Financial advice

The search for dividend yield in a low-growth environment

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Investors have faced a low-growth environment with low yield for some time now and this does not appear to be changing anytime soon.

Global economic activity is slowing notably, reflecting a combination of factors affecting the major economies.

Historically investors who look for income in the form of interest payments – also called yield, have looked to fixed income (bonds) and cash (bank deposits) in a normal low growth environment, but with record low interest rates these returns as a measure over inflation have proven harder to find. One of the strategies investors have been forced to look at is to invest into the share market for dividend yield, which is yield paid in the form of a dividend.

This strategy has pushed money into Australia’s traditionally high dividend-paying stocks, also driven by the benefit of our franking credit system – which has in-turn been one of the underlying reasons why our share market and many other developed countries share markets have risen strongly since the Global Financial Crisis in 2008.

The share market can be a generator of income, in the form of annual dividends from companies – but not all companies pay a dividend, and it is not compulsory. However, Australian companies pay out a high proportion of earnings as dividends, as measured by the dividend payout ratio. Listed companies have, on average, paid out 65% of their earnings in the form of dividends from 1917 to today.

Over time, dividends can provide a contribution to the total return earned from shares. In fact, just under half of the long-term return from holding Australian shares comes from the dividend component, looking at the market’s “total return” index, the S&P/ASX 200 Accumulation Index.

Over the last 10 years to June 2019, the S&P/ASX 200 Accumulation Index has generated a return of 10.0% a year, versus 5.3% a year for the S&P/ASX 200 price index – meaning that dividends are responsible for 4.7% a year, or just under 50% of the total return.

The importance of dividend yield in stock selection

A benefit for long-term investors who receive the dividend component of the total return, especially for large, mature companies listed on the Australian share market, is that it can be less volatile than the capital growth component, as such companies tend to ‘smooth’ the payment of dividends through the use of available cash flows, that is independent to the  changes in the company’s share price from time to time.

However, there are several aspects of the stocks-for-yield strategy that make it one that should be constantly monitored. First, a stock market dividend yield cannot be considered as certain, because the dividend amount is at the discretion of the company, each reporting period. Second, the risk of share-price capital-loss, while holding shares for yield, is always present.

How to find high yield growth stocks

For active stock-pickers with a value orientation – that is, those who like to buy  ‘unloved’ stocks at what they see is good value based on fundamental metrics – opportunities might look like they are thin on the ground, but they are usually present: it might just require a harder look.

The key to this process is to think of the businesses represented by the stocks on the stock exchange. Where short-term market volatility is often driven by macro-economic or geo-political events, the underlying fundamentals of businesses are what essentially drive the returns from the stock market, through the “duration effect” of a company’s ability to grow its value over time through the compounding of its cash flow.

From time to time, the stock market will under-value some businesses, and over-value others.

There is little correlation between the performance of individual stock-exchange-listed businesses and economic growth, because each company has specific factors that drive its revenue and profitability.

There are always stocks out-performing the market, and certainly out-performing the economy: whether the investor wants to back these stocks for short-term trading opportunities, or longer-term investment, is up to the investor. But they are always there to be found.

Source: BT

Estate planning

Understanding estate planning

By | Estate Planning, Financial advice | No Comments

What is estate planning?

If you’ve got people in your life who you love and want to take care of, it’s wise to build an estate plan. This plan, which you can put together with the help of an estate planning specialist, will make sure loved ones are taken care of in the event of your death.

An estate plan is more than just drawing up a will. It also involves formalising how you want to be looked after (medically and financially) if something happens to you, or if you’re unable to make your own decisions later in life. Your estate plan will also clarify how you want your assets to be protected during your lifetime and distributed after your death.

How does an estate plan help?

You can make your wishes known

One of the benefits of a sound estate plan is the ability to formalise your wishes in writing. This can help if someone contests what you’ve said you want after you’ve passed away, or if you’re unable to speak for yourself.

You could minimise disagreements

Unfortunately, disputes often arise when unsettled assets need to be distributed among others—especially if there are no clear guidelines set. Being prepared with an estate plan could go a long way in preventing disputes should family members need to divide assets among themselves or make other hard decisions on your behalf.

