Future Focus: Australians are wealthy - why don’t we feel it?

Australia is by most measures a wealthy country.

Household net worth has risen steadily over decades, underpinned by a long property boom, compulsory superannuation and relatively stable economic conditions. Many Australians are sitting on substantial balance sheets. More of us are millionaires than ever before.

So why don’t we feel wealthy? More of us are also under financial stress. We have money, but we don’t feel like we have enough.

Part of the issue is that the wealth divide continues to grow. There is a growing divide between the haves and have nots. Much of Australian wealth is illiquid, concentrated and structurally constrained. It looks impressive in aggregate but often fails to deliver what matters most for peace of mine – flexibility, resilience and usable income.

We are less financially secure than we appear.

We have a lot of wealth that can’t be used

The issue is not the level of wealth, but its composition. For most Australians, net worth is dominated by two assets – the family home and superannuation.

Both come with constraints.

The family home is illiquid, it does not generate income unless you are willing to downsize, borrow against it or sell. Superannuation is a great tax-effective vehicle to save for retirement. However, it is inaccessible until your preservation age and subject to regulatory limits at some ages.

A large portion of Australian wealth is locked away – physically or due to legislation. As a result, many of us are asset-rich but cashflow constrained.

This is not just a theoretical discussion. How people feel about their financial position shapes decisions around retirement, lifestyle and risk.

The limited options without liquidity

The concentration in property and superannuation leads to a lack of liquidity. Liquid assets such as listed equities, fixed income and cash provide flexibility, income generation, and the ability to respond to changing circumstances.

Without liquidity, Australians have a limited range of outcomes – sell property or hold it and draw down super or wait – but only in retirement. Retirees also have the option of a reverse mortgage, to live in their home but draw down their equity.

A mortgage on a property also has a significant impact on cashflow. The asset may be growing in value on paper, but that does not reduce the present-day loan obligations and the reduced liquidity that comes with it.

Moving from net worth

This is not an unsolvable problem. It is not about selling the property or reducing any voluntary contributions you are making to superannuation. You do not need to move away from the assets that you have. It is about ensuring that you have enough liquidity to bring you peace of mind and to offer breathing room if circumstances change. It is about ensuring there is a balance between growing wealth and ensuring there’s adequate cashflow.

The ideal financial position is a balance between long-term wealth accumulation and short-term financial resilience.

What an effective portfolio actually looks like

The ideal situation is getting into a financial situation that:

Provides accessible liquidity: Funds that can be drawn on without major structural changes
Maintains growth exposure: To ensure wealth continues to compound over time and protects against inflation
Reduces concentration risk: By diversifying beyond property and domestic assets
Gives you choice: Allowing you to make decisions based on preference, not constraint

It is about increasing your ‘usable’ wealth.

How to get there

Build liquidity through your emergency fund

Many high-net-worth individuals do not have financial security because they do not have an adequate emergency fund. Utilise your offset account to build a buffer if you have a mortgage, or a high interest savings account if you don’t.

Invest in liquid assets

Every dollar over your emergency fund amount must be carefully placed. You can invest in or out of superannuation or continue to put funds into your offset. Here is a framework to decide where is best.

Insurance

Protect your assets and avoid having to make drastic financial decisions to access liquidity if unfortunate circumstances arise. Review yours and your partner’s Life, Total and Permanent disability and Income Protection insurances.

My situation

I am in this situation. I have a mortgage and a growing superannuation balance with many years to go until retirement. My husband said to me last week that money feels tighter than when we first met 10 years ago. Our household salary is 8 times what it was when we met. He means that we have more responsibility for our future selves, and we’ve made commitments.

We didn’t have much choice in our early twenties about where our funds would go – we only made enough to be in a slight surplus. Now, not only do we have a mortgage, but also large lump sum expenses that come with a mortgage – land tax, insurance, council rates. Our salaries have a decent percentage going to superannuation, and to the ATO. We also have savings and investments that we treat as compulsory costs, that we weren’t as focused on 10 years ago. If we lessened our commitment to saving it would free up our budget.

A lack of cashflow can make you feel strapped and offer you less flexibility with your life. Hence my husband’s comment.

I have made a purposeful choice about the way that my investments are structured. I believe that investing is mandatory to maintain a comfortable standard of living, in an age where many people are retired for as long as they work.

I don’t consider this ‘expense’ as optional. I don’t draw passive income from my investments to bolster cashflow, nor do I focus on income generating assets as my financial goals are to be realised well into the future. I want to limit the tax I pay along the way that reduces my net gain. Having a mortgage and a house is not just about financial security in the future, but it is a lifestyle choice for me now – it offers me stability and a place I can make my own. When my mortgage is paid off, those funds will be released to

I have a base of liquidity that gives me flexibility if there is a need but I have come to terms that I am in a stage where my cashflow is restricted by the intentional choices that I have made. I am sure this is the case for many others in my position – there is little they would change.

Ultimately, I have an appropriately sized emergency fund that gives me peace of mind. I have liquid assets outside of superannuation and I am insured. I know that my situation is temporary. At some point I won’t have a mortgage and won’t need to save for a retirement once I finish working. Once I have reached my other financial goals more cashflow will free up.

Final thoughts

You may have a good salary and increasing wealth while struggling to understand why you still don’t feel comfortable. This is an underappreciated benefit of liquidity. It provides comfort, flexibility and choice.

Liquidity means your life stops being a waiting game to pay off your mortgage and access your superannuation to feel financial security. It gives you options – retire early, travel, or leave your job if it’s not serving you. We’re told ad nauseum to focus on the long term with our investments and our financial plan. This does not mean that short-term resilience does not matter. Start measuring the success of your portfolio through both measures. I’ve covered some metrics to focus on here.