Category

Financial advice

How do Managed Funds work?

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

If you want to diversify your investment portfolio to spread your risk across different asset classes, sectors or geographic markets, you may be limited by the amount of money you have available to invest. Managed funds are popular with investors looking to build their wealth over the long-term. By pooling your money with a group of investors, you can tap into much wider opportunities (such as infrastructure or overseas markets) that would be out of reach as an individual investor.

Want to invest in Brazil’s economy, or agribusiness ventures? You’re likely to find a managed fund that will give you access to that investment opportunity.

What is a managed fund?

A managed fund pools multiple investors’ money into a fund, which is professionally managed by specialist investment managers. You can buy into the fund by purchasing units, or ‘shares’. The unit’s value is calculated daily, and changes as the market value of the assets in the fund rises and falls.

Each managed fund has a specific investment objective, typically focused on different asset classes and a specific investment management philosophy to provide a defined risk/return outcome.

For example, the investment objective of a fixed interest managed fund may be to provide income returns that exceed the return available from other cash investments over the medium term.

Why invest in a managed fund?

There are three key advantages a managed fund brings to your investment portfolio:

  1. Diversify to reduce risk

By investing across different assets classes – and within different types of shares within asset classes – you can spread the risk of your investments falling due to market volatility. You can also balance different investment timeframes and income returns.

For example, investing $1,000 in a managed fund could give you exposure to 50 different company shares in an Australian equities managed fund. But to invest that amount in 50 companies as an individual would limit you to companies with low share prices (and cost a significant amount in brokerage fees).

  1. Expert fund managers

Selecting individual stocks is also time consuming, and requires a certain level of market knowledge. Professional fund managers have access to information and research, and have the processes and platform access to manage your money effectively.

  1. Reinvesting brings compound benefits

You can invest regular amounts into your fund, just like a savings account. And by reinvesting your fund’s distributions you could ‘compound’ your investment returns. Effectively, any future interest payments will be a percentage of a growing amount.

Are managed funds good for income or growth?

You usually get two types of returns from a managed fund:

  • Income is paid to you as a ‘distribution’, which you can easily reinvest back into the fund;
  • Capital growth if the unit price of your investment grows over time.

If you’re more interested in capital growth, you’ll need a longer timeframe for investing – and these funds usually carry a higher risk.

Types of managed funds

When you’re comparing managed funds, look at the asset allocation to understand its risk profile and potential performance.

  • Income funds – low risk of capital loss, focus on defensive, income generating investments such as cash and fixed interest;
  • Growth funds – longer-term (5+ years) investments, focused on capital growth rather than income and weighted towards securities and equities;
  • Single sector funds – specialise in just one asset class, and sometimes a sector within that class (such as Australian small companies);
  • Multi-sector funds – diversified across a range of asset classes, with varied risk levels;
  • Index funds – aim to achieve performance returns in line with a market index, such as the ASX 200. Also known as exchange traded funds (ETFs) or passive funds;
  • Active funds – an actively managed index fund that aims to outperform that index.

There are also multi-manager funds, which invest in a selection of other managed funds to spread your investments across different fund managers.

Who should I talk to about managed funds?

To find out more about managed funds, please contact Revolution Financial Advisers.

Source: Colonial First State

Feel freedom after defeating debts

By | Debt management, Financial advice | No Comments

If you’ve taken a look at your finances recently, you may have found yourself with a few debts.  While it’s possible to pay them off by simply keeping up your minimum repayments, you may want to get them sorted quicker.

If so, here’s a few simple steps to help you pay off your debts sooner and strengthen your savings.

Know what you owe

The first step to get started is to know what you owe.  This means making a list of all of your debts, and the interest rates of each.  Make sure to organise them from the largest interest rate to the smallest.  You’ll probably want to repay the higher interest debts first, because they can cost you the most to borrow over time.

Once you’re clear on your repayments, and where most of your repayment money is going, you’ll be ready to create a plan.

Make some cutbacks

When it comes to saving money, it’s important to identify where you could cut back your spending.  It may feel tricky, but to get your debt paid off faster, you need to be on-top of your outgoings. So, make a list of all of your spending to see where you could make some cutbacks, and free-up some cash.

Set a budget

Once you know how much you owe, and where you can make cutbacks on spending, you can give yourself a budget to work with each month.  You may find budget calculators helpful, because they can do a lot of the hard work for you.  Through following your budget, you may be able to free-up some extra cash each month to put towards your debt, additional to your minimum repayment.

Grow your savings

It may sound silly to start saving when you’re focusing on making repayments but once you’re in a rhythm, it’s time to think about the future.  In order to become (and stay) debt-free, you need to stay in control of your spending.  A great way to do that is to have a little rainy-day fund set aside for unexpected circumstances.

So, as you start making repayments, pop a little extra into your savings account, to get yourself going.

Source: ING

Should I borrow to invest in shares?

By | Financial advice, Investments | No Comments

Borrowing, or gearing, can help you accelerate your wealth creation. It can allow you to buy assets such as an investment property, or shares that you may not be able to afford outright. However, borrowing to invest is considered a high risk strategy and can result in you losing more than your invested capital.

Before taking out a share investment loan, you should ensure that you can service the costs associated with the loan, including repayment of the loan principal. You should also seek professional financial and tax advice regarding the potential risks and benefits of geared investing.

How do I borrow to invest in shares?

You can take out a margin loan to invest in shares. A margin loan allows you to buy shares by paying only a fraction of the cost of the shares upfront, and the lender uses your shares as security for the loan.

The prices of shares move frequently and you risk losses if they fall in value. Lenders often express your level of gearing using a loan-to-value ratio (LVR) or gearing ratio. The LVR is the amount of your loan divided by the total value of your shares.

If the value of your shares falls to where LVR exceeds an approved maximum, you may be required to top-up your loan collateral or repay some of the loan. This is known as a margin call. If a margin call is not met within a timeframe set by the lender, your shares may be sold by the lender to satisfy your margin obligations. This may result in you suffering a loss.

How do I manage the risks associated with a margin loan?

There are a few strategies that can help you manage the risks associated with a margin loan:

  • set a borrowing limit you are able to comfortably repay and stick to it;
  • make regular interest repayments on your loan to keep your loan balance within a manageable limit;
  • check your LVR regularly, because the value of your investments can change quickly;
  • have funds available to deposit if your lender makes a margin call and you do not wish to sell your shares.

What are the benefits and risks of borrowing?

Benefits

  • You can build a larger portfolio than if you were using just your own funds;
  • Some lenders allow you to borrow using an existing share portfolio as collateral. This allows you to increase the size of your investment without having to deposit additional cash;
  • Manage concentration risk by diversifying your portfolio. For example, if your share portfolio is overweight in a certain sector and you do not want to sell the shares, you could use the equity in your current portfolio to borrow and invest in companies in other sectors;
  • Potential tax efficiencies associated with borrowing.

Risks

  • While a share investment loan can help accelerate the growth of your portfolio, it can also magnify losses if prices move against you and you can lose more than your invested capital;
  • Interest costs associated with your loan may reduce your profits. Interest rates are also subject to change, and can result in an increase in the cost of servicing your loan;
  • LVRs, or margin rates, are subject to change at the lender’s discretion. This can lead to a requirement for you to deposit additional cash at short notice. In some cases, your shares can be sold by the lender to satisfy your margin obligations. This can result in your shares being sold at a loss and you will still be required to repay the outstanding balance of the loan.