You may improve tax consequences for your heirs

As the distribution of assets (including your income) can come with different tax obligations, a good estate plan might also minimise any tax that your heirs would need to pay. For instance, if they decide to sell something they’ve inherited, depending on the type of asset, they may need to pay capital gains tax. Estate planning, particularly with the guidance of estate planning specialists, could reduce these extra tax costs.

Key points when creating your estate plan

Consider drawing up a will and whether you want something legally binding

A solicitor or estate planning lawyer can help you draw up a will that is legally binding and covers what you’d like to happen with your assets, children (if you have any) and funeral when you die.

It’s important this document is kept up to date, and be sure any changes to your situation (marriage, divorce, separation or otherwise) are accounted for, so those who matter most are taken care of.

While it’s also possible to draw up your own will (there are various kits available online), these may not be adequate in complex situations, which is why engaging a professional is still worthwhile.

A word of warning: if your will is deemed invalid, your estate will be distributed according to the law in your state (which may not align with your wishes), and claims could be made by unintended recipients. This is why it’s a good idea to enlist the services of an estate planning specialist, even if you think your situation is relatively simple.

Review your nominated beneficiaries for any super or insurance you might have

When it comes to your super, you’ll need to do some planning in advance to make sure it’s distributed properly in the event of your passing.

During this process, take the time to nominate your beneficiaries with your super fund, and make sure you’re across how long different nominations are valid for. If you don’t make a nomination, the super fund trustee could use their discretion to determine who your super money goes to.

In addition, if you have insurance outside of super, make sure you’ve listed your beneficiaries on your insurance policy and that those beneficiaries are also kept up to date.

Consider appointing an enduring power of attorney to make decisions if you can’t

There may come a time when you’re unable to make legal or financial decisions on your own because of advanced age or medical issues. Granting power of attorney means you are designating an individual to make these decisions on your behalf if such a scenario arises.

For this reason, it’s important to choose someone you trust, as they’ll be responsible for looking after your bank accounts, ongoing bills, and even selling your house if you need to move into a care facility.

It’s also worth noting that you may be able to appoint a different type of power of attorney depending on what tasks you’d like this person to carry out on your behalf. For example, you may want your son or daughter to make general lifestyle decisions for you, while you appoint a financial adviser to make financial decisions.

Choose an executor to help carry out your wishes when you’re gone

Generally, an executor is the legal individual who manages and distributes the estate with the assistance of a solicitor, according to the terms you’ve set out in your will (which your solicitor should have a copy of).

When you nominate an executor in your will it’s important to let your family know, to avoid disputes after you die. Make sure the executor also has a good understanding of their duties and where your will and other important documents are kept. You may also want to let your family know where this information is stored.

The executor will typically be responsible for things like making funeral arrangements, ensuring your debts are paid and bank accounts closed, and collecting any life insurance.

They will also usually need to apply to the court for a grant of probate, which is a required legal step before your estate can be distributed. A grant of probate certifies that your will is valid.

Source: AMP,


How to budget for a baby

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With a little bit of planning you should be able to successfully avoid having the joy of starting a family compromised by the financial burden of doing so.

Based on research by the National Centre for Social and Economic Modelling (NATSEM) it costs over $406,000 to raise one child from birth until they finish their education.

In light of these costs, here are some initial considerations that might be helpful.

Before baby arrives

This is an ideal time to assess your financial situation, and how it will be impacted by a new baby. For starters, consider the requirements before and immediately after the birth.

If you’re planning to ‘go private’, you have to decide whether the cost of prenatal care, can be covered by existing private health cover. Some private health funds have waiting periods before you can claim on pregnancy and birth-related costs, so it pays to check.

Income protection and health insurance

During pregnancy, it’s not just your family’s health insurance you should be thinking about. It’s equally important to consider what type of life insurance cover, including income protection, disability insurance and/or death cover, might be appropriate.

Having sufficient cover in place means you’ll have a contingency plan for your family’s lifestyle if you’re temporarily unable to work through injury/illness. The good news is by organising this cover via your superannuation, you don’t have to eat into the household budget.

