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Financial advice

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.

SMSF and property

An insight into your SMSF purchasing business property with borrowed funds

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

Superannuation legislation now permits self managed superannuation funds (SMSF’s) to borrow to invest, as long as certain requirements are met.  If you are a small business owner, you can potentially use these rulings to help purchase your business premises, via your SMSF.

How?

Your family company wants to release liquidity that is tied up in your business premises, which is unencumbered.  Your SMSF holds a substantial amount of cash and purchases the business premises from your company using an instalment arrangement that must meet particular conditions.

The SMSF makes a partial payment on the business premises and borrows funds to pay the balance plus the other acquisition costs, using the business premises as security under a limited recourse loan.  In the event of default, the lender only has recourse to the business premises and cannot claim any other SMSF assets.

The business premises are held in trust for the SMSF which is entitled to its income.  Your SMSF makes the loan repayments, paying off the loan over the agreed period.  After the loan is repaid, the legal ownership of the business premises can be transferred to the SMSF.

Consider this strategy if you:

  • Are a trustee of a SMSF;
  • Are a small business owner;
  • Want to purchase business property or transfer current premises to SMSF;
  • Have a long-term investment period.

Why consider this strategy?

  • The strategy could potentially unlock cash for your business;
  • Your SMSF does not invest all of its assets in the premises; it is possible to diversify into other asset classes;
  • SMSF assets are secure as the lender does not have recourse to your SMSF’s assets in the event of default;
  • Rental income from the property can be put towards the loan;
  • Your SMSF is entitled to all income and is liable to pay any expenses relating to the property;
  • Your SMSF is not obligated to pay additional instalments if it would incur losses in relation to the investment. The SMSF can walk away from the It may receive the residual amount after the premises have been disposed and the lender paid the amount owing;
  • Once the SMSF acquires the premises, income after expenses and any capital gain on disposal of the property would be taxed at concessional tax rates 0% to 15%.

Details

  • Your SMSF trust deed must permit borrowing under an instalment arrangement;
  • A suitable legal and/or accounting professional should establish the appropriateness of the trust Investment in the business premises should align with your SMSF’s investment strategy;
  • The instalment arrangement must meet certain requirements to ensure that the SMSF remains complying;
  • As Trustee, you must be acting in the best interest of the SMSF beneficiaries;
  • Your SMSF requires sufficient cash flow to service loan repayments over the term of the loan;
  • Ensure future cashflow to cover any future contingencies i.e. interest rate increases or gaps in income;
  • Any loan arrangements may be subject to the provision of personal guarantees, which could expose individual guarantors to potential personal liability;
  • You should undertake an analysis of the strategy – considering both the positive and negative outcomes.

Looking at an example

Mr and Mrs Smith own Smith Co, which is a hardware business.  The company currently operates from a shop it owns.  The shop was acquired 20 years ago and has been paid in full with a current market value of $750,000.  The Smith’s need capital to expand their business and want to unlock the equity in the shop.  Their superannuation is held in the Smith SMSF, which holds $750,000 in cash and other investments.  They want to transfer ownership of the shop to the SMSF.  Stamp duty and transaction costs are estimated at $50,000.  The SMSF purchases the shop under an instalment arrangement that meets prescribed conditions.  A trust is set up to hold the shop on behalf of the SMSF.  To fund the purchase, the SMSF uses $400,000 in cash and a $400,000 limited recourse loan.  While the trust holds legal ownership of the shop, the Smith SMSF has beneficial entitlement to it.  The SMSF leases the shop to Smith Co at commercial rates.  The SMSF makes loan repayments utilising rent less expenses and the additional income and contributions from the SMSF.  Once the loan is paid off, the trust transfers legal ownership of the shop to the Smith SMSF.

Seek Financial Advice

There is an array of complex regulations surrounding superannuation and SMSF strategies.  At Revolution Financial Advisers, we can provide advice about SMSFs that is specific to your situation.

Commercial building

SMSF limited recourse borrowing

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

Given the growing focus on SMSF limited recourse borrowing arrangements (LRBA) in the media and the repercussions if the rules are not followed, the below provides an overview of this strategy noting benefits and risks.

What is an SMSF limited recourse borrowing arrangement?

An SMSF LRBA usually involves an SMSF taking out a loan from a third party lender or a related party, such as a member of the fund.  The SMSF then uses the loan, together with its own available funds, to purchase a single asset (i.e. a residential or commercial property) that is held in a separate trust.

Benefits associated with a LRBA Strategy

  • Leverage Superannuation savings – An SMSF LRBA allows the SMSF to borrow for investment reasons.  Borrowing to invest (“gearing”) your Super savings allows the fund to acquire a beneficiary interest in an asset that the fund may not otherwise be able to afford (i.e. business premise you own or operate from);
  • Tax concessions – Investment income received by an SMSF, including any income received because the fund holds a beneficial interest in an asset acquired under a LRBA, is taxed at the concessional Super rates;
  • Asset protection – Superannuation assets are generally protected against creditors in the event of bankruptcy.  This protection extends to assets that the Superannuation fund has acquired a beneficial interest in.  Hence, structuring the acquisition of an asset under a LRBA may provide greater asset protection benefits than may otherwise be available.

What are the key risks?

  • Details – Only assets that the SMSF trustee is not otherwise prohibited from acquiring can be used.  Usually, this means assets that you or a related party currently own cannot be acquired under a LRBA.  However, some exceptions do apply to business premises and listed securities that you or a related party own;
  • Property alterations and funding improvement costs – Assets acquired under a LRBA cannot usually be replaced with a different asset.  In a practical sense this means, during the loan term, alterations to a property acquired under a LRBA are prohibited if it fundamentally changes the character of the asset;
  • Cost – Be wary of additional costs associated with acquiring an asset under a LRBA that otherwise do not apply.  For instance, an SMSF LRBA requires a separate trust to be established and the drafting of separate legal documents such as trust deeds and company constitutions (if the trustee of the separate trust is a corporate trustee);
  • Liquidity – Loan repayments are deducted from your fund, so it’s important to ensure your fund always has sufficient liquidity to meet the repayments.  Careful planning is needed to ensure contributions and the fund’s investment income is adequate to meet the loan repayments and other existing and future liabilities as they occur;
  • Loan documentation and purchase contract – The Australian Taxation Office has noted that certain LRBA entered into by SMSF trustees have not been structured correctly.  Some of these arrangements cannot easily be restructured or rectified and unwinding the arrangement could require that the property be sold, resulting in a substantial loss to the fund;
  • Tax losses and capital gains – Any tax losses which may arise because the after-tax cost of the property exceeds the income derived from the property are quarantined in the fund.  This means the tax losses cannot be used to offset your taxable income derived outside the fund;
  • Governing rules and other matters – Trustees should always consider the quality of the investment they are making and whether entering into a LRBA is appropriate with the investment strategy.

An SMSF LRBA is a strategy that may assist members to increase their retirement savings; however, there are many risks and issues that should be evaluated before pursuing such a strategy.

For further information on SMSF LRBA, please contact Revolution Financial Advisers.