To find out whether gearing may be a suitable strategy for you, please Revolution Financial Advisers for a confidential chat.

Source: Macquarie Group Limited

Rent vs lifestyle – can you have it all?

By | Financial advice | No Comments

So you’ve found the apartment of your dreams. It’s a stone’s throw from the CBD’s trendiest shopping street, boasts fabulous views of the sea and comes with a fully-equipped kitchen boasting European appliances plus luxury spa bathroom. OK, it’s a bit pricey but it ticks all the boxes, and you can worry about the rental payments later. Meanwhile you need to make a decision as there are plenty of willing buyers in line behind you.

Now where do you sign…

STOP! You might end up living in a palace but if you can’t afford to buy a bagel in the local artisan bakery then maybe it’s time to rethink your priorities. If you’re spending a high percentage of your salary on rent then you might be leaving yourself short and unable to enjoy any kind of social life, let alone save up for goals like holidays, a new car or buying a place. Equally, if you’re living in a cockroach-infested dive miles from anywhere then you’re unlikely to be happy even if you’re saving loads of money.

So how much rent is right for you?

If you’re looking to other Australians for a guide, the cost of renting varies enormously around the country – the percentage of our income going on rent ranges from 37.9% of average weekly earnings in Sydney to 25.2% in Hobart.

Anyone looking for a central one-bedroom apartment in one of our state capitals could pay from $1,035 a month in Hobart to $2,681 in Sydney.

If you’re happy to live in the ‘burbs you’ll save money, with a one-bedroom apartment ranging from $1,029 a month in suburban Perth to $1,957 in…yes…greater Sydney.

Of course, in Tassie they do things a bit differently and you’ll actually save the price of a latte by moving into the city centre from the burbs.

But everywhere else you could potentially save on rent by living in a slightly less trendy area—anywhere from $368 in Adelaide to $725 in…no prizes for guessing…Sydney again.

Finding ways to spend less and save more

The reality is you may not be able to up sticks and relocate so easily. If you’re like most Australians, you probably have family and work commitments that tie you to your local area.

So there may be other ways you could find a better balance between rent and lifestyle and save money—whether you’re just off Bourke Street or ensconced in the ‘burbs.

There could be some ways you could save on nights out by taking advantage of deals or making more clear-headed late-night choices.

There could be some ways you could save on essentials by being a bit more disciplined with your budgeting. There could be some ways you could save on weekend family activities – a great lifestyle doesn’t need to be expensive, and if you’re within a stroll or ride of a fantastic beach or bushland then you’ve got regular afternoon entertainment on your doorstep, free of charge.

Making sense of your finances

Meanwhile, finding the sweet spot with your rental costs all depends on your personal circumstances and financial goals. A financial adviser can help you make sense of your outgoings and draw up a long-term plan to build your wealth.

Source: AMP

How much do I need to start investing?

By | Financial advice, Investments | No Comments

While investing might seem daunting, you don’t need a huge amount of money to start. Investing into traditional property might require a significant deposit, and a commitment to a long investment horizon, investing in shares, ETF’s, managed accounts or managed funds can be accessed with a much smaller outlay along with the benefit of shorter term access to the value of your investment should the need arise.

It’s all about knowing where to start, which is quite often the hardest step. But we all have the potential to be successful investors – all it takes to get started is being armed with the right knowledge.

Taking the first steps

While some prefer to take the first few steps alone, others seek professional advice before investing. Either way, it’s important to select an investment type after you have done your research, determined your personal goals, and weighed up how you feel about risk.

Considerations such as your investment timeframe, current market conditions, expectations of future market conditions, and your tolerance to capital loss, and volatility (both positive and negative movement in returns) all need to be taken into account when choosing the right type of investment. This step alone is critical in assessing your propensity to take certain levels of risk to achieve an expected return over a given timeframe.

As mentioned above, it doesn’t take a lot to get started. You can begin investing directly in shares, or a managed investment (offering a diversified range of investment assets including shares), with a lump sum of as little as $1000, or less when setting up a regular investment plan. You can also contribute regularly to steadily grow your investments and build a diversified portfolio – while taking advantage of the benefits of compounding returns.

Paying yourself first

If your budget isn’t quite working and you’re struggling to set aside funds to grow initial capital, there is an alternate strategy.

Called ‘pay yourself first’, instead of aiming to save whatever is left over after regular bills and expenses, consider setting aside a fixed percentage of your regular wage or salary as soon as you get paid. Better still, set up an online funds transfer with your bank timed with each pay day, so that this amount goes directly into your savings account – you may be surprised how quickly you can accumulate funds to start investing.

Doing the groundwork

Be sure to do plenty of research so you understand the market and assets in which you’ll be investing. You should also research the products you’ll use to invest in that market, such as a managed fund (you should always read the Product Disclosure Statement for the fund itself). For shares in a listed company, it might mean looking at companies’ annual reports, analyst research reports or on a stock exchange’s website.

The key point is, there’s a wealth of information you can, and should use, to help decide which investments to consider. This information should also provide insights into the risks and to some extent the tax implications of the investment you are considering.

Another critical piece of research and decision making driver when choosing the types of investments to use is looking at the costs of investing. Things such as brokerage when purchasing shares, management fees and buy/sell costs when purchasing managed funds are key when investing as when investing small amounts, fees can play a major part in impacting your initial outlay.

Source: BT, 2019

Can money buy happiness?

By | Financial advice | No Comments

Is money the key to happiness? Numerous research reports and studies agree having more money can lead to improved wellbeing, but only up to a point. It seems that once your personal income cruises past roughly the six-figure mark, you can’t expect to get any happier from having more. How you spend your money, on the other hand, can have a significant bearing on how you feel and your satisfaction with life.

Shopping for a new car, for example, might be something you get excited about for months in advance as you do your research, take test drives and weigh up options for colours. Once you actually own the car, the happiness hit from your pristine new vehicle might last for a few months. But according to psychologists, it won’t be long before a very human condition called hedonic adaptation will make your new car seem less special and satisfying. Once we actually own something, we quickly adjust to the reality of having it, reducing the happiness we experience from our purchase in the medium to long-term.

If you’re looking for ways to replace retail therapy with other types of spending to boost your happiness levels, here are four ways to spend money and add to your quality of life for longer.

Spend on experiences

According to a Harvard University psychology professor, switching spending goals from material possessions to experiences is one way to get more happiness from your dollars.  In his book Stumbling on Happiness, Professor Dan Gilbert reports that 57% of people surveyed felt greater happiness from buying an experience. His view is also backed up by a research study led by Dr Thomas Gilovich, psychology professor at Cornell University. Having investigated the relationship between money and happiness for two decades, Dr Gilovich concludes that spending on experiences makes you happier because they have greater potential to define who you are and connect you with the people who matter to you most.

Spend on your relationship

When It comes to maintaining a strong connection with your spouse or partner, how you spend money can definitely make a difference. For a start, it’s important to be honest about your money history so you can trust one another and plan for a financial future based on shared goals. But there may also be smaller and short-term ways for money to ease tensions between you. If you find yourself in conflict over whose turn it is to clean the bathroom or grab groceries on the way home from work, maybe it’s worth putting some of your joint budget towards a solution. Footing the bill for a cleaner or having the weekly shop home-delivered could be just what you need to bring a little extra harmony to your life as a couple.