Once baby is home

The next step is to realistically assess the upfront costs of caring for your baby over the first 12 months. If budgets are being pushed, focus on what you absolutely need to spend money on now – like baby-proofing your home, extra furniture like a crib, change-table, baby bath, car seat, stroller, bedding and clothes – and what can wait.

Try to work out what your weekly outgoings will be on things like nappies, milk formula, and baby food. Being willing to accept hand-me-downs or buy second hand can save you a lot of money.

Family entitlements

If you’re planning time off after baby arrives, remember to tell your employer well in advance. It’s equally important to ensure you receive all the benefits you’re entitled to from paid parental leave through to any baby bonuses, and family tax benefits.

Child-care and education

If you’re planning on your child receiving a private education – which at the secondary level typically costs an average $20,000 a year – it’s never too early to put money away. One way to do this is to open a high-interest saving account. There are also tax benefits for opening education-specific managed investment funds.

There are also onerous costs even before your child gets to school. For example, based on data by Stockspot, parents will on average spend $26,000 on childcare between the ages of three and five.

In light of these costs, it pays to honestly assess, what assistance you can expect to receive from immediate family. Equally important, assess how easy it will be to juggle time off, and how receptive your employer is to flexible workplace arrangements.

Ongoing costs of child raising

The cost of raising children has jumped sharply over the past two decades. Based on Stockspot numbers, parents on average spend $82,000 on a child between ages six and 12, and close to $131,300 during the following six years, with the bulk of this cost going on education.

Clothes swapping for school uniforms and buying home-brand or generic items in supermarkets, are practical measures to help managing finances. However, seeking help with budgeting can also drive your money further.

Source: FPA Money & Life

What happens to my super when I die?

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You may not be aware that how and in what proportions your super is distributed can’t be covered in your will unless you’ve made the necessary arrangements with your super fund beforehand.

Why can’t super be covered in my will?

Your super can’t typically be covered by your will because your will only covers assets you own personally (things like, your house, car, investments, savings and personal items).

Your super on the other hand is held for you in a trust by your super fund trustee and governed by superannuation law, which is why different rules apply and why your super fund must be kept up to date with your instructions.

Who can I leave my super money to?

In the event of your death, your super fund must pay a death benefit to one or more people in your life who are eligible.

Your eligible super beneficiaries might include:

  • your spouse (including de facto and same sex partners), but not former spouses;
  • your children regardless of age;
  • anybody financially dependent on you when you die;
  • your estate or legal personal representative.

One reason you might nominate your estate or legal personal representative is you can then specify in your will how and to who you want to distribute your super money to, which can include eligible beneficiaries (mentioned above), as well as other people in your life.

It’s important however that you ensure the information stated in your will is up to date, so your legal personal representative pays out your super money as per your instructions.

How do I nominate my beneficiaries?

When it comes to specifying your beneficiaries, most super funds will give you several options.

These options are important to understand, particularly given that the type of nomination you choose could give you greater control over how your super benefits are distributed.

Binding nomination

If you make a binding death benefit nomination that satisfies all legal requirements, the trustee of the super fund must pay your super to the beneficiaries you have nominated, and in the proportions specified.

You should also know that there are lapsing and non-lapsing binding nominations.  Lapsing nominations typically expire every three years unless you renew them, while non-lapsing nominations may never expire.

Non-binding nomination

If you make a non-binding nomination, the trustee of the fund will have the final say over which beneficiaries receive your super and in what proportions, but your nominations will be considered.

No nomination

Depending on the product, if you don’t make a nomination the trustee will pay your death benefit to your estate, or use its discretion to determine which eligible beneficiaries the money should go to.

Super in pension phase already?

If your super is already in pension phase, then all of the above plus additional options may be available and need to be considered.

Source: AMP

Tap money

From bartering to smartphones—how our money habits have evolved

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Ever since King Alyattes of Lydia minted the first coin in 600BC, humanity’s relationship with money has been constantly evolving.

Fast forward to more recent developments and mobile banking was offered to European consumers as early as 1999, with contactless payment cards appearing in the UK in 2008.