Keys to de-stressting a mortgage

Keys to de-stressing a mortgage

By | Financial advice | No Comments

According to a paper1 for the Centre of Policy Development and University of Canberra, Australians have a tendency to be over-confident in our ability to repay loans. We also underestimate the likelihood of things potentially going wrong in our lives.

Have you ever heard yourself or someone else say “I’ll be able to repay my loan, provided I keep my job, don’t get sick and I’m not hit with any large unexpected bills”? Chances are you probably have. But things can and often do go wrong.

Causes of mortgage stress

A study2 was completed for the Royal Melbourne Institute of Technology (RMIT), which looked at the specific triggers that have resulted in Australian households being unable to meet their mortgage repayments. Survey respondents were asked the initial causes and, if they changed, what the final causes were. They were also able to identify more than one cause.

How to reduce mortgage stress

Like most things in life, it’s difficult to make borrowing a stress-free exercise, but there are a few things you might consider that may help to reduce the angst.

1.   Build up a buffer

It’s a good idea to hold (or build up) a cash reserve in a mortgage offset account to provide a buffer that can be drawn upon to meet your loan repayments if you become ill or are off work for other reasons.

2.   Take out personal insurances

It’s important to ensure your income (which is what services your debts) is not compromised due to certain events beyond your control. One way to do this is to ensure you have adequate personal insurances. Key examples include:

  • Income Protection Insurance which can replace up to 75% of your income if you are unable to work due to illness or injury. This can ensure you are able to continue meeting the majority of your living expenses, not just your loan repayments;
  • Critical Illness Insurance which can help you service or pay off your loan and meet a range of expenses in the event you suffer a specified illness, such as cancer or a heart attack;
  • Total and Permanent Disability Insurance which can help you service or pay off your loan and provide an ongoing income if you become totally and permanently disabled;
  • Life Insurance which can be used to service or pay off your loan and provide your family with an ongoing income if you pass away.

3.   Take out mortgage protection insurance

Many lenders offer insurance when you take out a home loan that covers the mortgage (often up to a specified amount and for a particular period of time) if you die, become disabled or your employment ends involuntarily.

4.   Fix the interest rate

Fixing the interest rate on your home loan can provide protection against rising interest rates. The downside is there are often restrictions on making additional payments into a fixed rate loan, which would limit your capacity to build up a buffer. Many people find a combination of fixed and variable rate loans works best, as additional repayments can be made into the variable rate portion of the debt.

5.   Don’t add fuel to the fire

Over 40% of the people who completed the RMIT survey responded to the initial difficulty in meeting mortgage repayments by using credit cards more often than they normally would. Using debt to service debt is very likely to compound the problem.

6.   Review your situation

At the first sign of a problem, it’s essential to seek advice, as there may be a range of potentially viable options to explore. Better still, you may want to seek advice before you decide how much to borrow.

How can we help?

We can help you assess your budget and cashflow situation and determine your affordability level. We can also determine your insurance needs and advise you on a range of other financial matters.

  1. Source: Understanding human behaviour in financial decision making: Some insights from behavioural economics. Paper to accompany presentation to No Interest Loans Scheme Conference “Dignity in a Downturn” June 2009. Ian McAuley, Centre for Policy Development and University of Canberra.
  2. Source: Mortgage default in Australia: nature, causes and social and economic Impacts. Authored by Mike Berry, Tony Dalton and Anitra Nelson for the Australian Housing and Urban Research Institute, RMIT Research Centre, March 2010.

Source: MLC/NAB

 

Borrowing to invest

Your SMSF can borrow to invest

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

As Self-Managed Superannuation Funds (SMSF) become more popular the demand for more investment opportunities within that structure increases. Changes now mean that as long as strict conditions continue to be met, your SMSF can now borrow to invest, thus further bolstering retirement savings.

How does it work?

Borrowing for investment within superannuation depends on what type of asset is being purchased; however, the basic principles of an instalment arrangement, whereby the fund pays a percentage upfront and the remainder in instalments over a period of time, remains the same.

Investment property

All investment property will be owned by a separate entity, known as a Security Trust, with the SMSF having a beneficial entitlement to the Trust. The Trust can lease the property on commercial terms, with the income used to pay any expenses associated with the property. The net income is then paid to the SMSF. It is this income, along with any other fund income or member contributions, that provides the income source for the loan repayments.

Under a limited recourse loan, the property is security for the loan, which, in the event of a default, provides the lender with recourse to the property and assets owned by the guarantors, but not over any other assets held by the SMSF. After the loan is repaid, the SMSF has the right, not the obligation, to acquire the property.

What are the benefits?

 There are many benefits associated with borrowing through a SMSF. Some of these include:

  • An increased exposure to capital gains;
  • Reduced rates of capital gains tax;
  • Access to tax deductions within the SMSF.

Things to consider

Before borrowing through an SMSF, the following factors should be considered by potential borrowers:

  • The SMSF trust deed must allow for borrowing under an instalment arrangement;
  • Investment in certain asset classes must be consistent with the SMSF’s investment strategy;
  • A minimum deposit of 20% is required for purchases of residential investment property or 30% for commercial property;
  • The instalment arrangement must meet certain requirements to ensure that the SMSF remains compliant;
  • The SMSF requires sufficient cash flow to service the loan over the term of the Cash flow must be sourced from the net income of the asset, other investment earnings, or member contributions;
  • Arrangements must be at arm’s length and transacted at market rates;
  • The benefits of the strategy must be weighed against the cost of setting up and maintaining the arrangement;
  • Professional investment, taxation and legal advice should be sought before entering into an arrangement.

This is a very complicated area and the penalties can be severe.

Contact Revolution Financial Advisers to discuss your options.

lodging your tax return

Completing and lodging your tax return doesn’t have to be hard

By | Financial advice | No Comments

Completing, lodging and staying up to date with your tax returns doesn’t have to be hard.

This article is not intended to be taken as taxation advice and if you need any help lodging a tax return speak to an accountant or tax agent. They’ll work with you to understand the ins and outs of your financial situation and can guide you through the tax return process.

1 – Do you need to lodge a tax return?

If you’ve paid any tax on your income between 1 July 2017 and 30 June 2018, then you’ll probably need to lodge a tax return. And remember, your income includes money you receive from working – whether it’s from an employer, freelance work or running your own business – and also any returns on your investments.

You might also need to lodge a tax return in other circumstances. If you’re not sure whether you have to complete a tax return for this financial year, you can find out on the ATO website (www.ato.gov.au) or by contacting a tax agent or accountant.

2 – How do you lodge a tax return?

There are a variety of ways you can lodge your return including MyTax which allows you to lodge your tax return online and is provided by the ATO. To get started, you’ll need to set up a MyGov account linked to the ATO. You’ll also need your Tax File Number (TFN).

Another option to lodge your return is to get a registered tax agent or accountant to lodge your tax return on your behalf. When choosing a tax agent, make sure they’re reputable and are registered with the Tax Practitioners Board. You’ll need to pay a fee for their services, but the amount is usually tax deductible.

3 – When do you need to lodge it by?

If you’re doing your own tax return through MyTax, you’ll need to submit it by 31 October 2018. But, if you get a tax agent or accountant to lodge it for you, a later deadline may apply.

4 – Can you claim any deductions?