Spend on others

Academic research has also found that spending money on other people – known as ‘prosocial’ spending – is also a path to greater happiness.  According to a 2014 research study led by Elizabeth Dunn, professor of psychology at University of British Colombia, “people who spend money on others report more happiness… and the warm glow of giving can be detected even in toddlers.”

Spend on peace of mind

One of the most important ways you can spend money and feel happier is by having a plan for financial security. The latest UBank Know your numbers index reported that more than half of Australians feel stressed and overwhelmed about their financial situation. One important way to get greater peace of mind about your money situation is to seek professional advice from a Financial Planner who is qualified to help you make the best decisions, for your current spending and future financial wellbeing.

So when you’re thinking about how you could bring financial literacy and empowerment to someone you love, the gift of a financial plan is well worth considering.  Our Gifts that Give survey found that more than four in five young Australians would like to receive the gift of time with a financial planner.

Source: FPA Money & Life

Managing finances with a significant other

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

When you’re in a long-term relationship, money talk can pop up. It could be anything from who’s covering date night dinners, to sharing household costs. After a while of splitting the bills, it could feel easier to start a conversation about bringing your finances together, so that you’re both on the same page.

Whether you’re just starting to think about joint finances, or wanting to make it happen, here’s some questions you may want to think about:

  • Why do we want to bring our finances together?
  • Will it make things easier to manage?
  • Does it mean we can start saving?
  • Could we plan for a better future?

If you’re both on-board, here’s how to get started:

Share your style:

The first step to financial togetherness is to share your income and outgoings with each other, and get on the same page.

Your earnings

The best way to do this is to start an open conversation about your earnings, so that both of you are in the know. It can also help to share information about any credit or loans in this chat too, so that you’ve got a good picture of what you earn, and what you owe.

Your spending

Then it’s time to share your spending style. If one of you is a saver and one is a spender, it helps to understand each other to be able to create a plan together that suits you both.

Set your goals:

When your finances come together so do your goals, so it’s imperative to understand what is important to each other now and in the future. If one of you wants spontaneous holidays, and the other wants a home, you’ll need to work together to prioritise, or work on how you can make them both happen. Remember to stay flexible because saving money is a journey and as you both change, your goals might, too.

Set-up your accounts:

Now that you’ve discussed what you want from your finances, it’s time to bring them together and create a plan. Depending on your goals and your spending-styles, you may decide to bring all of your finances together, or just a couple of accounts. Pick a way that works for you:

Combining everything

Some couples combine everything from their transaction accounts, credit cards and savings. This means that both salaries are now paid into one account. A joint-budget means you can plan for expenses such as rent, as well as your savings. Joint credit cards also mean that both of you are responsible for the debt accrued on the card (no matter who does the spending).

Creating a joint account

Other couples create a joint transaction account where they deposit a portion of their salaries to cover shared expenses like rent, bills and food, as well as a joint credit card for those sneaky date nights. Some choose a 50/50 split, others share a percentage of what they earn, but there is no right way, so do what works for you. This way, each person keeps their own bank account or credit card for personal expenses (this is great if one of you is more of a spender!)

Streamline your spending:

Whichever way you chose to merge accounts, you need to think about spending. Handy budget calculators can help you look at your spending habits, categories your spending, and give you a monthly budget after expenses. Make sure you’re both checking in, and keeping on track.

Plan for a shared future:

Once your day-to-day spending is ticking along nicely, it’s time to look to the future. Each month (after setting your spending budget) you should set a savings goal that you’re both happy with.

We hope these steps help to get you and your partner on the same page financially. While there’s a lot to look forward to in your financial future, go at your own pace and you’ll keep your wallet and relationships happy.

Source: ING

Buck the spending trends

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

According to recent research from Mortgage Choice and Core Data, 35% of Australians give in to the temptation to spend money to keep up appearances.  It seems that more than a third of us can’t help but follow the urge to upgrade our current lifestyle, even if that means missing out on important future goals like buying a home.  “Although it’s very tempting to keep up with trends, it can be a dangerous strategy to live for today and not have a strategic plan for your longer-term financial security,” said Susan Mitchell, Mortgage Choice CEO.”  “Worryingly, the research also revealed that 38% of Australians are choosing to forgo buying their own home in order to keep up appearances.”

Break the FOMO habit

When following spending trends has become a habit, it can be a tough one to break.  Being so focussed on what you’re missing out on, here and now, often means losing sight of what’s best for you in the longer term.  To give yourself a reset, try to get clear on what brings you joy in life right now and what you most look forward to.  The buzz you get from a new purchase is likely to be relatively short-lived.  Saving for bigger goals, like a holiday, or even your first home, can bring you memories and positive feelings that will last far longer.

Make stress part of the solution

You can also get motivated to change your ways by acknowledging any stress you’re experiencing as a result of your spending habits.  Getting spending under control takes time and practice and won’t make all your money worries disappear overnight.  But getting to grips with a basic budget, and a plan for clearing debts, will help you feel more in control of your current money situation and bring you greater peace of mind about your financial future.

Get goal-savvy

Getting clear on what your most important financial priorities actually are is just the beginning of working towards achieving them.  There are a whole host of techniques you can use to help you set clear, compelling goals and boost your chances of achieving them.  From writing goals down to setting frequent milestones for measuring progress, you can use these goal guidelines to set yourself up for success.

Make it a team effort

Recruiting friends to your cause can be one of the best ways to remove the urge to ‘keep up with the Joneses’ in how you spend.  If you and your friends are united in taking a more rewarding, long-term approach to spending and saving, this can remove the whole FOMO factor from the equation.  And if your circle of friends simply can’t bring themselves to join you on your journey to money wellbeing, there are plenty of online support groups available for sharing budgeting and saving tips and keeping you accountable.

Source: FPA Money & Life

Boost your savings for spring

By | Financial advice | No Comments

In the cooler months we spend a lot more time getting cosy inside.  Why not use some of that quality indoors time to give your finances and future plans a little love?

Dust off your budget

Has your budget been gathering cobwebs?  Or maybe you haven’t made one in a while, if at all?  There’s no doubt that making a budget is easier than sticking to one, so it’s easy to lose sight of our best laid plans.  Block out some time to review your budget and see where you’re killing it or where there’s room for improvement.  Bucket budgeting, which involves setting up multiple personalised accounts for different types of spending and saving, is a popular tool that many Aussies are using to keep their budgeting on track.

Weed out bad spending habits

Now that you’ve busted out your budget and know where your trouble spots lie, it’s time to have a look over your credit and debit card statements to work out exactly where you’re overspending.  A lot of overspending habits come down to convenience and being on autopilot.  Sometimes, it’s easier to grab takeaways on a Friday night than cook or you’re just in the habit of picking up that daily latte on your way into the office.  Once you’re aware of the things that trip you up, you can focus on building new behaviours that set you up for success, such as doing a weekly meal plan and shop.

Toss out old debts

If you don’t already have a debt payment plan in place, now’s the time to get on top of it.  There’s nothing like defeating debt to give you newfound financial freedom.  Some people make a list of all of their debts and what they cost, and then prioritise based on how much they can afford to pay off.  If you are not sure, you should consider getting independent financial advice.

