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Financial advice

What are the 3 biggest living expenses for households?

By | Cash Flow and Budgeting Strategies, Financial advice | No Comments

We check out the three largest contributors to household spending in Australia and where people would source additional cash if living expenses rose.

If you worked a full-time job in Australia in 1975, the average amount you would’ve earned a year was about $7,600, whereas today, that figure would be closer to $72,000, according to research by McCrindle.

That’s welcome news, but while we’re earning more than what we did in 1975, things are also costing us more.  A loaf of bread is 10 times the price, a litre of milk is three times the price, a newspaper is 20 times the price, not to mention petrol has doubled, with house prices in some capital cities up thirtyfold.

Housing, food and transport

The three largest contributors to household spending in Australia have been the same for many years, according to the Australian Bureau of Statistics (ABS).

ABS figures reveal three-and-a-half decades ago the largest contributors to household spending were food (20%), transport (16%) and housing (13%), with housing now at the top of that list (20%), followed by food (17%) and transport (15%) respectively.

A separate report by Deloitte highlighted that around 37% of Aussies were concerned about their ability to cover expenses, with more than 50% indicating that they expected to pay even more on housing and energy costs going forward.

What people would do if costs rose further

When asked, if your day-to-day living expenses increased, where do you think you’d source additional money from, here was the top eight responses in a survey of Australians:

Reduce luxury spending – 20%

Buy fewer groceries – 12%

Spend less on transport – 12%

Borrow money via a loan or credit card – 10%

Draw on savings – 5%

Spend less on food delivery and eating out – 5%

Cancel subscription services – 4%

Cancel streaming services – 3%.

Source: AMP News & Insights October 2018

Superannuation – know your rights

By | Financial advice, Superannuation | No Comments

There’s a staggering amount of superannuation that may never find its way to the people who should be spending it in their retirement years.  According to ATO figures, there’s approximately $12 billion in unclaimed super in their coffers.  That’s a lot of money just waiting to be transferred to Aussies who have lost track of account balances after changing their job, name or address.  Getting this super back is pretty straightforward and either the ATO, your myGov account, or your current super fund(s) can help you bring all your super together.

Sadly, the amount of super that never gets paid at all is even more alarming.  Back in 2016, Industry Super published a report claiming that around 2.4 million employees are being short-changed in mandatory super payments to the tune of $3.6 billion per year.  At the time, the report estimated the total figure for unpaid super could reach $66 billion by 2024.  That’s a huge potential problem with what’s known as super non-compliance – employers deliberately failing to pay money their workers are legally entitled to under the super guarantee (SG).

Who should receive super from their employer?

Most employees, whether full or part-time, salaried or casual, must be paid super contributions by their employer under the SG.  When you receive more than $450 per month in wages or salary, then you’re entitled to the SG.  If you’re under 18 or working as a private/domestic employee – such as a nanny – you’ll need to be working for more than 30 hours per week to qualify.

How much super should you be getting and when?

Under current legislation, SG payments should be made at the rate of 9.5% of your salary, or ordinary time earnings (OTE) if you’re a casual worker.  Your employer is required to make these payments to your nominated super fund(s) every three months at least.  When an employer pays your super later than they should, there are still consequences for your retirement savings.  The bigger your super balance the more money you can earn from investing it.  So for each and every day that a dollar is in your super account, it can be helping you grow your retirement nest egg.

Missing out on these payments is going to have an even greater impact on your super balance in the next few years.  Legislation has been passed to increase the SG rate from 1 July 2021 and the rate will increase by 0.5% each year from this date, reaching 12% by 1 July 2025.

Are you missing out?

According to the Industry Super report, it’s small and medium sized businesses that are most likely to come up short with SG payments.  An ABC news story from May 2018 highlights how much of a problem unpaid super can be in the hospitality industry.  Workers report having seen super payments on their pay advice, not realising the money wasn’t being paid to their super provider.

Take some time to check your latest super statement to see when SG payments have been made and how much is being paid.  Many funds will also offer you a login so you can check in now, and in the future, to make sure contributions from your employer are up to date.

Super shortfall – what you can do

If you find your super balance isn’t all it should be due to super non-compliance, the ATO and Fair Work Ombudsman should be your first port of call for more information, or to report the problem.  With the ATO having announced a 12-month amnesty for unpaid super starting from 24 May 2018, employers could be expected to be more co-operative in settling an unpaid super claim without the usual stiff penalties that would usually apply.

The amnesty is part of a raft of proposed legislative changes designed to crack-down on super non-compliance.  It includes harsher penalties for directors of businesses who fail to pay super and requirements for immediate reporting of employer SG contributions to the ATO by super funds.  This will act as an ‘early warning’ system for non-payment of super and take the onus off individuals to alert the ATO when there’s a problem.  However, at the time of writing, this legislation has not been passed.  So for the time being, it’s very important to take an interest in your super and act if you discover that you aren’t receiving your full SG contributions.

Source: Money & Life. 

What to look for on your super statement

By | Financial advice, Superannuation | No Comments

When your super statement arrives it’s important to take a proper look because it could become one of the biggest assets you’ll ever have.

Here’s our quick guide to what you should watch out for and why.

1 – Personal details

Check your name and address are present and correct.  Not having the right details could lead to you having unclaimed super if you change jobs or move house.  You can update these details with most funds by setting up a member login.

2 – Tax file number (TFN)

Having the right tax file number means your super fund will be paying the right rate of tax on your super contributions and investment earnings.  If your TFN is missing or incorrect, the fund may be deducting tax at a higher rate.

3 – Personal contributions

Check for any personal contributions to this super fund for the period the statement covers.  If you haven’t provided your TFN, your fund won’t be able to receive these payments.

4 – Employer contributions

Check that any employer contributions you’re entitled to under the super guarantee (SG) are being paid in full at least once a quarter.

5 – Your balance

Providing either you or your employer (or both) have been making contributions your balance is going to be higher than it was at the beginning of the statement period.  Depending on your investment options, your current balance will include investment earnings too.  And there will be deductions shown for tax, fees and insurance premiums.

6 – Investment options

Most super funds offer a range of investment options.  Your balance is likely to be invested in a default option if you haven’t made an active choice.  Different investment choices carry different levels of risk, expected return and fees.

7 – Fees

All super funds will charge a fee for administering your account.  There will also be fees associated with your investment option/s or brokerage fees for direct investment in shares.  Paying too much in fees can quickly erode your super balance so it’s important to make sure you’re getting enough investment earnings to justify any fees you’re paying.

8 – Insurance premiums

Super funds are required to provide certain types of personal insurance to their members by default and take premiums from your super balance to pay for the cover.  However, legislation proposed in the 2018 Federal Budget will give account holders with lower balances the choice to opt in or out for paying for insurance through their super.

Paying for personal insurance through super can be a way to make your policy more affordable but there are lots of things to weigh up when it comes to getting personal insurance right.

9 – Beneficiaries

If you’ve nominated a beneficiary or beneficiaries for your super – perhaps your spouse, partner or children – then this will be included on your super statement too.

What now?