Have you made any donations to registered charities this financial year? If so, you might be able to claim a tax deduction on any amounts of at least $2. Different rules apply, so check with an accountant or tax agent to see if you can make a claim. There may be other tax deductions you can claim as well, depending on your job and work situation.

The ATO has information about the types of work-related deductions you might be able to claim such as travel, tools, uniforms, training and education costs and home office expenses.

In some instances, it may even be possible to claim deductions on your personal super contributions or costs incurred from generating investment earnings.

You’ll need to keep receipts for any expenses you want to claim. A tax agent or accountant can help you work out which deductions you’re eligible for.

5 – What happens next?

Once the ATO has processed your tax return, they’ll send you a notice telling you if you’re entitled to a refund or if you have a tax debt.

If you or a tax agent or accountant submits your tax return electronically, it usually takes two weeks for your refund to be paid into the bank account you nominated on your tax return. You can track the progress of this payment through MyGov.

If you owe tax to the ATO, they’ll provide instructions on how to pay this via BPAY or with a credit or debit card.

Source: Colonial First State

Planning is the key to making it financially

Succeed with plan of action

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Whether your goal is to pay off your mortgage or go on holiday each year, you’re more likely to succeed with a plan of action.

If you’ve paid off your home, have a healthy stash of super and take an overseas holiday each year, you’ve made it financially. That’s the view of many Australians according to recent research.

A study by comparison site Finder found paying off the mortgage is the financial milestone 74% of Australians value most. Having enough in super to retire comfortably comes a close second for 59% of us, and one in three people see the ability to jet-set overseas each year as a sign of financial achievement.

These are all reasonable goals, and definitely a lot more sensible than owning a sports car, which 5% of people say indicates financial success (for the record, cars are a dreadful investment!).

No matter what your financial goals look like, you’ve got a far better chance of achieving them with a plan of action in place.

Let’s say for instance, that you’re keen on paying off your mortgage early. It’s a smart strategy that will leave plenty of spare cash to devote to overseas travel.

The trick is to plan how you’ll get there with clear steps you can stick with over time. A good starting point is to check the rate you’re paying. The average variable rate is currently 5.3% – that’s a terrible rate when you consider there are plenty of loans costing less than 4%.

If you’re sure your loan is competitive, one of the easiest yet most effective strategies to be mortgage–free sooner is to pay a bit extra off your loan each month.

On a mortgage of $400,000 with a rate of 4.0%, tipping just $20 more into the loan each week could see you clear the slate 18 months ahead of schedule and pocket savings of $17,217 on overall interest.

If you’re keen to grow your super, talk to the boss about contributing to your fund through salary sacrifice. This is where part of your before-tax wage or salary is paid into your super rather than receiving it as cash in hand.

Before-tax contributions are taxed at just 15%, which is below the personal tax rate of most workers, so salary sacrifice can be a very tax-friendly way to boost retirement savings. Chances are, after a few pay days you won’t notice the difference in your pay cheque but it can have a valuable impact on your final nest egg.

The start of the new financial year is a good time to think about the money milestones that matter to you – from building a portfolio of investments to starting a successful business or being able to retire early. Don’t just nut out some goals though, think about how you will achieve them, and start putting plans in place to make it all happen.

Source: Amp

Paid off home loan

You’ve finally paid off your home loan, now what?

By | Financial advice | No Comments

Owning your own home outright is a great achievement, but, once the home loan is gone, think about your next steps to having a happy and secure financial future.

While the goal of paying off your home loan is a common one, it’s important to work out a smart plan for how to use the money that used to go to your lender.

Your first instinct might be to reward yourself and, after years of sacrifice and hard work, why not? But once you’ve taken your dream trip or splashed out on a new toy it’s wise to take more of a long-term view.

Consider boosting your super to retire your way

This window provides an opportunity to take a look at the type of retirement you’re hoping to live. While you might be surprised at how much a comfortable retirement actually costs, we could help you determine more accurately how much you might need.

Perhaps your super balance doesn’t quite match what you think is needed to fund your retirement dreams? If so, the lead up to retirement is a good time to give your super that extra boost.

By channelling the money that once paid off your home loan into your super, either by salary sacrificing from your pre-tax salary or paying with after-tax funds, you can give your super a decent lift.

Invest to build future wealth

If your super’s in good shape, you might like to use the surplus funds to build your wealth via other investments.

If you prefer investments with a lower risk profile, savings accounts or term deposits could be the way to go.

But if you can invest for a five to ten-year timeframe, you might consider shares or managed funds. These can provide income in the form of dividend payments, plus the potential for capital growth.

Another option is buying an investment property. While the thought of taking on a new housing loan may be the furthest thing from your mind, the potential to cover repayments with the rental income could make it worth considering.

Work less, enjoy life more

Now that such a major financial commitment is no longer hanging over your head, you could consider taking a step back from work. Known as transition to retirement (TTR), this can provide financial flexibility, allowing you to work less without reducing your take-home pay, by topping it up with a portion of your super taken as a pension.

Explore your goals

You may be in a position to pursue other goals that go beyond building your wealth. Perhaps you want to give your kids a leg up financially or assist ageing parents to live a happier and secure retirement. Whatever your future plans, contact us to assess your situation and help you understand the impact of each option to find the path that is right for you.

Source: AMP.

Simplify your finances

Simplify your finances in 5 days

By | Financial advice | No Comments

If you’re stressed about where your money goes, overwhelmed by debt or don’t have any cash set aside for emergencies, now’s the time to think about getting your finances in order before the end of the financial year.

To help you on your way, we’ve got a five day challenge. All you need to do is put an hour aside each day to start getting your finances in shape. Why not tell a friend or family member you’re doing this, or even better, get them involved? After all, being accountable is proven to make you more successful in achieving your goals.

So, if you’re keen, it’s time to jump to the starting line and get things underway.

Day 1 – Create a budget

Creating a budget and tracking your income and spending can help you see what money you have coming in and what money you have going out, giving you insights into how you use money.

Start by recording:

  • What you earn – wages, salary, other sources of income;
  • What you owe – your debts, including credit cards and loans, plus any fees and interest charges;
  • What you spend – living expenses, including things like food, bills, transport, gifts and entertainment.

Once you’ve crunched the numbers, you can then look at areas to make some savings, and, there are plenty of tools which can help you on your way.

Day 2 – Compare your providers

List your current providers for things like your home loan, bank accounts and credit cards, mobile phone, internet, gas and electricity. How much do they charge and what do you get for this?

Comparing providers can often end up saving you money in the long run, so do your research and see what competitors are charging and offering in comparison. If you can quote a better deal, your current provider may match it or offer you something better.

Day 3 – Review your insurances

You might have a variety of insurances—home and contents, car, pet, personal and health. Now is the time to assess not just whether you can make savings on your insurance policies, but whether you have the right type and level of cover.

To do an initial assessment, make a list of:

  • What insurances you have and which companies these are with;
  • What you’re covered for and whether you think this is the right amount;
  • What you’re paying currently;
  • What the competitors are offering.

Consider whether you have insurance inside your super and if so, whether the level of cover is adequate.

Day 4 – Get on top of your super

It’s important to think about super early on, as many Australians will be looking at a retirement of 30 years or more.