Polish your savings plan

Okay, now it’s time to get creative about how you can boost your savings.  Side hustles are all the rage these days. Besides being a nifty way to make extra cash they can also allow you to explore a passion or hobby on the side. Whether it’s making and selling jewellery on Etsy or taking on jobs for extra cash via sites such as Airtasker, there are a host of ways to make extra income outside of your day job (just remember a second income stream could impact your taxes, so always check with an accountant to be sure).  It could be as simple as doing a big clear out and selling the excess on eBay or Gumtree. An ING Savings Maximiser is a great place to stash your newfound cash and keep it growing.

Gather your game plan

It’s much easier to stay on track when you have a clear view of your financial plan to keep you motivated.  Sit down and really have a think about which financial goals are the most meaningful to you and why.  Perhaps there are some you set previously that actually don’t hold as much weight for you anymore and can be de-prioritised?  A solid financial plan will encompass all of your goals from the short term (saving for your next holiday) to the long term (thinking about your super) with milestones along the way to help keep you on track.

Source: ING

Make Australia save again!

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

Are you one of the 20 per cent of Australians with less than $250 in their savings account?

Recent research from AMP Bank has found that one in five Australians isn’t saving any of their monthly income.

And we’re all different when it comes to saving.  People in Tasmania and Western Australia have the least amount of savings, while men on average have nearly 20 per cent more money saved than women.  Unsurprisingly, young people (those aged 18 to 24 years old) have the lowest savings balances with nearly a third having less than $250 in a savings account.

Why are we saving so little?

With low wage growth and the cost of living increasing, it seems Australians’ savings habits are changing.  AMP Bank’s research found that people’s wages are mostly used for everyday living costs and bills, while other costs such as school and day care fees were also called out as factors preventing people from saving.

Another reason people aren’t saving is that they’re actually paying down debts, such as their home loan, faster, due to our record low interest rates.

But we need to save to make sure our financial wellbeing is taken care of.  As AMP Bank CEO Sally Bruce points out, “For most Australians, having a pot of money to use when times are tough or to fund the nicer things in life such as a new home or a holiday can have a huge impact on health and morale as well as your wallet.”

Saving for holidays and rainy days

Saving is an important part of our finances.  It gives us a safety net when we need it or allows us to have enough money to afford the big things.

According to the moneysmart website (https://www.moneysmart.gov.au/), the top three savings goals of Australians are:

  • Whether close to home or on the other side of the world, a holiday is what a record 53% of people indicated they are saving for;
  • Rainy day fund. 46% of people nominated a rainy day fund, or emergency fund, as their top priority for savings;
  • Buy or renovate a home. The dream of owning property is still a goal for most Australians, with 40% of people saving to buy a home or renovate.

So what steps can we take to start saving?

  • Find the right savings account to suit your needs.  There are many different savings accounts available to you. Online savings accounts and term deposits could offer higher interest rates than a typical transactional account;
  • Set a savings goal.  Identifying your savings goal is the first step in creating good financial habits, plus you’ll know exactly how much you need and when you need it by so you can commit to reaching your goal;
  • Work out where the money will come from.  For most people, this might be the money left over from their pay after they’ve covered all their bills and expenses each month.  You could also think about getting a side gig for extra income, or cutting back on spending to free up more money;
  • Set up a regular savings plan.  Once you’ve identified your savings goals, you’ll need to work out the best method of saving for you.  The way you save might differ depending on whether your saving goals are long term or short term.  For example, a separate savings account where your money is readily accessible might be useful for a short-term goal.  A term deposit, where your money is tied up for a set period of time in return for higher interest, might be more suitable for a longer-term goal.

Make sure you’re getting the most out of your savings account

According to the research, more than a quarter (26%) of Australians currently don’t have a savings account.  Of those who do, nearly half (43%) don’t know their interest rate.

As Ms Bruce explains, “The more we can encourage Australians to take an interest in interest, the more they will be able to grow their wealth and reduce the impact of unexpected costs or afford the extra things in life they want.”

So, when looking for a savings account, some important features to consider are:

  • Does it offer attractive interest rates?
  • What fees might I be charged?
  • How do I access my money?
  • Is there a minimum or maximum amount of funds allowed in the account?
  • Will my savings be secure with the financial institution I choose?
  • Read more about choosing the right savings account for you.

Saving is an important part of your financial success.  Making small changes to build that safety net could help to improve your financial situation.

Source: AMP

How to get out of debt

By | Debt management, Financial advice | No Comments

In Australia, we’re pretty big on borrowing money.  According to figures published by Finder, Australia takes the number four spot in the top five countries with the highest levels of household debt.  So if you’re in debt, you’re certainly not alone in owing money.  As long as you’ve got money coming in to meet all your financial commitments, including loan repayments, being in debt doesn’t have to be a problem.

But falling behind on those payments, or finding yourself juggling too much debt along with bills and rent, can lead to serious short and long-term financial stress.  In this guide to getting out of debt you’ll learn about the steps you can take straight away to deal with debt problems.  You’ll also find out what to expect if your debts or bills remain unpaid.

What to do if you can’t pay

The most important thing when it comes to getting on top of debts is to act quickly.  Take one or more of the following steps as soon as you become aware that you’re struggling to keep up with payments. This gives you more time to understand your options and make the right decision without putting yourself under extra pressure.

  • Speak to your credit provider: contact your loan, credit card provider or utility company as soon as you can.  Even if you’ve already missed a payment, there’s a good chance you can speak to someone about coming up with a new installment plan you can afford;
  • Apply for a hardship variation: if you’re unable to keep up with payments because of unemployment, ill health or changes in your financial circumstances, you could be eligible for a hardship variation.  You can phone your provider to begin this process, but may need to make an application in writing.  The Financial Rights Legal Centre offers sample letters you can use for a hardship variation and for other situations like dealing with debt collectors;
  • Speak with a financial planner: when your finances get out of control, dealing with debts and unpaid bills can be scary and isolating.  If you’re confused about what to do, speaking to a financial planner could be the best course of action.  You can hear more about your options and find out about your rights and responsibilities when it comes to dealing with debt collectors and any legal action against you as a result of your debts.

Accessing super to pay debts

It’s generally the case that you can’t withdraw any of your super until you reach your preservation age.  However, there are two ways you may be able to gain early access to your super to pay off debts. The first is access on compassionate grounds, which includes ‘making a payment on a loan or council rates so you don’t lose your home’ as a legitimate reason for early access to a lump sum from your super.

You may also be able to withdraw super early on the grounds of severe financial hardship.  The Department of Human Services website provides guidance on what is considered to be financial hardship. You’ll need to apply to your super fund to make any arrangement for early withdrawal on these grounds.  It’s well worth speaking to a financial counsellor before making a decision to apply for early access to super as this could impact your future financial security in retirement.

What can happen if you don’t pay

  • Credit history: unpaid debts or bills that have been outstanding for more than 60 days will be included on your credit history for five years, even after the debt or bill has been paid.  When your provider is unable to contact you to request payment, this stays on your credit history for seven years. This will lower your credit score, which can impact your future ability to borrow money;
  • Repossession: when a loan is secured on an asset, such as your car or home, and you miss a repayment, a lender may take action to repossess that asset.  Once you’ve missed a payment, a lender must issue you a default notice and then give you 30 days following the date of issue to pay the overdue amount before taking steps to repossess the asset;
  • Debt recovery: if you do not make an installment plan for overdue debt or bill payments, or take any other steps to repay money you owe, your provider may arrange for a debt collection service to recover the debt.  Debt collectors are required by law to operate within strict guidelines in how they can contact you.  If you are experiencing threatening or intimidating behaviour from a debt collector, you can make a complaint to the Australian Financial Complaints Authority (AFCA) or your credit or service provider.