Taking an interest in your super is important – regardless of your age.  If you’re looking at multiple super statements from different accounts, then it may be worth consolidating your super into a single fund to save on fees.  Before choosing one fund over another, it’s worth checking to make sure you’re continuing to get the right insurance cover and investment options with your preferred super fund and for a competitive fee.

Source: Money & Life October 2018

8 money tips for when your child lands their first full-time job

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Your child may not have listened to anything you’ve said over the past umpteen years, however, now they’ve landed their first full-time job, there’s a possibility that could change.

Here are some things you may want to cover off with them:

1 – Your bank account details and tax file number

Your child will need to give their bank account details to their employer if they want to get paid, so this will no doubt be high on their list of things to do.

On top of that, they’ll need to provide their tax file number as well, because if they don’t, they may end up paying a lot more tax on the income they earn.

If your child needs a tax file number, they can contact the Australian Taxation Office (ATO) about applying for one.

2 – Whether you can choose your super fund

Super is money set aside during your child’s working life to support them in retirement. It’s deposited into a fund, where it’s invested to potentially earn interest and grow over time.

Most employees can choose their own super fund but your child will need to check with their employer or the ATO.  If they can choose their fund, they’ll typically have a choice between their employer’s fund or a fund they select themselves.

There are things they’ll need to consider though, such as any fees they might pay, how the fund performs and their super investment preferences.

In addition, super funds generally offer a few types of insurance cover as well, which your child can pay for using their super money, so it’s worth them looking into whether it’s something they want.

3 – What tax you’re going to pay on the income you earn

Your child may not be pleased, but they’ll have to pay income tax on every dollar over $18,200 that they earn.  And, on top of that, many taxpayers are also charged a Medicare levy of 2%.

The amount of tax they pay will depend on how much they earn.  You might also want to point out that if they’re lucky enough to receive an annual bonus, they’ll also pay tax on this (yes, we know, life isn’t fair).

4 – What tax you can claim back when tax time rolls around

If your child spends some of their own money on work-related expenses (work uniforms, safety equipment, or travel costs to attend training for instance), there is some good news.  At the end of the financial year, they may be able to claim some of this money back when they do their tax return.

Remind them that they’ll need to have a record of these expenses, such as receipts, but in some instances if the total amount they’re claiming is $300 or less, they may not need receipts.

Meanwhile, if their expenses are for both work and personal use, they’ll only be able to claim a deduction for the work-related portion.  Perhaps point your child to the myDeductions tool in the ATO app to save records throughout the year, so they don’t have a bag full of receipts to go through.

Meanwhile, tell them if they’re lodging their own tax return, that they have until 31 October to lodge it each year, or maybe longer if they would prefer to use a tax agent.

5 – What’s in your contract and what you’re entitled to

An employment contract (which can be in writing or verbal) is an agreement between your child and their employer which sets out the terms and conditions of their employment.  It’s a good idea to know what’s in their contract should questions ever arise around what they’re actually entitled to.

Regardless of whether your child signs something or not, their contract cannot provide for less than the legal minimum, set out in Australia’s National Employment Standards, which covers things such as

  • Maximum weekly hours of work
  • Requests for flexible working arrangements
  • Parental leave and related entitlements
  • Annual leave
  • Personal/carer’s leave and compassionate leave
  • Community service leave
  • Long service leave
  • Public holidays
  • Notice of termination and redundancy pay.

While National Employment Standards apply to all employees covered by the national workplace relations system, only certain entitlements will apply to casual employees.  For more information, check out the Australian Government Fair Work Ombudsman website.

6 – How to read your payslip so you’re across potential errors

Pay slips have to cover details of an employee’s pay for each pay period.  Below is a list of what a pay slip typically includes:

  • Your child’s before-tax pay (also known as gross pay)
  • Your child’s after-tax or take-home pay (also known as net pay)
  • What amount of money your child has paid in tax
  • The amount of super their employer has taken out of their pay and put into their super fund
  • HELP/HECS debt repayments (if they have an education loan).

Meanwhile, mistakes can happen, so if anything doesn’t look right, tell them to chat to their employer and if your child has raised an issue they’re not satisfied with, they can also contact the Fair Work Ombudsman.

7 – How much super is coming out of your pay and if it’s correct

If your child is earning over $450 (before tax) a month, no less than 9.5% of their before-tax salary should generally be going into their super under the Superannuation Guarantee scheme.

If they’re under 18 and work a minimum of 30 hours per week, they may still be owed super.  For this reason, it’s important that they check their payslip and if something doesn’t look right, that they speak to their boss or contact the ATO.

8 – How to budget and save so you can get what you want in life

Budgeting may be another point that makes your child’s eyes glaze over but jotting down into three categories – what money is coming in, what cash is required for the mandatory stuff and what dough might be left over for their social life (or saving for their future), could really go a long way.

If they’re paying off debts, or on a more exciting note, want to buy a car or go on a holiday, getting a grip on their money habits early on could see them get a lot more out of life.

Source: AMP News & Insights October 2018

Don’t just invest for your children, invest with them

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Investing with your child can help them build a nest egg and improve their financial literacy.

Gifting your child with a nest egg of investments is a wonderful idea, and will no doubt give them a kick-start into adulthood.

But some experts say we may be approaching this incorrectly; we could be investing with our children, rather than for them, to give them not just money but knowledge.

Orsolya Bartalis, 39, from Perth does just this with her oldest child, Jordan.  “I take 35 per cent of my 15-year-old’s wage [from his part-time job], and we sit down and look at possible investments together,” she says.

“We look at what we’re getting, how secure it is, what the returns are and how long we have to invest the money for.  He can then ask questions and we decide whether we invest or not; it’s often property investments.”

Investing in property is something that Cherie Barber, founder of Renovating For Profit is passionate about teaching young people.  In her Young Renovators Scholarship Program, she teaches kids aged 12 to 18 about investing in and renovating homes.

“We’re seeing an increasing number of young people getting interested in property,” she says.

“Children are watching renovating shows on TV, like The Living Room and The Block, and all these young people are getting inspired by and curious about property.”

Barber says her views on involving kids in the world of property can be controversial.

“There are plenty of people saying that kids shouldn’t be into property; they should be out kicking a football or playing their Xbox, but I don’t think that’s necessarily true.  That’s up to each individual child.”

“Kids are thinking about the future, and the sooner that parents can start educating their children about what to buy, where to buy and how to identify really good capital growth suburbs, the better.”

Investing together: a parent’s responsibility

Make no mistake: financial literacy, from budgeting to investing, is the responsibility of parents.

Orsolya Bartalis says she aims to teach financial literacy to her kids.

“Kids receive [almost] no financial literacy in the education system, so that responsibility falls back on parents and the individual child to learn it of their own accord,” Barber says.

With a future filled with housing affordability problems and self-funded retirement, there’s nothing more certain than the fact that the next generation need to learn how to be very smart with their money.

And, while it feels like a big step for our generation of parents, many of whom experienced money as a taboo topic, it’s worth forging the way for our children.  Bartalis says, “The main message I am working on instilling in my kids is to learn to be financially literate, so they can have a choice as to what they want to do in life.”