Spend a bit of time today getting across these things:

  • Do you have any lost super? The good news is that you can find any lost super;
  • Whether your super money is all in one place, or spread across different super funds;
  • What your super balance is (or balances are);
  • The amount (or %) you’re being charged in fees;
  • What investment option(s) you’re in and the investment performance over the longer term;
  • Whether your beneficiaries are up to date.

Day 5 – Embrace online services

There are a range of things you can now do online that can help simplify and streamline your financial life.

  • Set up direct debits so your bills are paid on time;
  • Elect to receive communications electronically. This will help the environment, as well as your hip pocket, as some providers now charge for paper-based communications;
  • Check and update your details, so your providers don’t lose track of you;
  • Set up a good online filing system, and make sure you back it up!

Source: AMP News & Insights.

 *Dominican University, Goals Research

Young and broke

Young and broke? There’s another way

By | Financial advice | No Comments

1 – Do away with debts

If you’re not great at sticking to a budget, you’re not alone. The average level of household debt has more than doubled in the last 12 years and 55% of Australians owe money on their credit card. If you accept this as the norm and carry on spending as if your debts don’t matter, you’re storing up trouble. When you have something important to spend on in the future – like your first property or getting married – those debts are going to really hold you back. So it’s really important to tackle debts now by figuring out what you owe and committing to a schedule for paying them off.

2 – Make budgeting easier

Budgets are much harder to stick to when all your spending comes from the same pot of money. If this is the way you operate – and most of us do – it takes lots of discipline stay on track with spending and saving. You can make the whole process much easier by having separate accounts for your income, savings, bills and entertainment. Make sure the accounts for saving money don’t come with a card to make it easier to keep from spending it when you’re tempted. Remember that bills should include all loan repayments as well as other regular outgoings like rent, groceries and travel.

3 – Be ready for the unexpected

One of the more sizeable chunks of your cash flow is likely to be the money you channel towards long-term savings. Not only is this the money you’ll be glad to have when planning to buy a home or start a family, it also doubles as your emergency cash stash for big unexpected bills. Without this money up your sleeve, paying to have your car fixed or to replace your fridge when it bites the dust will likely go on your credit card which ultimately just delays the process of getting yourself debt-free.

4 – Get motivated to start now

When you’re young and especially when you have debts to pay off, getting into a better situation with money can seem impossible. House prices are going up and having to choose between saving and giving up smashed avo on toast, let alone cancelling your plans to travel and see the world, feels really unfair. But even a tiny amount of money – $10 or $20 a week – is going to have a big impact if you start saving right now.

The magic of compound interest is that it only takes a small amount, saved regularly over your lifetime to make a big impact on your wealth. It’s not a way to turn your dollars into millions overnight, but it’ll move you closer every day to where you want to be.

5 – Only gamble if you can afford it

A few words of wisdom about following fads that could make you rich overnight. You’re still probably hearing all sorts of stories in the media about cryptocurrency and people who’ve made $1000 into a $1 million by leaping on and off the Bitcoin bandwagon at just the right time. But Bitcoin – and lots of other get rich quick solutions – is no more likely to make you rich than heading to the casino or racecourse with your all your earnings for the week. Trying to make your fortune this way can be a bit of fun, but only if it’s money you can afford to lose altogether.

Source: Money & Life.

Get your new financial year game on

Organise yourself for the new financial year

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1 – Check in on your goals  

There’s no point doing anything until you know what you’re doing it for. Write down your goals for the next financial year (and beyond) to make sure your plans can help you get there. Your goals might be things like a holiday, renovation or paying down your debt. If you already have goals you’re working towards, now is a great time to check if you’re still on track.

2 – Get across the changes in super laws  

There have been a number of changes to superannuation laws recently, that will impact many Australians. Some of the key ones include:

  • Eligible first home buyers are now able to save for a home deposit using their super;
  • Personal super contributions can now be claimed as a tax deduction by most people;
  • The spouse super contribution tax offset thresholds have increased, meaning more people are now eligible to a tax offset of up to $540 for contributions into a spouse’s super account;
  • From 1 July 2018, any unused amount of before-tax contributions limits can be carried over to the following year.

3 – Check you’re on track for your retirement 

No matter how far away your retirement is, it’s always a good idea to be clear about how you’re tracking.

One way to do this is to check your super’s invested in the right investment option for your age, stage in life and individual circumstances. You can also have fun looking at the type of retirement career you’d like to have (and then how you might fund it).

4 – Get ready for tax time  

Even though you can’t finish your tax return until after the financial year ends, getting ready for it can take longer than you think. Some ways to get started includes: getting your tax receipts in order, being clear on how the legislation changes could affect you, and understanding what tax deductions you’re entitled to.

5 – Give your budget some love

A budget needs to change as your life does. Take some time to check your budget against your bank statements and see whether they’re in sync. It’s also a good time to check if you can get a better deal on things you pay for regularly like your internet, phone and utilities.

It can also be interesting to step back and look at your overall patterns of spending. So, if the way you’re spending money doesn’t match your budget, you might want to make some changes.

6 – Check your will reflects your wishes

Make sure your Will still reflects your life and wishes. It’s also worth seeing that your money’s properly protected and invested according to your circumstances and goals.

Separate to this are whether your super fund beneficiaries are up to date. If you die, the death benefit and/or balance in your super fund are usually paid to the people you’ve nominated (beneficiaries). If you don’t nominate anyone, or you haven’t updated them to match your current wishes, the money may not go where you want it to.

7 – Review your insurance

It’s important to have enough insurance in place, so all you’ve saved and worked for in life is protected. It could also mean you won’t be a financial burden to your family if something goes wrong.

8 – Emergency savings

If you don’t already have one, it’s a good idea to build an emergency fund into your budget (one in five Australians don’t have enough money set aside to cover a $500 emergency). This can give you some peace of mind and reduce the need to rely on high interest borrowing options (e.g. credit cards).

We’re here to help

Understanding what’s happening with your finances, and keeping on top of them as your life changes, can make a big difference to your wealth and stress levels.

Source: AMP News & Insights.

Tax

Now is the time for tax planning

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Getting ready for tax time should go well beyond bundling receipts into a shoe box for your accountant. The run up to the 30th of June is a critical time for investors to take a good look at their investment portfolio. Your goals and needs may have shifted over the year, and your portfolio needs to keep up with the right blend of assets to meet your goals. Even if nothing has changed on the personal front, investment markets don’t sit still for long.

For instance, property investors in Sydney and Melbourne have enjoyed tremendous value gains over the past few years, but this may mean the weight of your portfolio is dramatically skewed towards bricks and mortar. If this sounds like you, bear in mind rental yields on property are sitting at just 3.7% across our state capitals, and a significant chunk of your wealth could be tied up in low-yielding assets.

Consider new legislation

The need to review your portfolio ahead of June 30th isn’t just about market performance. It can also involve taking advantage of, or responding to new legislation. We’ve heard lots of speculation recently about Labor’s plan to scrap cash refunds for excess franking credits on Australian shares.

So far, this policy has been amended to include a so-called Pensioner Guarantee that will exempt full and part-time pensioners including those who are recipients of a self-managed superannuation fund. Nonetheless, jumping the gun and altering your portfolio based on what may or may not happen further down the track is a gamble, and on this particular score it could be worth taking a “wait and see approach”.