What to do about debt recovery

Unless you dispute a debt – and you can do this if you believe you don’t owe the money you’re asked to repay – it’s important to communicate clearly and honestly during all stages of a debt recovery process.  If you don’t, it’s possible your credit provider will seek judgement from a court to issue a garnishee order to recover the debt directly from your bank accounts or your salary payments.  The ATO can also take this action to claim unpaid taxes without seeking judgement from a court.

How long can debts last?

Unpaid debts can stay on your credit history for up to seven years, even once they’ve been paid in full.  In most cases, debts are consider ‘statute-barred’ if no payment has been made on the debt within the last six years and there has been no court judgement regarding the debt.  So if you have an ‘old’ debt and receive a request for payment, seek legal advice before agreeing you owe the debt or making any payment.

Source: FPA Money and Life

Retirement planning in your 50s

By | Financial advice, Preparing For Retirement | No Comments

While planning your retirement can mean different things to different people, more often than not, the type of retirement you can afford comes down to the plans put in place to set yourself up for the future.

How much you may need, how and when you can start accessing your super and having a plan in mind when moving into retirement are all things worth considering.

The first big question you might ask yourself at 50 is ‘how much do I need to retire’ and ‘how long will my money last?’

While a logical question, it’s often a difficult one to answer.  The amount you need will differ depending on the plans you have and the financial resources at your disposal.

You can find many retirement income estimates in financial commentary today, and while not necessarily personalised to your unique circumstances, these can help show the costs you may expect in retirement.

To personalise this approach, one of the simplest ways to estimate your retirement income needs is to take your current expenses and assume you may only need to fund around 70 per cent of these in retirement.

While this method is a broad but useful starting point, it doesn’t really help in determining the savings you need to generate this level of retirement income. It also ignores any other one-off retirement expenses you might expect to incur.

Another method is to take your current annual expenses and then multiply this amount by varying factors depending on the age at which you plan to retire. Taking into account a set of assumptions, this method provides you with an estimated capital amount to aim for in order to generate the retirement income you need.

Keep in mind the investment returns your savings generate and your actual level of expenses in retirement will have a notable impact on whether the projection ends up being right for you.

Your superannuation savings

Your 50’s also present an opportunity to start planning how much you may wish to contribute to your savings, repaying debt such as the mortgage against your home, and planning any final super contributions to boost your retirement savings.

Your super provides not only a tax-effective way to save for retirement, but also a tax-effective way to assist funding your retirement income needs once you reach an age at which you can access your accumulated benefits.

While your super is likely to form a cornerstone of your retirement income planning, it doesn’t need to be the only piece of your retirement income plan.  Savings and investments outside of super can also be used to provide you with alternative financial resources for your retirement, often tax effectively with the benefit of tax offsets available to eligible senior Australians.

Repaying as much of your outstanding debts as possible, can make a big difference come retirement.  While building your retirement savings, also consider a plan to proactively clear your debt by redirecting free cash flow to reducing the amount you owe, thereby strengthening your financial position.

After the age of 65, it’s generally those who continue to work who make additional contributions to super, so through your 50’s, have a plan around what final super contributions may mean for you.  While many of the external factors which contribute to the retirement landscape, such as the current regulatory environment or the performance of investment markets, may be outside of your control, focusing on the things you can control will go a long way to getting you the retirement you want.

Source: BT

Incorporating alternative investments in an SMSF

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

It’s no secret a diversified portfolio may help to protect your wealth from market ups and downs.

Including investment alternatives in your self-managed super fund (SMSF) may therefore provide additional diversification.

But what exactly are alternatives and what can they do for your portfolio?  We take a closer look under the hood to find out more.

How alternatives could fit within your self-managed super fund

Alternatives cover a very wide range of asset classes that could be incorporated within your self-managed super fund, should you choose to.  Their performance, as well as associated risks, can differ greatly.

As the name suggests, alternative investments fall outside of the traditional asset class sectors of shares, listed property, fixed income and cash.  Broadly, the different types of alternative investments include:

  • Commodities – which cover a wide range of assets such as live cattle, wheat, corn, soybeans, gold bullion, copper, aluminium, oil and coffee;
  • Infrastructure – covers services essential for communities such as airports, roads, power, hospitals and telecommunications;
  • Private equity – investments in unlisted companies that offer the prospect for increases in shareholder value.  Also known as “venture capital”, which is an early stage private equity investment;
  • Hedge funds – which aim to protect investment portfolios from market uncertainty, while providing positive returns during both upward and downward trends in the market;
  • Real assets – Direct property such as retail or commercial premises or facilities;
  • Other direct investments, such as artwork and antiques.

The benefits of alternatives in a self-managed super fund

The main attraction of alternatives is that they tend to be less correlated to the major asset classes of equities, bonds, property and cash.

Correlation refers to the relationship between the returns of two different investments.  For example, if two different assets move in the same direction at the same time, they are considered to be highly correlated.  On the other hand, if one asset tends to move up when another moves down, the two assets are considered to be uncorrelated.

So in periods when traditional markets trend downwards, allocations to alternatives may not move in the same direction, or may even move in the opposite direction which can potentially provide an extra layer of diversification for your self-managed super fund.

Importance of diversification in a self-managed super fund

The importance of diversification for self-managed super investors was highlighted in research conducted by Investment Trends and the Self-Managed Super Fund Association, where just one in five advisers considered their self-managed super fund client portfolios to be well diversified.

In addition, 64 per cent of self-managed super fund advisers acknowledged even a portfolio of 30 individual stocks many not provide sufficient diversification – particularly when combined with a strong bias of investing domestically.

And the drawbacks

While alternatives can be an attractive diversification method, they also carry some risks. In addition, as they’re often not traded on an open market such as the ASX, it may be more difficult for investors to sell these investments and cash out.  But just like any investment, the potential for a higher return or complexity of the investment strategy generally carries a higher level of risk.

Getting access to alternatives for your self-managed super fund

While alternatives have been historically used by institutional investors such as super funds, pension funds and government sovereign funds (e.g. our own government’s Future Fund) their higher initial investment served as a barrier for many self-managed super fund investors.  For example, investing in an infrastructure project such as a new airport could cost hundreds of thousands, or even millions of dollars.

But gaining exposure to different markets and asset classes, including alternatives within your self-managed super fund has now become easier.  Thanks to managed investments and exchange-traded funds, you can gain diversification across asset classes, locally and globally.

In summary

Alternatives may be a useful diversification tool in a broader self-managed super fund due to their lower correlation to traditional sectors.  But like all investments, they’re not risk free so you may find it worthwhile to speak to your financial adviser about your current portfolio to determine if investing in alternatives is suitable for you.

Source BT

How you can benefit from share market fluctuations

By | Financial advice, Investments | No Comments

When share markets experience a downturn, it’s easy to get nervous about the impact on your investments.  But this kind of volatility doesn’t always necessarily spell bad news – as billionaire entrepreneur Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.”