Source: AMP News & Insights

Borrowing money: When and how to do it right

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Recent reports and statistics show we’re no strangers to debt in Australia.  According to OECD data from 2015, Australia is 4th in the world – behind Denmark, the Netherlands and Norway – when it comes to the amount of debt we have as a percentage of our net income. These figures also show that with the average level of debt we’re accumulating, we’re spending more than double our income each year.

If that’s not alarming enough, this is a trend that’s showing no sign of slowing down.  Data from the latest Australian Bureau of Statistics Household Income, Wealth and Expenditure Survey has seen the average amount of debt per household double in the last 12 years, from $94,100 in 2003-4 to $168,600 in 2015-16.  Although a lot of borrowing is for buying property, 55% of Australians hold credit card debt compared with 34% who have a home loan.

Good vs bad debt

There are certainly ways to borrow that can be beneficial and others that you really should try to avoid.  Using some kind of loan to buy consumer goods or depreciating assets – like a new car or home appliance – is always going to be a financial setback.  You’ll be out of pocket for the cost of what you’re buying, plus the cost of borrowing.  And there are so many ways to borrow now – credit cards, after-pay, interest-free finance – it’s very hard to resist the temptation to buy now and worry about all the fees and interest payments later.

If you’re smart with savings and planning your finances, you can get to a point where you can afford things and still live within your means.  Let’s say you invest the money you’d spend on repayments on a car loan.  Over time, the earnings from that investment – and potentially its value – will accumulate to the point where you’ll have extra money to spend on the car, holiday, school fees or whatever will bring better quality of life to you and your family.

Positive outcomes from property

When it comes to getting ahead financially, there are certainly benefits to borrowing to buy your own home.  By building up equity in that home over time, or by renovating an older home in a popular location, you can quite easily move your financial situation forward.  And as you’re giving yourself a roof over your head, you’re doing all this while meeting your need for a secure home.

With the property boom we’ve been having in Australia, it’s easy to forget property values can go down as well as up.  If you’re buying a property to live in it’s certainly something to be aware of when you’re deciding how much to borrow.  But when you’re buying to invest it’s even more important to bear in mind what will happen if you can’t get tenants or find that you need to sell sooner than expected.  And you’ll also need to consider the initial cost of your investment and whether you’re prepared to have your money tied up and make a commitment to loan repayments for at least seven years.

Budgeting to borrow

No matter how much you’re borrowing or what it’s for, there has to be a surplus in your cash flow to cover repayments for the life of the loan.  Interest rates – just like property values – can change. Interest rates in Australia have been low for a long time now and can only go in one direction from here.  Any borrower needs to ask themselves what sort of impact it will have on their finances if interest rates – and repayments – rise.

Be ready for change

Losing some of your income can also have an impact on your capacity to meet repayments.  If you’re unable to work for a while, it can be a challenge to cover all your expenses from your saving. Taking out personal insurance – such as an income protection or trauma policy – can help you keep up with repayments if you suffer an injury or illness that stops you earning.

Having flexibility in your loan arrangements can also help when life gets in the way of earning money.  Many loan providers offer redraw facilities so you can pay more off your loan now and then have access to the extra funds later.  Others offer payment breaks – usually limited to several months’ duration after you’ve held the loan for a number of years.  But it’s important to remember that interest keeps adding to the amount you owe during the payment break, so you can expect to be making larger repayments when the break is over.  Plus you’ll be paying more interest overall for the life of the loan.

Source: Money & Life.

When to start talking money with kids

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Aussies may have a natural reserve when it comes to talking money.  But as parents, teaching our kids to be financially aware and responsible takes more than a few quick lessons about money and the opportunities and pitfalls it can create.

Teaching opportunities will come and go as our children grow.  If you’re a relaxed sort of money parent, then maybe you’re happy to freestyle and just take these chances as they come.  But if you’re keen to create teaching moments by design, it can help to know what other people do and when are the best windows in your child’s development to introduce new financial concepts.

Make an early start

In 2018, 1000 Australian parents were surveyed about how they teach their kids about money for the Share the Dream report.  Results show that half of parents are talking to their kids regularly about money and almost three-quarters of kids (72%) are getting pocket money, an important tool for teaching kids about saving and spending money.  The age group most likely to be getting pocket money are 9-13 year olds (80%) and if you’re aged 4-8 years you’re less likely to receive any (65%).

But according to a Cambridge University research study from 2013, parents could be missing a trick if they’re waiting until kids turn nine to start pocket money.  Their findings suggest that by the age of seven, kids have already acquired the mindsets that will direct their money habits in adulthood.  Not only that, but they’re also capable of grasping the fundamentals of how money works at this age. They understand that money can be exchanged for goods and that you need to earn it first.

Dr David Whitebread, co-author of the study, encourages parents and educators to get on the front foot when it comes to helping kids learn good money habits early on.  “The ‘habits of mind’ which influence the ways children approach complex problems and decisions, including financial ones, are largely determined in the first few years of life,” says Dr Whitebread.  “Early experiences provided by parents, caregivers and teachers which support children in learning how to plan ahead, in being reflective in their thinking and in being able to regulate their emotions can make a huge difference in promoting beneficial financial behaviour.”

Make it holistic

As well as starting money lessons early, stats from the Share the Dream report also suggest that money talk from parents needs to be covering more ground.  Many parents are definitely covering off the basics, with the majority of parents (52%) having talked with kids about spending and saving in the last six months.  On the other hand, talking about cashless payments with kids is far less common.  Only 19% of parents have spoken about online transactions in the same period, and the numbers discussing in-app purchases (13%) and Afterpay (5%) are smaller still.

The study also shows that there may be advantages to being more forthcoming about ‘invisible’ money transactions with our kids.  Across all age groups 38% of parents are reporting that their kids have a preference for online purchases.  For the teenagers in the 14-18 group, this figure rises to nearly half (47%).  If kids are to be prepared for their online shopping experiences, it makes sense to be having these discussions as they begin to transact online.

Make it open and honest

Talking money with our kids can make us feel uncomfortable and this is a trend that was also revealed in the Share the Dream survey.  68% of parents sometimes feel reluctant to talk about money with their children and in the majority of cases (32%), it’s because they don’t want their kids to worry about it.  And 19% of parents say they don’t feel good enough about their own financial situation to discuss it as a family.

While financial stresses can be very real to you, there may be a way for you to help your kids learn from your own ups and downs with money without causing them concern.  In fact, the ‘Engager’ parent profile identified in our survey shows that having more family discussions about money can lead to their kids being more curious, confident and financially literate.  Engagers are least reluctant to talk to their kids about money and it seems their honest approach is leading to more positive habits among their children, 56% of whom are likely to have a job, compared with the survey average of 44%.

Source: Money and Life

Don’t make these money mistakes you make in your 20’s

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Which of these rookie errors sound all too familiar when it comes to you and your mates?

In your 20’s, you might be saving for a plane ticket to go somewhere, a new car, your own pad, or just trying to keep your wardrobe up-to-date while still having enough cash left over for Saturday night.

As you mull that over, give some thought to how what you spend today could also impact you later on—especially with many guys and girls still looking to their folks to come to their financial rescue.

14 money mistakes to have on your radar

  1. Going without a budget

If you’re looking for somewhere to start when it comes to creating a budget, try jotting down into three categories – what money is coming in, what cash is required for bills and what dough might be left over for the fun stuff.  This will help you identify where there’s room for movement.