In the meantime, plenty has happened in other areas that could directly impact your portfolio. As a guide, since the 1st of July 2017, property investors can no longer claim the cost of travel to inspect a rental property. This could be a significant downside for investors who own an interstate property – especially if part of the appeal was a tax break on an annual trip to check out the property.

Also, from 1st of July 2018, those aged 65 and over may be able to contribute up to $300,000 from the sale of their main residence to super, without the money counting towards contribution caps. Each member of a couple can take advantage of the $300,000 limit, potentially adding $600,000 to their combined nest egg. It could be an option worth considering if you’re thinking about downsizing.

Get your portfolio in shape for a new financial year

Fine-tuning your portfolio ahead of June 30th can entail paying costs, and capital gains tax may apply to any profit you make on the sale of an investment. The upside is hitting the new financial year with a portfolio that’s in tune with your goals and lifestyle.

Source: AMP News & Insights.

Economic update

Economic Update

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Market and Economic overview

Australia

  • As anticipated, the Reserve Bank of Australia (RBA) left domestic interest rates on hold a 1.50%. Official borrowing costs have been at this level since August 2016 – the longest period that Australian interest rates have remained unchanged;
  • CPI data confirmed that inflation ran at an annual pace of 1.9% in the March quarter; in line with the final quarter of 2017. With inflation under control, there appears to be a low probability of the RBA increasing interest rates in the near future;
  • Employment growth appears to be coming off the boil. Just 4,900 jobs were added in March, well below the +20,000 forecast. Unemployment remains steady at 5.5%. Owing to net migration into Australia and the associated increase in the workforce, strong job growth over the past year or so has not had a significant impact on the official unemployment rate;
  • Helped by solid bulk commodity exports – primarily coal and iron ore – Australia continues to enjoy a healthy trade surplus. Exports were $825 million greater than imports in February.

United States

  • Following a period where market sentiment was largely driven by geopolitical news flow and events, investors started to refocus on the outlook for growth and monetary policy globally. This was the primary driver of bond yields over the month;
  • Equity investors focused on a favourable Q1 earnings reporting season in the US. In April, around half of S&P 500 companies announced their results for the first three months of 2018. Of these, more than three quarters beat consensus expectations and have reported earnings growth of 24.6%, more than double that expected according to Thomson Reuters;
  • Data confirmed the US economy grew by 2.3% in the 12 months to 31 March 2018. This was a slowdown from the 2.9% yoy growth in the previous quarter, mainly attributable to more subdued consumer spending versus the hurricane-related replenishment spree of the previous quarter;
  • Few observers seemed concerned about the slowdown, in the belief that consumer spending and growth will reaccelerate next quarter driven by tax cuts and the solid employment market;
  • Unemployment in the US remained at a 17-year low of 4.1% in March 2018, where it has been for the past six months;
  • There was a modest increase in US price pressures, with the core inflation measure most closely watched by policy makers – picking up to 1.9% yoy in March, the fastest pace in more than a year and approaching the Federal Reserve’s 2.0% target;
  • This supports the case for further increases in interest rates in the remainder of 2018 and beyond. Global markets continue to pay close attention to commentary released by Federal Reserve Board members regarding monetary policy.

Europe

  • European growth appears to have moderated in early 2018. French GDP growth decelerated in the March quarter;
  • The European Central Bank has suggested any moderation in the pace of growth will prove temporary and that conditions remain supportive of a broad-based expansion;
  • Economies in the EU continue to benefit from zero interest rates and an ongoing QE program. The latter is due to conclude later this year, but could be extended if required;
  • UK GDP growth has also slowed from 2017. The economy expanded at an annual pace of 1.2% in the March quarter, below forecasts and the slowest pace in more than five years;
  • UK inflation has also decelerated, to 2.5% yoy. This suggests the Bank of England might not need to amend policy settings – the previously anticipated interest rate hike in May now appears to be a possibility rather than a probability.

New Zealand

  • Inflation fell to an 18-month low of 1.1% yoy in the March quarter. Lower education costs appeared to contribute, with the government having made the first year of tertiary education free to students;
  • House construction prices rose 0.4%, the smallest since 2011;
  • With inflation towards the lower end of the RBNZ’s 1% to 3% target range, few observers are expecting interest rates to be increased from the current 1.75% level this year.

 Asia

  • Moderating food prices have fed through to lower overall inflation in Japan. Prices rose just 1.1% yoy to March 2018;
  • The Bank of Japan is believed to be considering when and how best to remove its current QE program. The lower inflation reading suggests there may be no pressing need to do so;
  • For now, official Japanese interest remain negative, at -0.10%;
  • In China, data showed the economy grew at an annual pace of 6.8% in the March quarter. The government continues to target 6.5% yoy economic expansion as the economy transitions towards domestic growth from export-oriented growth;
  • In South Korea, the economy grew at an annual pace of 2.8% in the March quarter. April saw a historic meeting between the leaders of North and South Korea, with the two Heads of State agreeing to end the 65-year long Korean War and to complete a full denuclearisation of the Korean Peninsula.

Australian dollar

The subdued inflation print – combined with stronger data in the US – saw the Australian dollar weaken nearly 2% against the US dollar. The Australian dollar fell by less against a trade-weighted basket of currencies, declining by just 0.3%.

Commodities

Commodity prices were mixed in April, against a background of geopolitical uncertainty. Aluminium (+11.4%) was the standout performer after the US imposed sanctions on Russian aluminium giant Rusal. Nickel (+3.6%) and Copper (+1.1%) posted smaller gains, while Lead (-2.7%) and Zinc (-4.8%) declined. Coking coal had another poor month, falling -13.4%.

WTI Crude continued its upward momentum, adding 5.6% to US$68.57 per barrel. Robust demand, coupled with sidelined supply and trade sanctions helped support prices.

After sharp falls last month – on surplus concerns in China’s steel market – iron ore prices steadied, edging 0.7% higher to US$65.30 per tonne.

Gold fell -0.5% to US$1,315 per ounce on the back of a strengthening US dollar.

Australian equities

Most ASX-listed companies reported earnings during February. Overall it was a satisfactory reporting season, with around 33% of companies delivering ‘beats’ versus 16% delivering ‘misses’. The S&P/ASX 200 Index returned 0.4%.

Health Care was once again the standout performer, adding 7.0%. The sector was led higher by CSL, which posted strong gains on solid H1 earnings and FY18 guidance.

Consumer Staples added 2.2%, despite poor performance from sector giant Wesfarmers, which reported accelerating losses at its troubled Bunnings UK business. Woolworths finished higher, while mid-cap a2 Milk Company rallied almost 50%.

Telecoms was the main laggard, falling -6.0%. Telstra’s disappointing run continued, with its share price hitting five-year lows. Energy fell -3.7%, led lower by Woodside Petroleum and Whitehaven Coal. Interest rate sensitive sectors also lost ground, with Property (-3.3%) and Utilities (-1.7%) both falling.

Consumer Discretionary fell -1.2%, masking the considerable divergence of individual company performance within the sector. The share price of Myer and Domino’s Pizza fell sharply after they posted disappointing results.