While it may seem strange to buy when everyone else is selling up, the fact is that even a declining market can present opportunities.  The key is to choose a mix of investments that allows you to take advantage of both positive and negative market movements.

Here are some strategies that every savvy investor should keep in mind.

Understand share price changes

When markets are driven lower by negative sentiment, assets can potentially fall below their fundamental value. These conditions may then provide valuable opportunities for investors to temporarily buy shares at a discount.

This is because the value of an individual stock is the sum of the returns it can potentially generate over the company’s lifetime.  So while short-term shockwaves such as recessions or political events can affect the immediate share returns on an asset, they won’t necessarily impact its intrinsic worth.

But be careful as this doesn’t mean you should buy anything and everything that’s on sale.  For instance, a company’s share prices may be falling because of other factors that will erode the long-term potential of those shares.  And with any investment, you want to be reasonably confident that its value will rise in the future.

Investment managers and financial advisers work hard to identify undervalued assets and take advantage of market dips.  That’s why it’s always important to seek professional advice before you make any major investment decision.

Take a long-term view

A down market offers the potential to earn greater returns than an up market.  This is because, theoretically speaking, the lower your starting point, the higher your stocks can move.  However, this is usually only true if you adopt a long-term investment strategy that will help you ride out any future market fluctuations.

Despite periods of short-term fluctuations, historically share markets tend to move upwards, and shares are an investment vehicle designed to be held for periods of five years or more.  So, whether the market is up or down, you may be wise to ‘buy and hold’ so you can increase your potential for strong returns in the long run.

Diversify your portfolio

Even the most seasoned investor knows how difficult it is to time the market.  Rather than trying to predict future movements, some say it helps to take a measured approach by investing regularly over months and years, regardless of how the market is performing.  So if you continue investing consistently when prices fall, you’ll be able to buy a larger number of shares for the same amount you usually invest.

It can also help to diversify your portfolio by investing in defensive assets such as fixed-interest investments and cash.  These tend to be less dependent on market cycles, so they can provide stable earnings through periods when markets are on the move.

Most importantly, remember that a financial adviser can help tailor your investment strategy so you can make the most of market movements.  Your adviser can also ensure your portfolio is robust and diversified, so you can protect your investments and keep your financial plan on course.

Source: Colonial First State

Buy, sell or hold: How to deal with market movements

By | Financial advice, Investments | No Comments

When share markets fall, every investor has a different emotional response.  Some investors get anxious and sell up at the first drop in value, whereas others are happy to ride out short term fluctuations to realise the long-term benefits of their investments down the track.

One of the reasons for these different reactions is that all investments carry some level of risk, and we all have different perspectives on how much risk we’re willing to accept.  This is because many personal factors can impact our investing style – from our financial situation and investment timeframe to our lifestyle goals and even our personality.

But when markets are in flux, how do you know if it’s time to change your strategy?  Here are some things to keep in mind.

How do you react to market fluctuations?

A study by Colonial First State Global Asset Management (GAM) examined how a recent period of market movements impacted people’s investment decisions.

The results showed that as confidence declined, portfolio activity increased as more investors moved away from the stock market.  In fact, the group most likely to switch out of shares were investors aged 50 and over.  This is perhaps because they were seeking to preserve their capital and minimise their risk exposure as they headed towards retirement.

While investors of all ages often respond to uncertainty in the market by taking a more active approach to their investments, this may not always work in their best interests.  Not only is switching costly, but it can also mean missing out on opportunities when the market recovers.

What happens if you sell?

Before you withdraw from an investment, it’s important to make sure you understand all the implications, including the risks and costs involved.  For one thing, if you sell your asset you may be liable for capital gains tax (CGT), which can reduce the profit you stand to make.

What’s more, even if you’re only planning to sell off part of an investment, it’s not just the face value you’ll be giving up.  You’ll also miss out on the benefits of compounding, which means you won’t be able to earn further returns on the shares you sell.

But that’s not all: if the value of your investment is falling, this is only a hypothetical or ‘on paper’ loss.  If share prices begin to rise again, your investment could soon return to profit without you doing anything.  However, if you sell your investment while its value is down, you essentially crystallise your losses – making them real and irreversible.

Are there alternative options?

When tailoring your investment mix, it’s important to focus on the big picture and think long term.  That way, you’ll be able to ride out short-term fluctuations and take advantage of growth opportunities.

If you’re investing for the long term – for instance, with your superannuation – it’s important to have a diversified portfolio.  This means investing in a variety of different asset classes. GAM’s research revealed that Australian investors tend to react to uncertainty overseas by reducing their exposure to international shares.  But while this may seem like a sensible move in theory, it also means your overall portfolio will become dependent on a smaller pool of asset classes.

On the other hand, a diverse portfolio allows you to spread your risk exposure across different asset classes and markets, rather than putting all your eggs in one basket.  This provides a financial buffer whenever an individual asset class declines in value.

If you’re thinking about changing your investment strategy, a financial adviser should be your first port of call.  They can review your portfolio to make sure you have the right investment mix, taking into account your financial goals, investment timeframe and risk appetite.

Source: Colonial First State

8 easy steps to take control of your super

By | Financial advice, Superannuation | No Comments

Want to make the most of your super? Here are eight steps on how to take control of your super, check your super balance and get it sorted to make sure your retirement savings are on track.

1 – Understand how superannuation works and what the benefits are

Your super builds up throughout your working life through a combination of superannuation guarantee (SG) contributions made by your employer and any voluntary contributions you choose to make.  Any time money is deposited into your super account, it’s invested on your behalf by a trustee from your super fund.  Investments can be made into property, shares, cash deposits and other assets depending on your default investment profile, or where you’ve specifically chosen to invest.  When your investments generate returns, your super balance grows.

Your super is important because it’s an investment in your future, and can help you enjoy a comfortable life in retirement.  Many people think of their super as an investment they don’t need to worry about until retirement, but it pays to get better acquainted now.  The earlier you get on top of your super, the more effectively you could grow your retirement nest egg.

2 – Check if your employer is paying your super

The SG contributions made by your employer are the foundation of your future savings, so it’s important to check they’re being paid correctly.  You can do this by reviewing your pay slips, which should show the amount of super being paid into your account.  This should be at least 9.5% of your ordinary (not overtime) earnings if you’re aged over 18 and earn $450 or more each month.

3 – Check how much super you have today

Keeping track of your super balance is an important step towards taking control of your super.  In many cases you can check this online with your super fund, or via the statements they send you.

It’s one thing to know what your balance is, but another thing to understand whether it’s on track to help you achieve the kind of retirement lifestyle you’re hoping for.

4 – Find lost or unclaimed super

It can be easy to lose track of your super, and for your super fund to lose track of you.  This could happen when you change jobs, as you might opt for your new employer to make SG contributions into a new fund and forget to roll over what you’ve accumulated in a previous one.

If you change jobs and wish to remain with your existing super fund rather than have your employer set up a new one for you, ask your employer for the necessary forms to fill out, and have your existing super fund account details handy.

You can search for lost or unclaimed super by doing a super search with your current super fund or by logging into your MyGov ATO account to find your super funds.

5 – Consolidate your super into one account

Of the 14.8 million Australians with super, around 40% have more than one account.  If that’s you, there may be advantages to rolling your accounts into one super fund.  These include paying one set of fees, which could save you hundreds of dollars each year and even thousands over many years.