  1. Using your credit card for everything

Sure, credit cards are convenient, but they’re often more expensive than other forms of credit as they usually charge higher interest rates, which means you could end up potentially paying back a lot more than what you initially borrowed.

Keep in mind, whenever you don’t pay back what you owe in full, interest is generally payable—and that includes when you only pay the minimum amount owing.

  1. Keeping up with the Joneses

The pressure to stay up-to-date with your peers and celebrity icons can be a subconscious but very real motivation behind some of your poor financial decisions.

Try to live within your means, stick to realistic goals, and when you’re looking to make a purchase, ask yourself if it’s something you really need in life, or if it’s something you simply want this week.

  1. Borrowing money from those nearest and dearest

When you’re in a bind, while you may be tempted to ask for a hand-out, it can put strain on relationships, particularly if it becomes a regular thing.

The person may need the money back quickly.  They might begin judging your spending habits, or worse—end the friendship if they don’t get the money back on time.

  1. Buying a pricey car

The purchase price of a new car is one thing, but remember the added costs, such as insurance, rego, petrol and regular servicing, are another.

If you’re looking to buy a car, ASIC’s mobile phone app MoneySmart Cars may be able to help you work out the overall costs.  And, with the average Aussie household currently juggling car debt of around $19,500, it’s probably worth some thought.

  1. Pursuing higher education without a plan

While it’s possible that tertiary qualifications could increase your employment opportunities and potentially help you to earn more over the course of your career, it’s also not guaranteed.

With that in mind, it’s worth asking yourself whether the field you want to enter requires tertiary qualifications.  After all, if you can get where you want through alternate routes, these may be worth exploring, particularly with the average debt for a tertiary student in Australia about $19,100.

  1. Quitting your job after a bad day

You may not like where you work but if you’re planning your exit march, it’s wise to have another gig lined up as it could be months before you find another opportunity and have cash coming in again.

If it’s your current pay cheque that’s got you fuming, consider whether you’ve earned a pay rise and how you might go about asking for one.

  1. Not prioritising what you really want to do in life

The benefits of thinking ahead when it comes to what you want are pretty clear.  For instance, buying a car, going on holiday and moving into a new apartment all within a six-month period mightn’t be financially viable, but if you spread those things out, they might be doable.

  1. Saying ‘whatever’ to an emergency fund

One in eight Aussies don’t have enough cash set aside to cover a $100 emergency.  And, you don’t want a busted phone or car tyre, let alone a bad landlord or lover leaving you financially stranded.

An emergency stash of cash could give you some peace of mind and reduce the need to apply for a loan or ask someone you know for a handout.

  1. Avoiding the money talk with your partner

Half of Aussie couples argue about money, whether it’s bill-related or impulse buying habits.

So, before you set up joint accounts or shack up together, address how you’ll both contribute.  If you’re moving in together, it’s also worth knowing what happens to your finances if you split with a de facto.

  1. Spending a fortune on the wedding

The average wedding today costs around $36,200, and 35% of couples admit to blowing their budget.

To avoid that happening, start saving, talk to your partner (and parents if they’re involved), write down what you can afford, get quotes, and look at how many and who’ll be on your guest list early on.

  1. Being blasé about protection

It’s estimated that at least one in five households will suffer from an unforeseen event that will leave them incapable of working at some point in their lifetime.

While you may choose to go without insurance to save money, for a number of people it may be affordable through monthly premiums or paying out of your super money.

  1. Choosing a property that’s not within your means

Whether you’re renting or buying, it’s important to think about the upfront and ongoing costs involved, and the location you’re looking at as different suburbs come with different price tags.

If home ownership is on the cards, get a full run-down of the costs you’re likely to come across.

  1. Not caring about your older self

It might seem like a lifetime away but with some people looking at a retirement of 30 years or more (and the Age Pension alone unlikely to be enough to support a comfortable lifestyle), putting money into super is worth thinking about while you still have time on your side.

There’s a lot to think about when it comes to (admittedly) this weekend, but also what’s further down the track, but the good thing is a few little steps now can make a big difference later on.

Source: AMP News & Insights. 

Minimal vs FOMO: what are young people really up to with their money?

By | Cash Flow and Budgeting Strategies, Financial advice | No Comments

The spending habits of our younger generation show that experiences mean more to them than buying stuff.  So are they better at managing money than their Boomer or Gen X parents?  Or is FOMO leading them into the dangers of growing debt?

For some years, retail businesses have been in a tailspin about the rise of the experience economy.  Instead of going on shopping sprees, people are channelling more of their cash into dining out, weekends away and holidays.  In 2015, JPMorgan collated data from credit card spending by millennials (those born between 1981 and 1997) and non-millennials (born before 1981).  They found 34% of spending by millennials was on travel, entertainment and dining, compared with 28% for non-millennials.

With less emphasis on buying stuff, this could be seen as a welcome minimal movement among millennials.  However, with the rise of social media, sharing photos from our latest experience, rather than parading with a new purchase, has become the preferred way of keeping up with the Joneses.

The dangers of FOMO

So the pressure to buy, is being replaced by the need to be there, or what’s become known as FOMO, ‘fear of missing out.’  And according to a recent survey by Credit Karma, it’s a fear that’s fuelling financial problems among young people, with nearly 40% of them going into debt to join in on the latest experience with their peers.  And two-thirds of millennials surveyed said they regret spending more in social situations than they had originally budgeted for.

If you’re in danger of messing up with money thanks to this pressure to be involved, here are some tips to help you enjoy a fulfilling life without regret:

Automate your cash flow

Automating your cash flow is one of the key ways you can stick to a budget.  Budgets are much harder to stick to when all your spending comes from the same pot of money.  By directing income into separate key accounts you can ensure you’re taking care of everyday expenses and savings with enough left over to pay for the extras without getting into debt.

Find ways to stick to it

If you’re finding that keeping up with your friends’ social agenda is making it hard to keep to your budget, maybe it’s time to start taking the lead with making plans.  Coming up with your own ideas for how to enjoy your weekend without spending big or celebrating on a shoestring could help you and your friends get better at living within your means.

Call on the crowd

If reading up about money, budgeting and saving sounds like a boring waste of time, think again.  The blogging world has blown up with money advice for, and by, young people that’s entertaining and relevant.  Browse some of the best money blogs for 20-somethings and start learning how others are enjoying life to the full and still making the most of their cash.

Break through the taboo

There’s no need to limit yourself to getting advice from the blogosphere.  If you’re struggling to make ends meet and join in with every social experience that comes your way, chances are your friends are too.  Maybe it’s time to break with the tradition of money being a taboo topic and get real with your friends about finances.

Source: Money & Life. 23rd July 2018

More than one-fifth of Australians in their mid-20s still live at home with parents

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Money is the most common reason for staying at home.

Twenty-five year old Nivea Lally makes a two-hour, 43 kilometre commute from Sydney’s Kellyville to Pyrmont every day.  It’s the price she’s willing to pay to live at home rent-free in a bid to save up for her future.

She’s not alone; more than one-fifth of Australians aged between 25 and 29 still live at home with their parents, according to new research by comparison website finder.com.au.