Most other sectors, including Financials (+0.7%), Materials (+0.4%) and Industrials (0.4%), were little changed.

Listed property

The S&P/ASX 200 A-REIT Index performed strongly in April, returning 4.5%.  Industrials (+7.6%) was again the best performing sub-sector. Retail A-REITs (+5.2%) turned around their recent run of underperformance to be the next strongest, while Office A-REITs (+1.8%) lagged.

A-REITs performed well despite significant increases in bond yields in both the US and Australia.

The strongest individual performers were Westfield (+8.0%), Goodman Group (+7.6%), and Iron Mountain (+6.5%). Westfield shareholders are scheduled to vote on the proposed takeover by Unibail-Rodamco in late May, and with no competing bidders, the deal is expected to be completed in June.

The weakest performers were Viva Energy REIT (+1.0%), Vicinity Centres (+1.2%), and Dexus (+1.8%).

Viva Energy REIT underperformed despite a lack of company-specific news, while Vicinity Centres struggled on concerns over soft retail sales metrics.

Overseas property market returns were solid too and again outperformed broader equity markets. The FTSE EPRA/NAREIT Developed Index returned 2.0% in USD terms. In local currency terms, Japan (+5.5%) was the best performing market, while the US (+1.3%) was the worst.

Global equities

The MSCI World Index recovered from trade dispute induced intra-month lows of -1.4% (in USD terms) as investors started to focus instead on an encouraging earnings season in the US. The index was up as much as 2.9%, before reports that global smartphone sales might have peaked saw technology stocks tumble. The broader index recovered to finish April up 1.2%.

Despite delivering more than double the earnings growth expectations, the S&P 500 Index was one of the weaker markets. Some investors are now questioning whether earnings growth can improve any further, particularly with a further three US interest rate increases anticipated for this year. The UK FTSE 100 Index was one of the stronger markets, as a depreciating pound propelled the UK bourse to its highest level in almost three months. The Index finished up an impressive 6.8% in local currency terms.

Value stocks edged ahead of their growth counterparts in April. Large cap stocks also outperformed small caps, with a rallying energy sector helping to offset the hit to large cap US technology stocks mid-month.

The deteriorating outlook for smartphone sales also contributed to the MSCI Emerging Markets falling -0.4% in USD terms.

Taiwan Semiconductors, one of Apple’s largest suppliers for iPhone manufacture, fell almost -10% after warning shareholders of “weak demand” from the mobile phone sector.

In fact Taiwan was one of the weakest markets, down -4.6% in USD terms. Russian stocks also struggled, down -7.4% as sanctions and diplomatic tensions over the recent spy poisoning in the UK triggered a run on Russian-related assets.

Global and Australian Fixed Interest

Bond markets rallied, with generic 10-year government bond yields falling 12 bps in the US, 15 bps and 16 bps in the UK and Germany respectively, and 21 bps in Australia. Yields traded in unusually wide ranges (>20 bps) in most major bond markets

LIBOR (the rate used to calculate interest payable on short-term loans that banks make to one another) increased in the US. Arguably the more interesting move is the spread between LIBOR and Overnight Indexed Swap rates; commonly referred to as the ‘TED’ spread.  In the US, 3-month TED spreads increased to their widest level since 2009.

Australian government bonds continued to outperform US Treasuries, with the 10-yr yield differential declining to -14bps.

Interestingly, the correlation between equity and bond markets continued to fall. During March, sessions where global equity markets sold off aggressively typically saw limited movement in bond yields. It will be interesting to see whether the historic correlation reasserts itself in the June quarter and beyond, or whether bonds and equities will continue to be driven by their own unique factors.

Global credit

Spreads were little changed, meaning government bond yields were the main driver of corporate bond returns over the month.

Improving profitability from the US earnings season to date supports issuers’ ability to service their repayment obligations and should continue to support a low level of defaults globally.

Many corporates remain highly leveraged, potentially causing some concern as funding costs increase.

A number of US issuers appear to be considering M&A, deploying excess capital being repatriated to the US under the revised corporate taxation regime. Some have also noted increasing cost pressures, particularly relating to rising energy prices. Strong corporate profitability and low unemployment have not yet been reflected in significantly higher wages

 

Source: Colonial First State.

Good financial advice

The true value of financial advice

By | Financial advice | No Comments

Does investing in a financial planner really pay off? According to the latest research from Sunsuper you could be thousands of dollars better off when you make choices based on professional financial advice. Plus you’ll take more family holidays, have greater peace of mind and more confidence in your financial decisions.

Teaming up with research experts, Core Data, Sunsuper have released The Value of Advice Report. Insights include financial forecasts for three couples at different life stages and the lift in living standards and retirement expectations they’re enjoying as a result of seeking advice. In all three cases, it’s very clear that financial advice has a real and immediate impact on their lifestyle, and creates opportunities to achieve important personal goals.

1 – Building a bright future for a young family

Adam and Mara’s goals for their family of four aren’t out of the ordinary. Paying for private education and taking regular holidays are things that many families might prioritise but struggle to achieve when they’re paying off a home loan, while juggling work and family commitments.

Thanks to advice from a financial planner, Adam and Mara have settled personal debt, made appropriate investments to provide extra income for holidays and school fees, and arranged suitable insurances to make sure they’re secure in the event of injury or illness.

Expected financial benefits from implementing their plan include:

  • Cover private school fees starting from primary school (instead of high school only);
  • 32 family holidays before retirement;
  • An additional $54,720 in assets held at retirement.

2 – More time to travel in their prime

Heading down the home straight towards retirement, Amanda and John love to travel. They’re currently focused on their careers, but keen to be living a good life, now and in the future. Having enough to provide for their children in their will is also an important goal.

Following financial advice has allowed Amanda and John to manage their debt more effectively and ensure they’re covered by insurance in case of illness or injury. Their new strategy would also see them put more income into a holiday fund and their super savings.

Expected financial benefits from implementing their plan include:

  • Savings of $5k pa into a holiday fund for an extra 17 trips in their lifetime;
  • Increased life and TPD insurance cover to match debt and income needs;
  • An additional $78,720 in assets held at life expectancy that will benefit their children.

3 – Staying comfortable and independent in retirement

Having recently reached retirement, Jocelyn and Lou want to ensure they can continue to meet living and medical expenses and enjoy their senior years without financial stress. Not becoming a burden to their children is important to them and they’d like to retain assets to pass on to the next generation instead of having to sell them to generate more income.

With a new financial plan to guide them, Jocelyn and Lou can eliminate debts and reduce the burden of interest and loan repayments on their cash flow. They’ve also found ways to reduce their annual budget and still save money towards holidays.

Expected financial benefits from implementing their plan include:

  • Savings of $5k pa into a holiday fund for an extra 11 trips post-retirement;
  • $47,250 of savings in interest on current debts;
  • An additional $7,237 in assets held at life expectancy that will benefit their children.

Face your fears and feel better about finances

As well as looking at modelling for these three couples, Core Data also surveyed 1000 Australians as part of the research project. Of those who received advice, 80% said they felt more confident making financial decisions as a result and the same proportion believe advice has brought them more peace of mind, and 75% take a view that financial advice is worth more than it costs.