Consolidating your super also makes it easier to keep track of your overall balance, and could save you money in insurance premiums if you have insurance cover through several super funds.

6 – Check the insurance cover in your super

Your super account may include a range of personal insurance options, which are paid for from your account balance.  Super funds generally offer three types of insurance cover – life insurance, total and permanent disability, and income protection.

Insurance through super can often be cheaper than personal insurance bought outside super.  This is because super funds purchase insurance policies in bulk, and they are usually available without health checks.

7 – Keep your beneficiaries up-to-date

How your super is distributed in the event of your death is known as nominating your beneficiaries.  It’s important to notify your super fund of your choice and keep it up-to-date if your circumstances change, as super is treated differently to other assets in your will.

There are two types of beneficiary nominations you can make: binding and non-binding.

If you make a binding nomination, your super fund is required to pay your benefit to the person or people you’ve nominated, as long as the nomination is still valid at the time of your death.  Bear in mind that you can’t always make binding nominations and that they generally only remain valid for three years.

If you make a non-binding nomination, your super fund will make a decision about who to pay your death benefit to.  Your benefit will be paid to those people considered to be financially dependent on you and, in some cases, this might not be the person or people you’ve nominated.

8 – Review your investment options within super

Most super funds allow you to choose how your super is invested, and generally, the main difference between the investment options will be the level of risk you’re willing to take on.  Many people choose to take on higher risk investments with the potential for higher returns while they’re younger, then change to more stable investment options with lower returns as they move closer to retirement.

Remember that the most appropriate investment option may change depending on the economy, your age, circumstances and stage of life, so it’s worth considering and reviewing your investment options regularly.  Staying on top of your super may give you a better chance of building money for a comfortable future.

Diversification – why it should be your best friend

By | Financial advice, Investments | No Comments

Diversification is the act of spreading the money you have to invest across a number of different types of investments.  For example, rather than putting all your money into shares in one company, you split it across multiple shares in companies which operate in different industries or different countries.  You might also spread to other types of investments like bonds or property.

Why do this?  Because different investments behave in different ways.  When one peaks, another may plummet, while another stays flat.  Some provide investment returns in the form of income (for example, dividends or rent), others through increasing in value.  Diversification ensures that an investment portfolio is not at risk of suffering too much if one or more of its parts fall in value.

Diversify, yes – but also think of your objectives

Diversified investment portfolios vary substantially, but can be grouped according to what the owner (the investor) wants from their portfolio and how much risk they are prepared to take on. Broadly speaking, we can bucket portfolios under one of three labels: conservative, balanced and growth.

Conservative portfolio:

This may have the bulk of its money (70% or more) invested in cash and fixed interest (bond) investments, with the rest in growth assets such as  shares and property which are, generally speaking, more volatile.  This type of portfolio is designed to achieve lower variability in returns, albeit with lower returns than balanced and growth portfolios.

Balanced portfolio:

As the name suggest, more of a balance, with around 30% – 40% invested in cash and fixed interest and the remainder in growth assets, with slightly more varied returns through time.

Growth portfolio:

The alter-ego of the conservative portfolio, this kind of portfolio will typically have at least 70% – 85% in growth-oriented investments, aiming to provide higher returns over the long term, but with a greater likelihood of shorter term volatility. This means in some years you could see losses – even significant losses – but also higher returns in the good years.

The traps of diversification

When you manage an investment portfolio on your own, there are many risks to contend with.  First is a basic lack of knowledge.  ASIC research shows that 10% of people have at some point invested in something they didn’t understand, and 69% of people either had not heard of or did not understand the concept of risk and return trade-off.  Furthermore, some 41% of people view real estate as a low or very low risk type of investment.  A lack of knowledge and experience means many investors could be open to:

  • Buying into an investment before prices drop significantly, or selling before they increase (known as timing risk);
  • Failing to understand which investments are low risk and which are considered high risk;
  • Investing too much in one investment simply because it has already performed well.

The concept of not putting all your eggs in one basket seems logical, but working out how you do this with your own money and actually doing it – yourself – takes a lot more effort.  A financial planner can sit down and help you work out what you want from your money over time and define your financial goals.  Furthermore, Australia has a well-developed market for investment products, including managed funds, to provide one-stop diversified investment options for individuals.

About managed funds

Investing in a managed fund allows you to access investment professionals to manage your money.  In a managed fund your money is pooled with that of many others.  The investment manager controls where this pool of money is invested, using their investment process and experience to the mutual benefit of the investors.  The investment manager cannot just invest where they please; each managed fund has its own governance structure, rules to abide by and specific investment objectives – like providing long term growth, or regular income.

There is a wide range of managed funds available including well diversified options such as conservative, balanced and growth funds.  You will pay a fee for ongoing management, but beyond the investment manager’s expertise, what you buy is freedom to ‘get on with life’, as managed funds are one of the easiest ways for time-poor or knowledge-poor people to establish and manage a diversified portfolio.

Source: BT

What kind of money parent are you?

By | Financial advice | No Comments

Many parents approach the topic of money differently, but could your way of doing things influence your kids’ success?

The majority of Aussie mums and dads recognise that they’re accountable when it comes to shaping their children’s perspective around money matters.

A recent report published by the Financial Planning Association of Australia (FPA), revealed parents listed themselves (95%), followed by grandparents (63%) and teachers or coaches (59%) as the top three biggest influencers when it came to instilling money values in their kids.

What money conversations are parents having?

As part of the research, parents said they mainly concentrated on day-to-day issues when talking money with their children, admitting that more contemporary issues, such as making transactions digitally, were sometimes overlooked.

What parents said they discussed:

  • 52% – how to spend and save
  • 43% – how to earn money
  • 32% – how household budgeting works
  • 24% – how much people earn
  • 19% – making online purchases
  • 13% – in-game app purchases
  • 5% – buy now, pay later services, such as Afterpay.

What approach do you take with your kids?

The research undertaken indicated that there were four prominent personalities parents assumed when discussing money with their children, with some parents initiating conversations more frequently, while others were sometimes a little more hesitant.

The four distinct personalities that came out of the research included:

The engaging parent

Common traits:

  • You have the most conversations around money with your kids and feel comfortable doing so
  • You tend to have a higher household income
  • You’re more likely to use money to encourage good behaviour in your children
  • Due to high engagement, your kids are often more financially prepared than other kids
  • Your kids have a greater interest in learning about all types of money matters.

The side-stepping parent

Common traits:

  • You are less comfortable talking to your kids about money so have fewer conversations
  • You may have less money coming in as a household
  • You’re less transparent about what you earn and money matters in general
  • You tend to provide the least amount of pocket money and as a result your children may be less interested in learning about money and how to make transactions.

The relaxed parent

Common traits:

  • You’re comfortable talking to your kids about money but don’t do so too often
  • You take a relaxed approach to money matters and are transparent about money issues
  • There is little financial stress in your home
  • Your relaxed nature may lead to your children missing out on opportunities to learn about money, which means your kids may need to explore money matters on their own.

The do-it-anyway parent

Common traits:

  • You’re not always comfortable talking about money but still have frequent conversations
  • You’re mainly concerned your child will worry about money if you talk about it
  • Despite your discomfort, your perseverance generally pays off
  • Your teenage children are more likely to have a job than the average child.

What approach is best according to the research?