That figure doubles for younger Australians, aged 20 to 24.

The survey of more than 2000 people — across the country and age groups — found the average age children should start paying board is at 19.

“It seems to be the sweet spot nationally.  That’s the age kids go to uni, start their first part-time job and generate income and become young adults,” said Graham Cooke, Finder insights manager.

But not everyone agrees on charging their children board.  One in five Australians believe their kids should live with them rent-free regardless of their age or financial situation.

Ms Lally said her parents want to take care of her until she gets on her feet, financially speaking, because “rent money is dead money”.

“I put up with the two-hour trip every morning and afternoon just for the convenience of living at home,” she said.  “If my parents asked me to pay for board I would do it and I completely understand how it would benefit me in the future as well.”

Money is the most common reason for a multigenerational household, according to UNSW City Futures Researcher Dr Edgar Liu, who wrote a study into this in 2012.

And with 25 per cent of Sydney’s population in this situation, the city has always taken out the top spot across Australia for the highest rate of this phenomenon.

“Many families are also actively choosing this living arrangement to better provide care for young children and the elderly (the second most common reason),” said Dr Liu.

Dr Liu’s research found a mother who had a deposit, but unstable income, and her daughter at university with steady employment, who could service a mortgage, who bought a house together.  In other cases, parents put their children’s board aside as a home deposit for the kids.

Leo Patterson Ross, advocacy and research officer at Tenants Union of NSW, said Sydney’s high cost of housing, for buying and renting, left children living at home longer than usual too.

“I’ve spoken to classes at two different universities and courses where not a single person was renting in the private market,” he said, “because private rentals and property ownership has become more expensive we see middle-aged people and professionals still in share houses and being the only ones who can afford. They’re pushing out students as a result.”

While it makes sense for families who could afford to help their children save money, Mr Ross worries it exacerbates housing affordability and the likelihood of property ownership for those less well off.

“It raises the questions about the families who can’t afford to waive rent,” he said.

Mr Cooke said while children and parents don’t see eye to eye on when to start paying board, one thing is for certain: children don’t become financially independent earlier than their parents.

“Financial circumstances are not as healthy as those in the boomer generation because property prices and rents are so high at the moment. That’s forcing people to stay living with parents,” he said.

Source: AMP News & Insights

How will you use your tax refund in 2018?

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If you’re one of a number of Aussies receiving a tax refund this year, it means you’ve overpaid in taxes throughout the financial year.  However, the cash back at tax time may be music to your ears.  After all, the average return according to figures is around $2,800, with more people than last year indicating that they plan to save the money.

We look at some of the ways people intend on using their tax return in 2018 and some potential ways you too could use your money to get ahead.

How people intend on using their tax return

According to a Finder survey of more than 2,000 Aussies, the most common ways people said they’d use their tax return in 2018 was towards:

  • Savings – 46% (up from 31% last year)
  • Household bills – 17% (down from 23% last year)
  • A holiday – 11% (down from 12% last year)
  • Home loan repayments – 7% (down from 10% last year)
  • Invest it – 5% (up from 4% last year).

Other ways you could use your money

Pay off your education debt

According to government estimates, the average debt for a tertiary student in Australia is currently $19,100, with the average time taken to clear that debt more than eight years.

For many, making a dent in their loan or paying it off in one fell swoop will be a great idea, but given the low-cost nature of Australia’s higher education loan program, maintaining compulsory student repayments while addressing other debts or financial goals could also be worth investigating.

Create an emergency fund

Given more than one in two people wouldn’t have enough savings to last three months if they lost their job tomorrow, an emergency fund could provide peace of mind when it comes to unexpected bills.

It may also reduce the need to rely on high interest borrowing options, such as credit cards or payday loans, which can often be an expensive form of finance and create unwanted debt.

Put it into super

Contributing a lump sum of money into your super fund may be a good way to grow your retirement savings as what your employer contributes (if you’re eligible) mightn’t be enough for you to live on comfortably after you finish working.

Other benefits of contributing to super, depending on your circumstances, may include favourable tax treatment, or other financial incentives from the government.

Source: AMP News & Insights. September 7 2018

7 money personalities you may identify with or want to avoid

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Are you the friend that shouts more than what you can afford, or the one that’s happy with a handout because no one knows Struggle Street like you do?

When it comes to money and people’s behaviour, you may have a few labels or preferred ways of describing those nearest and dearest to you – and surprise surprise, they may do for you too.

I mean, how many times have you heard someone say so-and-so is stingy, or a show pony, or was born with a silver spoon in their mouth, or on the flip side, too generous for their own good?

If it’s something you’ve been thinking about, we’ve listed some common money personalities that may shed some light on where change, or consistency, may be of benefit to you.

Which personality type are you?

The scrooge

Generosity is not your strong suit and whether or not there’s a reason for it, you don’t like giving and you don’t like spending, unless maybe it’s on someone else’s credit card.

You might be under the assumption you’re doing it tougher than everyone else (whether that’s true or not) and may tend to favour people in your life who are financially beneficial to you, even if you’re a financial burden on them.

The gambler

You spend more than what you can afford and then spend the rest of the time trying to make ends meet. Whether it’s on the races, high-risk investments, designer labels or anything that drains you of cash, you tend to operate under a cloud of secrecy.

These behaviours can often be damaging to you and those around you due to a lack of financial security.  If you do need assistance, the Gambling Helpline is available on 1800 858 858.

The show pony

You buy only the best clothes, phones, accessories and even things you’ll never use as a status symbol.  You host parties on your credit card and generally prioritise possessions over all else.

You’re more than likely racking up some debt in order to keep up with the Joneses, while you probably know a lot of scrooges who are more than happy to take whatever it is you’re willing to give.

The spoiled

You’re happy to sit back and relax as you’ve got your parents, a partner or an income coming from somewhere that ensures you’re able to live the lifestyle you’ve become accustomed to.

The situation however is probably stunting your ambition to do things for yourself, which may create issues down the track should no one be there to do it for you.

The enabler

You’re probably quite sensible when it comes to spending.  You may even have quite a lot of cash stashed away which you’ve cautiously saved over the years.  Your downfall however is associating with those who are often spoiled or scrooges – those who function on the back of your hard work.

You give them money and you even loan them money that you know they’ll never pay back.  They resist being money smart because they know you’ll always be there to be money smart for them. And, despite the fact you may think you’re helping, you’re more than likely hindering their ability to help themselves.

The mentor

You’re often seen as the sensible one and your success generally comes down to hard work and not necessarily the biggest pay cheque.

You’ve always had a budget in place to ensure you live within your means.  You pay your bills on time.  You save for the future.  You compare your providers every 12 months.  And, you’ve even got a little left over to put toward the fun stuff.

The free spirit

You probably identify with a number of money personalities to a degree.  Some days you’re a scrooge because you have to be, sometimes you’re a show pony when you’ve got cash to blow, and sometimes you lend money to people you shouldn’t.

You know you have the potential to be a mentor but you’re a bit of a procrastinator and not a massive fan of hard work, although you’ve often wondered what financial success you could have if you did spend an afternoon sorting out your finances and mapping out things to do on your bucket list.