When it comes to money, fashions come and go. But perhaps the best illustration of the changing trends is the lifecycle of the humble cheque.

Cheques—the decline and fall

At one time, the ability to pay for goods and services by signing an authorised slip of paper from your banking institution was cutting edge technology.

These signed pieces of paper took days to process, the signatures were easy to forge and settling the transaction involved a complex network of clearinghouses. But at the time they would have seemed the height of sophistication and ease. The concept caught on quickly and so the humble cheque was born.

Until quite recently it would have seemed unthinkable that you couldn’t use a cheque. But many Australians under the age of 40 have never even seen a cheque book, let alone used one.

The cheque is predicted to die out completely by the end of 2019.

Back to the future

As for the next big thing, who knows?

In the space of a few thousand years, we’ve gone from resource exchanges based on the need for survival to quick, instant and virtual money exchanges, driving mass consumption and instant gratification.

Cash is no longer king

So is cash on the way out? It would seem so if we look at overseas trends. Over in Europe, Sweden is moving to a completely cashless society, with cash payments due to be phased out by 2023. It’s not only about convenience. Among the mooted benefits of a cash-free society are reducing crime, fighting tax avoidance and helping businesses feel more secure.

And it’s not just small Nordic economies going electronic. The world’s most populous country is also moving away from cash. Chinese consumers have embraced mobile payments via QR codes, and spend 90 times more using their smartphones than their American counterparts.

Back here in Australia cards have overtaken cash as the most frequently used payment method, according to the Reserve Bank’s Consumer Payments Survey. Electronic transactions more than doubled to around 480 per person in the 10 years to 2018. And paper-based payment methods such as cash and cheques declined from 320 per person in 2007 to 210 in 2016.

What the future holds for cash

So if we look forward 20 or 30 years into the future—assuming current trends continue—it’s possible that the only place our children will see notes and coins is in the museum.

The implications are profound:

  • What does a cashless society mean for people on the margins who don’t have access to credit and rely on physical money to survive?
  • What does a cashless society mean for our spending and saving habits?
  • What does a cashless society mean for privacy when every transaction we make is logged, tracked and analysed?

Whatever the future holds, we’re living through interesting times as our relationship with money evolves at a pace unmatched in human history.

Source: AMP


Six cognitive biases that influence how we save, spend and invest money

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We like to think we’re rational beings but the reality is that a lot of our daily behaviour is influenced by our subconscious.

Behavioural scientists have looked at the way human beings are wired and discovered some ‘cognitive biases’ that influence our everyday behaviour.  So if you find yourself clicking on that Amazon special or buying lunch at the same expensive cafe near work every day, they could explain why it’s so difficult to stick to your spending limits or saving plan.

Here are a few of their insights into how our minds work.

We tend to discount the future

We value immediate rewards over rewards in the distant future.  This tendency to want instant gratification is hard wired from birth.  Studies have shown that children find it hard to stop themselves eating a treat even when a bigger and better treat is offered for those who wait for a few minutes.  And ‘discounting the future’ doesn’t stop when you reach adulthood.  It could explain why it’s hard to get too excited about saving for your retirement in your 20s.  But the earlier you start planning, the more you’ll be able to put away.

We tend to feel the pain of a loss more than the pleasure of a gain

You can see an extreme example of this sort of behaviour at the casino when gamblers chase their losses.  This ‘loss aversion’ can also manifest itself in continuing to commit to a poor investment because you’ve already put a lot of money into it.  It can help to think long term and avoid focusing on short-term fluctuations in the value of your investments.

We tend to follow the herd

Much as we like to think of ourselves as independent human beings, we tend to look to others for affirmation.  Think about the rush to secure seats for the concert when you know that everyone else is using the online booking system.  It’s all about FOMO. This sort of ‘herd mentality’ can work in a positive way.  Just a generation or two ago it was socially acceptable to smoke in restaurants or to drive without a seatbelt.  Now it’s unthinkable.

When it comes to money, this ‘herd mentality’ can manifest itself after stock market downturns, when investors start panicking and selling up, even though rationally this will crystallise their losses.  It can help to shut out daily market noise and focus on long-term goals.