Engaging parents were more likely to report that their children were more curious, confident, and financially literate than they were at their age.

According to parents who fell into this category, their children were the most equipped to understand and transact in today’s digital world and their teenagers were the most likely to have a job and make online purchases for themselves or their family.

In addition, the research found children with a paid job outside of the family home were more financially prepared to engage with money.

They were also used to transacting digitally and showed greater interest in learning about paying taxes and superannuation than those who didn’t have a job.

Source: AMP

7 step guide to buying your next home

By | Financial advice | No Comments

Decided it’s time to find a bigger place, a more convenient location or a larger backyard?  Maybe you’re an empty nester looking to downsize?  Maybe you want to make that long thought about sea or tree change?  For the many Australians these can be very enticing thoughts.

To help you plan your strategy and explain your options, here’s a step-by-step guide to the process, to get you on the road to your next home.

Step 1

Figure out what you’re looking for

Buying your next home is a major life decision.  So the first thing you need to ask yourself is why do you want to move and what are you looking for in a new home.

Take a moment to list what your main priorities are for a new home, for example more space, closer to the beach or quicker work commute.  This allows you to start doing your real estate research – to see, for example, how much the property you’re looking for is likely to cost, in the area you want to move to.

Once you’ve figured out what you’re after, you might come to the conclusion that you’re basically happy where you are, and would be better off renovating your home to make the changes you need.  Or, it may help make it even clearer that it’s time to move.

Step 2

How much equity do you have?

If your current home has increased in value over the years or you’ve made extra mortgage repayments, you may hold significant equity in your current home.

You may be able to use this equity in the process of purchasing your next home, for example as security for your next loan, or to help with your deposit.

Step 3

How much can you really afford?

Now that you have a rough idea of what the home you’re looking for will cost, and the equity you have available, you need to get an understanding of how much you can afford to borrow and repay.

Another consideration here is your income.  As a rough guide, it’s suggested that repayments on your new home don’t exceed 30% of your after-tax salary.  It’s also worth noting that it’s generally recommended that your home costs no more than 3 to 5 times your household income.

Step 4

Are you selling or buying first?

Now you know your budget, next comes the age-old upgraders’ question.  Is it better to sell or buy first?

Selling your current home first is generally considered the safer option, while buying first may give you more opportunity to find your ideal next home.  But there are pros and cons to both.  And the current state of the housing market is also a big consideration.

Step 5

Get your finances sorted

Alright you’re getting serious now.  Even if you’re in the ‘sell first’ camp, you need to start thinking about getting your finances in place to buy – as you may want the gap between the two settlement dates to be as close as possible.

Getting a home loan pre-approval from a lender is a great way to get the confidence to start your property search.  Pre-approval is an indication of your ability to borrow funds from a lender (based on the information you’ve provided them)  It will allow you to shows real estate agents and buyers that you’re in the game and are more likely to afford the property.  It allows you to bid at auction and gives you an idea of what price range to keep your property search within.

If you’re buying first, it’s a bit different.  You will need to think about how you’re going to pay your deposit and potentially organise bridging finance with a lender, so you can juggle two loans at once.

Step 6

Start searching for the new (or preparing for sale)

You’ve got your pre-approval sorted, now the search begins.  You’ve got a good idea of what your budget is and what you’re looking for, which helps narrow the field.  Now it’s just a matter of finding the home that’s right for you.

You may have to attend quite a few open homes and it can be hard to remember which home is which.  So a good tip is to keep a little checklist of the things you like and dislike with each home and take lots of photos to help trigger your memory.

At the same time, you may be getting your current home ready to sell, depending on your strategy.  If you’re selling and buying at the same time, it can be quite stressful.  So it’s important to do as much as you can to get your finances sorted and do your research upfront so you’re ready to go when you find your dream home.

Step 7

Make an offer and finalise your finances

You’ve found a home you like.  It ticks all your boxes, or most of them, and it’s in your price range.  If you’re confident that this is the home you want and can afford, and all the inspections check out it’s time to make an offer.  Once you’ve agreed on a price with the seller, link in your lender to ensure all the finance is assessed and approved so that you can get ready for settlement.

If you have yet to sell or rent out your home, time to get that in full swing to minimise financial losses and get ready to move into your new home!

Source: ING

6 misconceptions about life insurance

By | Financial advice, Wealth Protection | No Comments

The probability of you developing a serious illness or getting involved in an accident so severe you’re unable to work, may seem highly unlikely…..until something happens.

It’s often small events that remind us we’re not completely in control of these possibilities, which is exactly what life insurance is for.

Unfortunately, there are a lot of misconceptions about life insurance which can lead to missed opportunities to protect ourselves and our dependants.

In this article, we’ll set the record straight for six of them.

1 – You don’t need insurance if you don’t have dependants

If you don’t have anyone financially depending on you, you may be under the impression that you don’t need life insurance, but it’s not always the case.  There are other financial commitments which could make it worth considering.

For example, if you fall sick or become injured for an extended period of time and are unable to work, you’ll still need to meet day-to-day expenses.  Having Income Protection may therefore help you in covering a portion of your income.

2 – Life insurance is set-and-forget

Unfortunately, it’s not enough to stuff your life insurance policy in a drawer and forget about it.

Adjusting your policy is extremely important as your needs change.  If you decide to reduce your level of cover though, make sure you’re not leaving yourself exposed.  For instance, even if your children are no longer financially dependent on you, your spouse may still need financial support if you were to pass away.  Reducing the total amount your cover could also place you at risk if it’s not keeping up with inflation.

Speaking to a financial adviser can help you determine how much cover you actually need, if you are considering reviewing your life insurance.

3 – Naming your child as a beneficiary is a good option

If you name your child or grandchild as your primary life insurance beneficiary, complications can arise if you pass away before they turn 18.

In most circumstances, if your child is under the age of 18, the courts will appoint a guardian or custodian to look after how the money is managed.  Restrictions, legal fees and other costs may take a significant amount of your life insurance proceeds, at your child’s expense.

A solution you could consider is to set up a trust on behalf of your dependants, which you can name as the recipient of your life insurance proceeds.  This can provide financial security for those who can’t or don’t want to handle large sums of money or other assets.

4 – You don’t need insurance because you’ve paid off your debts

While your need for life insurance may reduce once your kids have grown up and you’ve paid off your debt, it’s still worth considering it to cover things like everyday living expenses, any outstanding debts, medical and funeral costs.

Rather than removing it completely, you may therefore need to simply reduce it, depending on your needs.

5 – You’ve got life insurance covered through super

Many super funds offer life insurance cover which is often cheaper than being insured outside of super.  Your premiums are also deducted directly from your super rather than a bank account and there are some tax benefits too.

But it is possible that the amount of life insurance cover you have available through super, may not be sufficient for your needs.

So if you’re unsure about it, consider finding out exactly what you could receive if you were to make a claim and compare this to what you actually need.  Revolution Financial Advisers can help you with this.

6 – You only need to insure yourself if you’re the breadwinner

If a dependant, such your spouse or child falls sick, you want to ensure that you’re able to care for them.

Child cover for example, can provide a lump sum if your child suffers a serious illness or injury (refer to the product PDS to see if this is an option and what it covers).  The money may also help you take time off work to focus on what matters most.

Of course, there is an added expense to insuring your family members under your policy, so consider whether it is worthwhile.

Source: BT,