Source: AMP News & Insights

Investment bonds – An alternative to super

By | Financial advice, Wealth Creation and Accumulation | No Comments

A number of changes came into effect on 1 July 2017 that limit the amount of money those saving for retirement can put into super.  This includes new limits on concessional (or before tax) and non-concessional (or after tax) contributions.

The limit on concessional contributions has been reduced from $35,000 to $25,000 per annum and the limit on non-concessional contributions has been reduced from $180,000 to $100,000 per annum.

Additionally, the threshold where an extra 15 per cent tax (total of 30 per cent) is paid on concessional contributions applies to anyone earning $250,000 or more of ‘income for surcharge purposes.’  This threshold was previously $300,000.

In light of these changes, high income earners (those earning $250,000 and above) may now feel compelled to consider alternative investment structures outside of the superannuation environment that offer similar tax-effective benefits.  There are a number of options which may be useful in minimising or deferring tax, such as a family trust, or setting up a private company to hold investments, but for those on high incomes one of the more cost-effective, flexible, and tax-effective options may be an investment bond.

What is an investment bond?

Investment bonds (also known as insurance bonds or growth bonds) have features similar to a managed fund combined with an insurance policy and can be tax-effective for those on high incomes  providing certain rules are followed.

Most investment bonds offer investment options such as cash, fixed interest, shares, property, infrastructure, or a range of diversified investment options, with risk levels ranging from low risk to high risk.  The value of the investment bond will rise or fall with the performance of the underlying investments.

A long-term investment strategy

An investment bond is designed to be held for at least 10 years and you can make additional contributions over the life of the insurance bond.  To make the most of the tax benefits, each year you can contribute up to 125% of your previous year’s contribution.

Withdrawals

Money can be withdrawn from the investment bond at any time, however if you withdraw your money before the 10 years is up, some of the income may be taxable, depending on when the withdrawal is made.  If no withdrawals are made in the first 10 years, any earnings on the bond will be tax-free.

10 year rule

Investment bonds are tax-paid investments.  This means when earnings on the investment are received by the insurance company, they are taxed at the corporate tax rate (currently 30%) before being reinvested in the bond.  This can make insurance bonds a tax-effective long term investment for those with a marginal tax rate higher than 30%.

If you hold the bond for at least 10 years the returns on the entire investment, including additional contributions made, will be tax-free subject to the 125% rule.  If you make a withdrawal within the first 10 years, the rate at which earnings in the investment bond are taxed will depend on when you make the withdrawal.

The 125% rule

Investors in investment bonds can make additional contributions each year.  As long as the contribution does not exceed 125% of the previous year’s contribution, it will be considered part of the initial investment.  This means each additional contribution does not need to be invested for the full 10 years to receive the full tax benefits.

If contributions are made to the investment bond that exceed 125% of the previous year’s investment, the start date of the 10 year period will reset to the start of the investment year in which the excess contributions are made.  You will then have to wait a further 10 years from this date to gain the full tax benefits.  If you do not make a contribution to the investment bond in one year, any contributions in following years will reset the 10 year rule.

If you are approaching (or have reached) your superannuation contributions limits and would like to find more about investment bonds and whether one may be suitable for you, please contact us to find out more.

5 ways to navigate your finances in your 40s

By | Financial advice, Holistic | No Comments

Although marriage, mortgage, and young children may have characterised your 30s, your 40s often feature growing responsibilities and ever-competing priorities.  Your parents are older, your mortgage is still on foot, children’s education costs are growing, and though retirement may seem a distant reality, planning for that reality becomes an important consideration.

The good news is that in your 40s, the financial planning you undertook in your 30s begins to come to fruition.  Perhaps even better news for many is that it’s still not too late to start this planning in your 40s if you haven’t already done so.

Getting organised and keeping your finances fit

A common goal across all age brackets is to organise and optimise your financial affairs.  Everyone needs a financial plan, and all plans should be in writing so as to be measurable and accountable.

At a minimum, your financial plan should encompass your current circumstances, such as specific financial goals, budgeting, emergency funds, cash flow, as well as your road map for achieving these objectives.  This road map should cover both wealth-accumulation strategies – that is, growing your investments – and wealth-preservation strategies, which can include using appropriately structured life and income insurance as well as appropriate legal documentation, should something happen to your health, life, or family situation.

Once you have this plan in place, you need to regularly review it and adjust it when changing laws and circumstances dictate.

Maximising your cash despite vying priorities

Do you have a budget?  In your 40s, you should have a family budget that you also regularly review.  Simply writing down and ranking your key priorities, then allocating the cash flow accordingly, can bring valuable clarity and simplicity to your budgeting.

Often, you don’t need to earn more to improve your cash flow; you just need to better manage the money that passes through your hands.  Depending on your marginal rate of tax, a dollar saved can almost be worth as much as $2 earned.

Paying off your mortgage faster

In your 40s, with luck, you’ve left behind the credit card debt and personal loans from your 20s and 30s.  After all, these days, you’ve got enough to juggle and should be dealing with only one non-deductible debt.  For everything else, don’t buy it if you can’t afford it (this includes upgrading to a bigger house that you really can’t afford).  There are a few techniques for accelerating the repayment of your mortgage and saving thousands of dollars of interest over the life of the loan:

Consolidating your debt;

  • Finding a loan with a great rate;
  • Making extra repayments;
  • Making repayments fortnightly;
  • Efficiently using a mortgage offset account;
  • A combination of the above.

Using superannuation effectively

Although superannuation is an important vehicle for your retirement wealth, if you’re in your 40s and more than 10 to 15 years away from retirement, it’s generally better to use your surplus cash flow for the repayment of non-deductible debt instead of additional pre-tax super contributions.  Within 10 years of retirement, it’s typically better to flip this strategy and focus on maximising superannuation contributions with your surplus cash flow.

Growing and accelerating your wealth

Given Australia’s ever-changing superannuation rules, it’s a good idea to have some investments outside of this retirement vehicle.  These investments can provide you with the flexibility of a retirement before the superannuation preservation age (the age at which you can access those funds).

You can grow your personal wealth either from your own cash flow (after tax savings) or by borrowing money to invest.  It may be appropriate to consider your wealth accumulation and debt management strategies together (that is, a debt recycling strategy).  A well-constructed portfolio is one that takes into account your objectives and personal circumstances. It should be well diversified and should focus on performance.

Navigating your 40s and your finances can be a challenging combination, but with some help and careful financial planning, you can achieve your financial goals and live the life you want.

Source: Money & Life.

Super v mortgage – can you guess the winner?

By | Financial advice, Superannuation | No Comments

The pros and cons of using your spare income to either pay more off your mortgage or increase your super need to be weighed up.  The direction you take depends on a few factors such as your age, how much you earn, your level of debt and your income tax rate.

Typically, if you are in your twenties for instance, you may not want to save for a retirement that is 40 years or more away.  A better strategy might be to invest in a home where you can build some equity before you start considering a retirement strategy.

However, the older you get, the more you might want to invest in your superannuation and begin the transition to retirement financially.