In spite of these clear benefits to wealth and wellbeing, nearly nine million Australians have unmet financial advice needs, according to Anne Fuchs, Head of Advice and Retail Distribution for Sunsuper. So what’s holding them back from seeing a financial planner? “Many people end up too scared to reach out to a financial adviser for fear they don’t know enough, don’t have enough or will be told their dreams just aren’t achievable,” says Anne. “This can leave many people to suffer in silence, not knowing what to do or who to turn to for help.”

Reaping the benefits of advice at every life stage

For others it can be a case of leaving it until retirement, because they’re too busy and managing their money well enough while they’re earning a regular income. However, the benefits of financial planning can be enjoyed now, and later, according to CoreData Principal Economic Researcher, Andrew Inwood. “Good advice does of course make you wealthier at retirement, but it also adds value all the way through your life in the choices you can afford to make about schooling, insurance, holidays, housing and personal interests,” says Andrew.

“The important thing to measure is how it adds value to every life stage and enables individuals’ life aspirations – that’s what we have modelled.”

Source: Money & Life.

Myths about Life Insurance

5 Common myths about life insurance

By | Financial advice, Wealth Protection | No Comments

Most of us like to think that insurance is a set and forget proposition that we pay for without too much consideration. However, no one can predict the future. Illness or injury can strike at any time with potentially devastating consequences. Australian Bureau of Statistics data shows that medical illnesses are the leading causes of deaths in Australia1. Topping the list are several types of cancer, Ischemic heart disease, stroke, Alzheimer’s disease and dementia. The health risks are clear yet many Australians are manifestly ill-prepared for these life events.

According to Rice Warner’s ‘Underinsurance in Australia’ report2, an average Australian couple around 40 years of age with children would require life insurance cover of approximately 10 times their annual earnings to repay debt and maintain their current living standards. However, very few Australians have anywhere close to this level of insurance cover.

It’s common for people to have an “it won’t happen to me” mentality, but unfortunately the facts speak for themselves. Taking some time to understand more about life insurance is worth its weight in gold as it could protect the financial stability of those you care for if you can no longer work or pass away.

Here we look at some common myths about life insurance.

Myth One: ‘I’m young and healthy. I don’t need life insurance.’

It’s easy to think you don’t need life insurance when you’re young, fit and healthy, but life has a funny way of ‘just happening,’ and if you are about to experience a significant life event such as getting married, having a baby, or buying your first home, you need to consider what could happen if the unexpected were to occur. For instance; if you were left without an income, how would you and your dependents cope financially?

It’s also important to consider what your health may be like in the future. Although you may be young and healthy now, unfortunately deteriorating health is a natural part of life. It’s a good idea to consider taking out life insurance early on in life, when you’re less likely to have any pre-existing medical conditions, as these could make you ineligible for life insurance cover or attract higher premiums when you’re older.

Myth Two: ‘I’m single and I don’t have any dependents. I don’t need life insurance.’

According to the Australian Institute of Family Studies3, the number of Australians living alone is as high as it has ever been with one in four people living in a single person household and that’s been the case for more than a decade now. While many of us are happy living alone, many of us also have financial responsibilities that aren’t linked to having a partner or a child.

Myth Three: ‘Life insurance is only worth it if you pass away.’

One main objective of life insurance is to provide financial security for your loved ones should you pass away. However, other personal insurances can also provide protection should you become critically ill, injured in an accident, or permanently disabled. Should this occur and you are no longer able to work, insurance can help you to pay for out-of-pocket expenses such as the cost of medical treatment and other household bills.

 

Myth Four: ‘My superannuation fund includes life insurance cover. I don’t need any more.’

Many super funds offer some form of life insurance for members but it’s often just a very basic level of cover and may not take into account your individual circumstances nor the amount of cover you would really need to maintain your standard of living if you could no longer work. This is where professional advice can help. Your financial adviser can tailor an insurance plan that’s designed specifically for you. This includes a review of any existing insurance policies you may have, an analysis of your financial obligations, and the level of financial support you want for your dependents; both now and into the future.

Myth Five: ‘I have private health cover. I don’t need life insurance.’

 There’s no denying that private health cover can be immensely beneficial if you require urgent or costly medical treatment. However, in many cases it won’t provide cover for ongoing post-operative costs such as any rehabilitation, or those financial obligations that continue while you’re unable to work, such as household bills and your mortgage repayments. Personal insurance can help by covering these additional expenses, and help protect your family’s financial situation should you be unable to return to work.

Reviewing your insurance arrangements with your financial adviser makes good sense. Even if it simply confirms that your existing insurance cover is fine. To find out more, please contact Revolution Financial Advisers.

 

1 Australian Bureau of Statistics, 2009, Causes of death, released May 2011

2 Rice Warner ‘Underinsurance in Australia’ report (July 2014)

3 Australian Family Trends No. 6. Australian Institute of Family Studies, March 2015.

know about super

What young people often don’t know about super

By | Financial advice, Superannuation | No Comments

If you’re like 56% of young Australians, you probably couldn’t say exactly how much money you have in superannuation, but according to the Association of Superannuation Funds of Australia (ASFA), what you’ve got in super may easily outweigh what you’ve got in your everyday bank account.

We take a look at the research which also highlights that the majority of those under age 29 strongly support super as a good way to save for retirement, even though many underestimate the amount of money they’ll need after they finish working.

How much the average young person has in super

ASFA found around 25% of Australians aged 15 to 19 had a super account, as did approximately 75% of those aged 20 to 24.3

While average balances were not that large, ASFA said they were rather substantial compared to what most young people had in their bank account.

ASFA pointed to figures from the Australian Bureau of Statistics, which showed the average super balance for those aged 20 to 24 was around $5,000, with that figure escalating to more than $16,000 for 25 to 29-year-olds.

What additional findings revealed

Key points from the ASFA research showed:

  • More than 60% of young Australians have multiple super accounts, with 30% reporting trouble in finding their old accounts;
  • Young people who have multiple accounts are potentially at risk of eroding their super savings because they’re paying multiple sets of fees and charges;
  • Nearly 10% of Australians under 29 are checking their super balance daily, which is important as it’s likely to be one of the biggest investments they’ll ever have;
  • On average, young people expect they’ll need $625,000 to retire, while those aged 60 and over expect they’ll need a much bigger sum of around $1 million.

Super tips for young people

  • If you earn more than $450 in a calendar month, your employer is required to make super contributions to a fund on your behalf at the rate of 9.5% of your earnings.
  • If you’re under 18, contributions are only payable if you work more than 30 hours a week.
  • If you are employed, you should check your payslip and your super account transaction records to make sure you are getting the contributions you are legally entitled to.
  • If you aren’t getting what you think you are owed, speak to your employer.  The Australian Taxation Office can also help you with information and in recovering any unpaid contributions, with non-payment of super affecting about 690,000 Australians annually.

What about insurance inside super?

Each super account you have will typically have a fixed administration charge of at least $100 a year and if you’ve taken out insurance through super, premiums will also be deducted from your balance.

While more than 70% of Australian life insurance policies are held inside super, and it may be beneficial for you depending on your circumstances, you should regularly review your preferences, as more than 25% of people under age 29 are unsure whether they have cover, let alone the right type.