We tend to think things are more likely to happen than they are

You can see this in the popularity of lotteries around the world.  While the chances of winning are infinitesimal, the winners get a lot of publicity, which makes us think it’s more likely to happen. But at least the lottery is relatively harmless.  Thanks to the global mass media, this ‘availability bias’ often focuses on bad events like kidnapping, plane crashes or stock market downturns.

Investors who experience a market crash like the GFC over-estimate the chances of the same thing happening again, even though statistically it’s unlikely.  It can lead to people saving for retirement changing their investment preferences to lower risk investments, even though this may not be in their best interests as their long-term returns struggle to keep pace with inflation.

We tend to favour recent reference points when making decisions

This ‘anchoring bias’ can make it easy to overspend in shopping malls.  When you first see a pair of shoes for $200 and then a similar pair for $150 it’s easy to anchor on the first amount and perceive $150 as a great bargain.  And these days it doesn’t stop when you leave the mall—online shopping means plenty more opportunities for that anchor to embed itself and end up in an unwanted purchase.

To counter this, try setting your own ‘base price’ before you set out shopping and stick to it.  You can also see anchoring in practice when investors rush in to buy stocks that have just plunged in value without looking at the underlying performance of the company.  They have made the mistake of anchoring the recent high point in their mind.

We tend to be a bit lazy

We tend to stick with current plans rather than change if it’s too much hassle.  This is probably why so many of us stay with our utility providers rather than shopping around for a better deal.  If you find yourself suffering from ‘status quo bias’, try making a start with one area of the household finances—say, your electricity bill—to make it more manageable, rather than trying to tackle everything at once.

Source: AMP


Is Buy Now Pay Later (BNPL) a better way to borrow?

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In the 21st century era of digital transformation, being able to browse, choose and pay for our purchases anywhere, anytime has taken shopping to a whole new level. The way we consume and spend has changed dramatically as a result. Here in Australia, Buy Now Pay Later (BNPL) arrangements have emerged as a very popular solution for both buyers and sellers, adding a new level of convenience to borrowing money to buy consumer goods. According to a report from ASIC, the recent growth in this type of credit has been significant, with the number of transactions rising from 80,000 in 2016 to 1.9 million in 2018.

How does BNPL work?

BNPL provides a way to buy and own something now and pay it off in instalments over an agreed period of time. The buyer doesn’t pay interest on the amount or any fees for the service, providing they make all their payments on time and in full. The ‘merchant’ – the store making the sale – is the one paying a fee to the BNPL service provider for the arrangement.

At face value, it seems like a great deal for anyone who wants to indulge an impulse to buy something right now, without having to pay for it right away. But like any type of consumer lending, BNPL has some pros and cons you should be aware of if you’re planning to make a habit of using services like Afterpay and Zip Pay.

Cheaper, easier credit

According to the ASIC report, four in five consumers (81%) find BNPL convenient and easy to use, thanks to minimal requirements to apply and easy repayment options. And if you do stick to the terms of your BNPL agreement, you’re basically getting credit for free. This makes BNPL a strong competitor in the consumer lending space. It’s also much easier to borrow using BNPL because you don’t need to go through the same application process it takes to get a credit card. So for people seeking an easier, less expensive way to borrow and spend, BNPL ticks these two boxes.

No credit checks

The flip side of no credit checks is there is nothing to stop you from taking on multiple BNPL contracts, even if you’re stretching your budget by doing so. “The ease of being able to access Buy Now Pay Later programs doesn’t mean that they should be taken lightly,” says David Boyd, Co-Founder of Credit Card Compare. “Tracking expenses and cash flow is not easy when you have multiple Buy Now Pay Later accounts running. A good repayment track record might not count towards building your credit score but the bad or late repayments get reported to credit agencies which can affect your credit score and financial opportunities later in life.”