Things to consider if you take the mortgage route:

  • Paying no tax on growth in the value of your family home;
  • Access to redraw facilities if you need a quick flow of cash;
  • Equity which you can borrow against;
  • Reliance on the property market as a long-term strategy;
  • Changes to interest rates.

Things to consider if you contribute more to your super:

  • Boosting retirement income;
  • Tax-effective as tax on investment returns is capped at 15%;
  • Tax-effective when you salary sacrifice;
  • Potential benefits of Federal Government co-contributions if you earn less than $51,813;
  • Inability to access funds if you are under retirement age.

Questions to ask yourself

 If you are at the time in life where you feel it’s better to add more to your super, here are some questions to consider:

  • How much do you owe on your mortgage?
    • Sit down and do your sums to figure out how much money is going into repayments, and how long it will take you to pay off your mortgage.
  • How is your mortgage set up?
    • Do you have an interest-only strategy at the moment and how long is the life of your loan?  It might be worthwhile considering if this needs to be changed.  Switching to an interest only loan may also give you more cash-flow that can be invested into your super.
  • Is there cash looking for a better home?
    • You may have more money floating around than you think and some can go into growing your super balance.
  • Do you have the capacity to salary sacrifice?
    • Your employer may allow you to salary sacrifice some of your income which will be taxed at a maximum rate of 15%, saving you a tidy sum in tax if your income is currently being taxed at a higher rate.

Assess your personal situation with Revolution Financial Advisers to identify how much cash you’ve got and whether it could be better placed to give you more money in your retirement.

Source: Colonial and Capstone Financial Planning.

Is it better to buy an investment property or home first?

By | Financial advice | No Comments

There’s a lot to consider when buying an investment property or home, especially for the first time.

Have you been saving for a long time and feel ready to get into the property market?  Maybe you’re considering buying a home to live in or investing in a property you can rent out to somebody else.

Either way, it’s worth knowing some more about both options to ensure you’re making a well-informed decision, noting that regardless of what you choose to do, property prices can go through major swings that can occur with little warning.

Buying your first property to live in

  • First home owner grants.  Depending on which state or territory you live in, a first home owners grant could help you to finance your first home purchase.  This doesn’t apply to investment properties, and in some states you’ll lose your right to this grant if you buy an investment property first;
  • Security and stability.  You can stay in your home as long as you like, as long as you’re making your home loan repayments;
  • Exempt from capital gains tax (CGT).  Any home that is classified as your main residence, whether it’s your first place or not, is free from CGT when you go to sell it;
  • Expenses stack up and aren’t tax deductible.  There will be initial costs, such as stamp duty and legal fees, as well as ongoing costs, such as water rates, building insurance and repairs. When buying an investment property, you’ll also be hit with these costs, but depending on your situation some of the costs attached to your investment property may be tax deductible;
  • You may have to make some sacrifices. Where you really want to live may not be where you can actually afford to buy.  So, whether it means choosing a place that’s smaller, further out from the city, or looking for a job closer to your new home, you may have to make some trade-offs.

Buying your first property as an investment

  • You may get a cheaper place.  An investment property doesn’t need to tick all the boxes of your ‘dream home’, which means you could potentially buy something at a cheaper price;
  • It’s not an emotional decision.  Your purchase should be based on investment potential, including forecast rental return and capital growth.  So, instead of walking into a place and having to love the look of it, you can walk in with your investor’s hat on;
  • Earn rental income.  If you’re renting out your investment property, you’ll be getting money from someone else to contribute to your mortgage, which means you could pay off your loan sooner. Bear in mind however that the rent you receive may not completely cover your home loan repayments and additional costs;
  • Tax advantages and disadvantages.  Many of the costs associated with an investment property are often tax deductible.  For instance, the interest and fees you pay on your loan, advertising for tenants, as well as cleaning, gardening, maintenance and pest control.  Also, if your property is negatively geared—which simply means the interest, and other costs you incur are more than the income your investment property produces—the loss can reduce the amount of tax you pay on your earnings at tax time.  On the flip side, if you sell your investment property down the track and make a profit, capital gains tax may be payable;
  • Management and obligations.  If you’re time poor or located a long distance from your investment property, another thing you’ll need to think about is appointing a property manager to take care of certain duties.  On top of that, there are various responsibilities that apply to landlords before, during and when ending a tenancy and these can differ depending on which state in Australia the investment property is located.

Source: AMP News & Insights

Super investments

Super investment options – what’s right for you?

By | Financial advice, Superannuation | No Comments

Choosing the right super investment options at the right time could make a difference to how much money you have when you retire.

When it comes to your superannuation, the investment options you choose today and in future may impact how much money you retire with.

If you haven’t selected an investment option within your super, you’re probably invested in your fund’s default option, which will generally take a balanced approach to risk and return.

To get you up to speed, we’ve answered some commonly asked questions around how your money is invested, the different options available and how your preferences can affect your investment returns at any age.

What do super funds do with my money?

Typically, no less than 9.5% of your before-tax salary (if you’re eligible) is paid into super, which is then taxed at a maximum of 15%.  Your super fund will invest this money over the course of your working life, so you can hopefully retire comfortably.

Your super fund will let you choose from a range of investment options and generally the main difference will be the level of risk you’re willing to take to potentially generate higher returns.

If you haven’t selected an investment option, your super fund will usually put you into a default option, which generally means your exposure to risk and return is somewhere in the middle.

If you’re not sure what options you’re invested in, contact your super provider.

What are the super investment options I can choose from?

Most super funds let you choose from a range, or mix of investment options and asset classes.  These might include ‘growth’, ‘balanced’, ‘conservative’ and ‘cash’ but the terms can differ across super funds.

Here’s a small sample of the typical type of investment options available:

  • Growth options – aim for higher returns over the long term, however losses can also be notable when markets aren’t performing.  They typically invest around 85% in shares or property;
  • Balanced options – don’t tend to perform as well as growth options over the long term, but the loss is also less when there are market downturns.  They typically invest around 70% in shares or property, with the rest in fixed interest and cash;
  • Conservative options – generally aim to reduce the risk of market volatility and therefore may generate lower returns.  They typically invest around 30% in shares and property, with the rest in fixed interest and cash;
  • Cash options – aim to generate stable returns to safeguard the money you’ve accumulated.  They typically invest 100% in deposits with Australian deposit-taking institutions, such as banks, building societies and credit unions.

Super funds may have different allocations, so it’s important to read your super fund’s product disclosure statement before making any decisions.

What’s the right investment option for me?

Choosing the most suitable investment option generally comes down to your goals for retirement, your attitude to risk and the time you have available to invest.

For instance, if you’re young, you may have more time to ride out market highs and lows, and therefore be willing to take on more risk in the hope of achieving higher returns.

If you’re closer to being able to access your super, you may prefer a conservative approach as a share market crash could be harder to recover from than if you’re 20 years away from retirement.

While many people put off thinking about super, being informed and engaged from a young age and throughout your career may make a big difference to the returns generated and your final super balance.

Source: AMP News & Insights

When there is a will, there is a way

By | Estate Planning, Financial advice | No Comments

It’s probably not something you want to think about much less discuss with your kids but like it or not, one day we all pass away, and giving our loved ones a heads up on some of our financial affairs may make the process a whole lot easier.

