Getting their home deposit over the line

Saving up a 20% deposit is one of the biggest barriers to home ownership, and the continual climb of property prices can push it even further out of reach for younger Australians. Here’s where a bit of parental charity can make a major difference.

If you can assist with your child’s deposit, it can be just what they need to escape the rental market and jump onto the property market instead. You don’t have to give the full amount – even a partial contribution can help reduce their loan-to-value ratio and save them from having to pay Lenders Mortgage Insurance.

From here, a whole host of possibilities are unlocked. Owning a home could help with goals like starting a family or funding their retirement down the track. And as your child builds up equity, they might even be able to leverage it to start a property portfolio.

Getting ahead on their mortgage

If your child already has a mortgage, a modest financial gift can be deposited in their offset account or go directly towards paying down the principal. Either way, any extra repayments will help reduce the balance on which interest is charged.

And if your child can keep up the momentum and pay more than the minimum required each month, they might see their interest payments steadily deflate over time. This can ultimately save them thousands of dollars and shorten the life of their loan by years.

Paying off higher education fees

While HECS-HELP debt might be more tolerable than other types of debt, given that your child’s income determines when and how much they pay, it’s still not particularly pleasant. And with indexation tied to inflation, it can linger in the background for much longer than your child is comfortable with.

If you’re able to help whittle it down, you can free up your child’s cash flow and make it a little bit easier to navigate the rising cost of living.

It might also lower some of the hurdles to buying property if that’s in the cards, as lenders tend to include HECS-HELP debt in their serviceability tests (though recent changes give them leeway to disregard it if it will be paid off soon).

Help them start investing

It might not be as immediately helpful as some of the other options on this list, but investing is one of the most effective ways to beat inflation and grow your savings over time. If your child hasn’t tried their hand at it just yet, offering a small sum to get them started can give them the motivation they need to turn it into a lifelong habit.

Don’t neglect your own needs

Giving your kids smaller gifts sooner can give them a meaningful headstart in life, and there’s a joy in being around to see them put that money to good use. But you’ll also need to be mindful of the potential impact on your own lifestyle.

Will you have enough savings left over to secure the retirement you want? Are you still confident in your ability to manage surprise expenses? Will your Age Pension be affected? These are all things you’ll have to discuss as a family before you make any decisions. And if you’re looking for personalised advice, consider reaching out to a qualified financial adviser.

Most investors understand share prices go up and down, but prolonged downturns can be the ultimate test of resilience. As difficult as it might be to keep your cool, sometimes the most sensible course of action is to simply stay the course.

The good news is there is a simple strategy that can help you filter out the noise and stay consistent with your investing: dollar cost averaging.

Essentially, dollar cost averaging involves investing fixed amounts at regular intervals, regardless of how the market is performing.

Taking this approach allows you to buy more shares when prices are low and fewer shares when prices are high. The idea is that you end up with a lower average cost per share than if you were to purchase in bulk.

Of course, it’s by no means a guaranteed way to make money, and if the market dips your portfolio might suffer just like everyone else’s. But for those with discipline and a long-term outlook, dollar cost averaging can take a lot of the stress and pressure out of growing your investments.

What are the pros and cons?

So why is dollar cost averaging so appealing, particularly to newer investors? Here are just some advantages:

• You can avoid the pitfalls that come with trying to time the market
• Taking a methodical approach means you’re less likely to make emotional decisions
• You don’t need a lump sum to invest — little and often works well here.

As for the downsides, remember that:

• The strategy alone won’t pay off if you pick losing investments
• More frequent transactions could mean you pay more in brokerage fees
• In a rising market, you might be better off making a lump sum investment

How do you get started?

First you’ll need to look at your budget and work out how much money you’re comfortable investing. This will come down to your risk tolerance, how much you earn each month, and how much of your savings you want to preserve as a financial buffer.

There’s no number or percentage that will be the ‘correct’ amount, but keep in mind that the smaller the trade, the higher the brokerage fee will be as a percentage of your investment.

Once you have a figure in mind, you’ll need to decide where you’ll be investing it. The DCA approach tends to favour investments like Exchange-Traded Funds, or ETFs, because of their built-in diversification, but it’s really important to do thorough research into what suits you best.

Finally, you’ll have to choose a trading platform or broker to conduct your buying and selling. Look for one with low fees, a user-friendly interface, and access to the markets you’re interested in.

Once you’re ready, it’s time to place your first trade. From here, the name of the game is consistency. If you can commit to investing a fixed amount regularly (for example, each month), it can help smooth the ups and downs of the market and reduce the average cost per unit over the long run.