Where to go for help

While retirement might seem like a lifetime away, remember, the more informed you are about super from a young age, the better off you may be down the track.

Revolution Financial Advisers can help you review and understand your current superannuation position.  Contact us to make an appointment.

 Source: AMP News & Insights

Savings account v term deposit

Savings account versus term deposit

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

In a low interest rate world, it’s important to think about the best place to stash your cash – a savings account or a term deposit?

New research shows Australian households are tucking away an average of $409 each month. That is pretty impressive though chances are many people are using their spare cash to pay off debt rather than grow savings, and it can be a sensible strategy. You’re likely to save more on interest charges than you’ll earn on your savings.

That said, it always makes sense to have a pool of savings for rainy day expenses or to grow cash for personal goals. Record low interest rates make it essential to consider where your savings should be held, not just to maximise returns, but also to make it easier to reach savings targets.

Savings accounts and term deposits are the most popular choices for cash investments, and both have their pros and cons. The key to making the most of the different features offered by both is to allocate savings across short, medium and long-term goals.

A high-interest savings account provides at-call access to your money, so it can be a useful option for short-term goals like purchasing some new furniture or appliances.

The catch with many savings accounts is that your money is likely to earn a very low ‘base’ rate. Strict conditions apply in order to earn bonus interest. You need to be sure you can consistently meet these conditions, be it depositing a minimum amount each month or restricting your withdrawals, to earn the top rate. Even then, the bonus rate may only apply for a limited time.

A term deposit on the other hand, may offer a marginally higher interest rate, and it’s definitely worth shopping around for the best return.

Along with a guaranteed rate, you can’t easily tap into your savings during the fixed period, which can make term deposits a good option for medium to long-term goals like saving for a holiday or some home improvements. Pick your term with care though as unwanted fees and interest penalties can apply if you need to access the cash before the full term expires.

At present, online savings account rates can hit 3%, while the typical 24-month term deposit rate is 2.58%, though there are some at a fraction above 3%.

Savers may also want to consider a notice saver account. These are offered by a growing number of banks, and they act as a hybrid between a savings account and a term deposit. You’ll typically be asked to provide reasonable notice, often 30 days or more, before a withdrawal can be made. That’s not a bad thing as it makes savers think twice before dipping into their cash reserves.

 Source: AMP.

Importance of financial values for your children

The importance of financial values for your children and grandchildren

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We all know having children bring plenty of responsibilities and whether you are a grandparent or parent, it is vital to instill positive financial attitudes from an early age. Taking a proactive approach is the best method – so spend some quality time with your precious children and introduce some financial values but will apply throughout their lives.

Below are a few ideas to help with creating positive financial values:

  • You are the “example”

Always remember younger children look up to adults frequently and you’ll be often surprised on what they pick up on. So ensure your financial values are strong and in line with what you are teaching your children. If you take a more flippant approach to your money, this is likely to be passed down the generations of children and could lead to major financial issues later in life.

  • Encourage involvement

We all know it is important to make educated and strategic financial management decisions. Why not encourage your children to be involved in a minor money decision making process such as an item on the weekly shopping list.  You could educate them about the price, the value, when it is on sale etc. This will teach them to think about purchases and gain an understanding on the impact of our decisions.

  • The piggy bank

It’s always a good idea for children to understand the concept of saving – whether it’s via a traditional piggy bank or an online spreadsheet. You can establish ground rules of what they can spend their savings on – i.e. can they buy a DVD or an item of clothing, are they restricted from buying lollies? If the grandparent’s are contributing to the piggy bank savings, make sure you are all on the same path so the children aren’t given mixed messages.

  • Be Strong

As children become older they have a greater grasp of money and may start comparing savings amounts with other children. It’s important to convey that each family have their own situation and that they are respectful of this. A few extra dollars may be ok if they have reached their target savings amount and they discover the price has increased but it is important children know you aren’t their money safety-net. You won’t always be there to provide the extra dollars and rectify the situation.

Return to Work After Having Family

Returning to work after having a family

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Deciding to return to work after having a baby can be a daunting decision for any family. Combining work commitments with family responsibilities can be something of a balancing act. We look at some of the expenses you might encounter as well as some of the financial benefits.

The cost of childcare

For most parents, the first thing that comes to mind when contemplating returning to work after having a child is finding suitable childcare.

Recently released statistics show that in 2014 and 2015, 47% of couples and 51% of single parents with children under the age of 5 used paid childcare, and of those, 85% of couples and 67% of single parents were using childcare for work-related purposes*.

So unless you’re blessed with family who are willing and able to care for your little one for nothing, returning to work means you’re probably adding a new outgoing to your family budget.

The government offers two types of assistance to help families with the cost of childcare:

Child Care Benefit, where the fees charged by approved childcare providers are subsidised by the government. The number of hours of subsidised care you’re eligible for is dependent upon certain conditions, while the rate of your subsidy is dependent on your household income.

Child Care Rebate, which provides a rebate of up to 50% of your out-of-pocket child care expenses, up to an annual limit of $7,613 per child for eligible parents.**

But even with government assistance taken into account, childcare can be a considerable cost, and one that has risen significantly over recent years.

Statistics show that after any childcare benefit was deducted, the median amount spent per week per child was $162 for couple families and $114 for single parents in 2014 and 2015, which was an increase of 75% and 104%, respectively, on the amount spent in 2002 and 2003.***

The long-term view

If the cost of childcare will take up a large portion of your salary, returning to work might not seem to make good financial sense. However, it’s important to take a long-term view of your family finances, as well as considering the more immediate costs. After all, your children won’t be in childcare forever!

By returning to work, you’re continuing to build your super, as well as maintaining your industry knowledge, contacts, and skills, which will help protect your ability to both earn an income in the short term and build your future earning capacity. This will help protect your family’s long-term financial security.

How to deal with less income

Whether you’re dealing with less income due to the cost of childcare, or because you’ve changed your working arrangements, and are returning in a part-time role, or in a job share, this will also impact upon your family’s finances. Here are some tips to help you adjust to the change, as well as some ideas to help keep your finances on track:

Ensure you have a budget, which sets out how your money will be spent, and look for any areas you can reduce your spending.

Combat the reduction in your employer super contributions by boosting your super with any windfalls you may receive, such as your tax return. Your spouse can also make contributions into your super, which could benefit you both financially.

What to do with additional income

If you’re returning to work when your children are at school this could mean a boost in your household income, and you may be lucky enough to have money left over after all your expenses are met. If so, there are a number of things you could do to help you get ahead financially such as:

  • Making additional repayments on your home loan
  • Making additional contributions to your super
  • Repaying an outstanding uni debt, or any other debts
  • Saving for future expenses, such as your child’s education.

Other considerations

Being a parent, there are some other important financial matters you should think about. Ensure you have adequate insurance cover to help protect your loved ones should anything happen to you, make a will if you haven’t already got one, or update it to reflect your change in circumstances.

Source: AMP

* The Household, Income and Labour Dynamics in Australia (HILDA) Survey 2017, Table 2.11, pg 23

** Australian Government, Department of Human Services, Child Care Rebate

*** The Household, Income and Labour Dynamics in Australia (HILDA) Survey 2017, Table 2.13, pg 24