That’s why when it comes to estate planning it can be a good idea to call a family meeting with your beneficiaries, your financial adviser and your legal adviser.

Not only can a financial adviser keep things running smoothly and professionally but it’s also an opportunity for them to get an overview of your family’s circumstances as a whole.  This way they are in a better position to determine the best strategy for you as a family.

Here are a few of the essentials they may cover off in a family meeting.

The contents of your Will

It’s a good idea to give your loved ones a heads up about the contents of you Will – in particular who your beneficiaries are and how much they are likely to receive in the form of an inheritance, super or life insurance benefit.

While this can be a difficult conversation to have and can often cause some friction among family members, it’s also an opportunity for you to explain your decisions.  This may help in keeping everyone happy and avoiding family disputes after you’ve gone.

A testamentary trust

A testamentary trust can be a flexible way to ensure your wishes are carried out after you die.  Basically, rather than being paid directly to your beneficiaries, your money is put into a trust and administered by a trustee appointed in the Will (until it expires).  This can protect your assets against undesired tax consequences, divorce proceedings, bankruptcy and even being squandered by an irresponsible beneficiary.  So if you’re setting up a trust, now could be the best time to air it.

Superannuation

Unlike other assets, your superannuation is not covered by your Will so it’s important to nominate beneficiaries.  A family meeting is the perfect opportunity to set-up binding death nominations to ensure your intentions about your super are carried out.

Your powers of attorneys

Powers of attorney are an important part of your estate planning – giving someone the legal authority to look after your affairs on your behalf if you lose the capacity to do so.  This includes your enduring power of attorney, who makes financial and legal decisions and your medical power of attorney who makes your medical decisions, when you can no longer do so.  A family meeting is a great place to discuss the appointment of powers of attorney as well as discussing important issues such as your views on treatment, your healthcare directive and if possible, how you would like to grow old.

Your investments, superannuation and insurance

If you’ve got any investments, super or insurance policies tucked away, now is the time to let your kids and your adviser know about it.  Not only will your kids get a better idea of how you manage your finances (and may follow your lead) but you won’t have to worry about anything going missing after you’ve gone.

Get off on the right foot

As you can imagine, a family meeting can be quite an emotional experience and there is a lot to cover.  So chances are you’ll be grateful to have an experienced professional around to maintain a level head and keep things running smoothly.

An additional benefit of holding a family meeting is introducing your financial adviser to younger family members.  This will give you peace of mind knowing that in the event of your death, your children will already have a trusted adviser who can give them the financial support they need to manage your estate and invest any inheritance they may receive.

Better yet, now that you’ve got them in the door, your adviser may even be able to give younger family member some tips to get them started saving and investing today.

So to ensure your final wishes are met, avoid unnecessary family conflict and get your children off to a good start, plan a family meeting today.

Source: BT

How to help ensure your superannuation contributions don’t exceed the caps

By | Financial advice, Superannuation | No Comments

Changes in the superannuation contribution caps, which kicked-in last year, give an added reason to keep a close eye on your contributions.

From 1 July 2017, the concessional (before tax) contributions cap was reset to $25,000 for everyone (irrespective of age).

For those earning a salary in excess of $210,000 or more – the compulsory Employer Superannuation Guarantee of 9.5% will total around $20,000 a year and will see your contributions edge close to the cap.  For those making additional concessional contributions, such as through salary sacrifice – they may be close to reaching the maximum if they are earning $180,000 (including superannuation guarantee) and contributing an extra 3% or earning $150,000 (including superannuation  guarantee) and contributing an extra 5%.  In certain cases, employers will match an employee’s additional contributions and in this case the concessional cap might be exceeded.

Going forward, the concessional cap will increase in increments of $2,500 (not $5,000 as was previously the case).  There is a formula the ATO applies to determine when indexation takes place, and the concessional cap will remain at $25,000 for 2018/19 also.

From 1 July 2017, the annual non-concessional (after tax) contribution cap reduced from $180,000 to $100,000 per year.

However, your non-concessional cap will be nil for a financial year if you have a total superannuation balance greater than or equal to the general transfer balance cap ($1.6 million in 2017–18) on 30 June of the previous financial year.  As a result, if you had more than $1.6m in super at 30 June 2017, you cannot make further non-concessional contributions this year.  You may, however, still be able to make or receive concessional contributions up to the $25,000 cap.

Provided you are under 65, or aged between 65 and 74 and meet the relevant work test, and meet all other requirements, you may be able to make contributions to super this year.  But it is important to monitor your level of contributions as penalties can be imposed where you exceed the relevant caps.

Using the ‘bring forward’ rule for your contributions

There are special circumstances where you may exceed the annual non-concessional cap amount and this is called the ‘bring forward’ rule.  The rules have become more complex since 1 July 2017.

How it works is if you are under 65 and have less than $1.5m in super as at 30 June 2017, you may be able to contribute at least $200,000 as a non-concessional this financial year.  If you had less than $1.4m at that time, you may be able to contribute up to $300,000.  However, you might not be able to do this if you started using the bring forward rule in either of the last two financial years.  Or the amount you can contribute might be reduced.

The amount you contribute this financial year may impact how much you can contribute in future years, and each year you still need to have less than $1.6m (or the relevant general transfer balance cap for that year) in super in order to make further contributions.

Source: BT

Property investment

Property investing through a self managed super fund

By | Financial advice, Self-Managed Superannuation Funds | No Comments

Property investing through your self-managed superannuation fund (SMSF) can be a great way to create wealth for your retirement.  By investing in property, you can diversify your super investments.  Any income from the investment property, including capital gains, will be taxed at concessional rates, so you should end up saving money in the long run.

How does it work?

Seek advice

The rules and regulations for setting up and borrowing through a SMSF are complex.  So it’s important that you obtain specialist financial planning, accounting and legal advice to make sure this investment strategy is right for you.

Review your SMSF trust documentation

If you already have a SMSF, you’ll need to make sure you have the necessary powers to borrow under your fund.  Again, it’s important you seek appropriate advice.

Set up a separate security trust

The first step to purchasing an investment property through your SMSF is setting up a separate security trust on behalf of your SMSF.  This new security trust will buy and hold the property, and provide a guarantee for your loan.

Loans to SMSFs are “limited recourse loans”.  This means that if you default the bank can only access:

  • the investment property;
  • any other property securing the loan.

The bank won’t be able to access your other super assets.

Funding your investment

Like regular property investment, you’ll need a deposit from your self-managed super fund, and a loan to cover the difference.  You’ll need to take into consideration how much the bank will lend you, and how much your SMSF will need to provide.  When you compare the loans offered by different banks, check interest rates carefully.  Some lenders charge their regular home loan rates, while others use higher business loan rates.

The security trust buys and holds the property

The security trust buys and holds the property on trust for your SMSF.  Rent payments flow through to your SMSF and help pay off the loan.  If this rent doesn’t completely cover your loan repayments, the extra needs to come from your SMSF.  You’ll need to consider your cash flow when thinking about this investment type.  Again, professional advice is important.

After the loan is paid off

Once your loan is fully repaid, the property can be transferred from the security trust to your SMSF.

For further information, please contact Revolution Financial Advisers.