for Australia’s ageing population’, Australian Bureau of Statistics (4102.0 – Australian Social Trends, 2004).
3 Statistics sourced from ABS report, ibid.