Hidden costs

Storing up problems for borrowing money down the track isn’t the only issue with falling behind on your BNPL payments. If you don’t have the discipline to manage your budget to keep up with repayments, the penalty fees and interest can soon add up. The same ASIC report found that one in six consumers had experienced a negative impact as a result of using a BNPL payment method. Some had to delay payment of other bills to budget for repayments, others ended up borrowing money or becoming overdrawn. This shows how conscious you need to be of your household budget and what you can actually afford to repay if you’re considering BNPL to make a purchase.

Access to more than you can afford

With the growing popularity of BNPL, particularly for online shopping, it’s becoming common for stores to advertise product prices in instalments. This can make a purchase seem more affordable, and potentially encourage people to buy more expensive items than they would if paying the full amount. This is backed up by the ASIC report findings, with 81% of users thinking that BNPL has allowed them to buy more expensive items and 64% spending more than they normally would thanks to BNPL services.

Staying on top of spending

All in all, BNPL is a faster, more convenient way to borrow money for a limited period. To fill short-term gaps in your cash flow or take advantage of sales or other limited time offers, it can be a really easy, useful solution. But like any type of debt or loan, you should think about your ability to afford repayments based on your current income and financial commitments. If you find yourself stuck in a pattern of spending more than you can afford and struggling with repayments, a Financial Planner can help you examine your day-to-day habits and make changes based on your most important goals and values.

Source: FPA Money and Life, 2019


Five global themes that may impact your investment portfolio

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It’s important for investors to be aware of some of the key global and economic environmental factors that may impact their investment portfolio.  Here we look at five global themes that are currently playing out in world markets, and how they may potentially impact their investment portfolios.

1 – Trade Wars

Trade tensions between the United States and China have shown their ability several times to cause turmoil in the investment markets.

The showdown kicked off in July 2018, when the US implemented its first China-specific tariffs. In turn, China has retaliated with its own tariffs, and threatened a range of other measures that may affect US businesses operating in China.

Things escalated in May 2019, as the US extended tariffs on a range of imported goods from China, drawing further tit-for-tat measures from Beijing.

With the solution of the trade tensions having a long way to go; nobody wants to see a full-blown trade war. The prospect makes markets nervous, and that may mean volatility for portfolios.

2 – Slowing global economic growth

Global economic growth is an important driver of investment performance, but to a certain extent is hostage at present to the trade war concerns.

In March 2019, the Organisation of Economic Co-operation and Development (OECD), Australia’s peer group of developed countries, said in its Interim Economic Outlook that global trade growth had slowed from 5.25 per cent in 2017 to about 4 per cent in 2018.

In April 2019, the International Monetary Fund (IMF) cut its global economic growth forecasts for 2019 and said growth could slow further due to trade tensions. The IMF lowered its growth forecast for the global economy in 2019 from 3.5 per cent, which it expected back in January, to 3.3 per cent with the ongoing trade tensions remaining a risk for the global economy.

Any further deterioration in the outlook for world economic growth could mean volatility for equities.

3 – Growth in China and how it affects Australian Resources

As China’s economy has grown, the world has become used to spectacular numbers: its gross domestic product (GDP, the amount of goods and services produced in the economy) grew at an average annual rate of 9.5 per cent between 1989 and 2019, with a peak of 15.4 per cent in the first quarter of 1993.

Falling Chinese economic growth rates is not good for investors, as it raises concern for global economic growth. Investors are now conditioned to expect Beijing will stimulate the economy when growth rates slip, but there are also concerns about its ability to sustain this given China’s huge levels of debt.

One of the closest exposures to China that many Australian investors have is through holding shares in the big miners that supply the country’s voracious heavy industries including: BHP (iron ore and steelmaking coal), Rio Tinto (iron ore) and Fortescue Metals Group (iron ore). While China is a concern at the portfolio level, in terms of the sensitivity of the broader share market to perceptions of Chinese economic health, at the company level, these stocks continue to benefit from selling to China.

The big miners are also benefiting from the fact that iron ore supply from Brazil has suffered in the wake of January’s tailing dam disaster. Brazilian miner Vale has stated that it could be up to three years before it resumes exporting at full capacity, and the supply disruption means that iron ore prices are likely to stay stronger than had been expected over that time.

4 – The low-interest rate environment

The low-interest-rate environment that has been the investment setting for several years appears unlikely to change anytime soon.  This is mainly due to central banks being reluctant to lift interest rates from long-term lows and bond yields pushed lower as investors become pessimistic about economies.

The dilemma for yield-oriented investors is that income is difficult to find in the traditional areas, meaning that higher risk has to be borne to generate higher levels of income.  In Australia, listed shares have been popular for this purpose, using Australia’s dividend imputation system: infrastructure investments, real-estate investment trusts (REITs) and corporate bonds have been other alternatives used.

The challenge of a global low-interest-rate environment for investors looks like it will remain for some time.

5 – New and disruptive technologies

An area that has opened up for investors recently is new and disruptive technologies.  These include advances in areas such as cloud computing, artificial intelligence, virtual reality as well as social and new media.

Companies that have “disrupted” established industries by doing business differently such as the likes of Amazon, Uber, Netflix and Airbnb, have created new levels of value in very short periods of time, but now find themselves vulnerable to disruption.

The digital and IT-powered revolution will continue to pose both risks and opportunities for investors: the only certainty for an investor is that technological advances cannot be ignored.

Source: BT

What are the best investments for your retirement?

By | Financial advice, Preparing For Retirement, Retirement | No Comments

In the simplest terms, investing your money means buying an asset with the expectation of earning returns from ownership of that asset. If you own an investment property, for example, you can expect to receive rent as income. But if you then sell the property for a higher price than you paid, you’ve increased your returns from your asset even more.  This is known as a capital gain – the growth in value of an asset over time.

Different types of investments are grouped together into asset classes – a group of investments with similar characteristics, such as term deposits, bonds, property or shares/equities. When it comes to choosing between different investment options, they generally fall into two broad categories, defensive and growth assets.

Defensive assets offer less opportunity for growth, but more stability and security for your original investment. A term deposit is an example of a defensive asset – the interest you’ll earn is fixed but you’re guaranteed to get your original deposit back at the end of the term. Growth assets, such as shares, carry more risk but offer more potential to grow your wealth over time.

Why diversification is important

When choosing growth assets and defensive assets to invest in you’re looking at how much you can expect to earn compared with the risk of losing some of the original sum invested. Diversifying your investments can be a good way to strike a balance between risk and reward. Because different asset classes behave differently at different times, spreading your money across a number of assets can help you earn more stable investment returns overall.

Investing costs

Every type of investment comes with costs. For buying and selling shares, you’ll pay brokerage fees for each transaction. When you buy and own property, there are upfront and ongoing costs such as stamp duty, agency fees and maintenance costs. Plus, you’ll be liable for tax on the income from your investments and on any capital gain you earn when you sell assets. These are all things you need to take into account when looking at different investment options.

Should you invest in a super fund?

You can invest in all sorts of assets outside of super, either directly or through managed funds. Most super funds will also offer a wide range of choices for investing your money, including their own blended investment options, such as growth, conservative (defensive) or balanced.  So should you be investing your retirement savings in super or look elsewhere?

A key benefit of investing through your super fund is the potential savings on the tax on your investment income. Any investment earnings in your super fund are taxed at a maximum rate of 15%, regardless of the marginal tax rate on the rest of your income. The main drawback of investing in super is the money you invest and the investment earnings are locked away until you reach your preservation age and/or meet a condition of release. If you need access to the money you’re investing in the short or medium term, then your super fund isn’t the right place for it.

What about SMSFs?

If you’re looking for more flexibility in your choice of investments than you can expect from a super fund, a Self Managed Super Fund (SMSF) could be the answer. However, there are significant costs involved in setting up and managing an SMSF so your freedom to invest super savings in property or collectibles, for example, comes at a price.

Your superannuation investment strategy

There’s no one-size fits all when it comes to investing. Whether it’s your investment strategy for retirement or another purpose, there are lots of personal circumstances and preferences to think about. Some of these include your investment timeframe, your appetite for risk and how much you already know about different types of investments. To find out more please contact us.

Source: FPA Money & Life

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?


  • 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.


  • 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?

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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 (, 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