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Financial advice

How to get out of debt

By | Debt management, Financial advice | No Comments

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

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

What to do if you can’t pay

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

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

Accessing super to pay debts

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

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

What can happen if you don’t pay

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

What to do about debt recovery

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

How long can debts last?

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

Source: FPA Money and Life

Retirement planning in your 50s

By | Financial advice, Preparing For Retirement | No Comments

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

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

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

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

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

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

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

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

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

Your superannuation savings

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

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

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

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

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

Source: BT

Incorporating alternative investments in an SMSF

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

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

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

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

How alternatives could fit within your self-managed super fund

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

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

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

The benefits of alternatives in a self-managed super fund

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

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

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

Importance of diversification in a self-managed super fund

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

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

And the drawbacks

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

Getting access to alternatives for your self-managed super fund

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

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

In summary

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

Source BT

How you can benefit from share market fluctuations

By | Financial advice, Investments | No Comments

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

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

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

Understand share price changes

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

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

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

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

Take a long-term view

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

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

Diversify your portfolio

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

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

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

Source: Colonial First State

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

By | Financial advice, Investments | No Comments

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

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

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

How do you react to market fluctuations?

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

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

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

What happens if you sell?

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

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

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

Are there alternative options?

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

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

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

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

Source: Colonial First State

8 easy steps to take control of your super

By | Financial advice, Superannuation | No Comments

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

1 – Understand how superannuation works and what the benefits are

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

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

2 – Check if your employer is paying your super

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

3 – Check how much super you have today

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

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

4 – Find lost or unclaimed super

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

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

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

5 – Consolidate your super into one account

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

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

6 – Check the insurance cover in your super

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

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

7 – Keep your beneficiaries up-to-date

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

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

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

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

8 – Review your investment options within super

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

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

Diversification – why it should be your best friend

By | Financial advice, Investments | No Comments

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

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

Diversify, yes – but also think of your objectives

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

Conservative portfolio:

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

Balanced portfolio:

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

Growth portfolio:

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

The traps of diversification

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

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

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

About managed funds

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

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

Source: BT

What kind of money parent are you?

By | Financial advice | No Comments

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

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

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

What money conversations are parents having?

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

What parents said they discussed:

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

What approach do you take with your kids?

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

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

The engaging parent

Common traits:

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

The side-stepping parent

Common traits:

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

The relaxed parent

Common traits:

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

The do-it-anyway parent

Common traits:

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

What approach is best according to the research?

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

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

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

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

Source: AMP

7 step guide to buying your next home

By | Financial advice | No Comments

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

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

Step 1

Figure out what you’re looking for

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

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

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

Step 2

How much equity do you have?

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

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

Step 3

How much can you really afford?

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

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

Step 4

Are you selling or buying first?

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

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

Step 5

Get your finances sorted

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

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

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

Step 6

Start searching for the new (or preparing for sale)

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

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

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

Step 7

Make an offer and finalise your finances

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

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

Source: ING

6 misconceptions about life insurance

By | Financial advice, Wealth Protection | No Comments

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

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

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

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

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

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

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

2 – Life insurance is set-and-forget

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

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

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

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

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

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

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

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

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

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

5 – You’ve got life insurance covered through super

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

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

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

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

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

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

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

Source: BT,

Live for the moment vs save for the future

By | Financial advice | No Comments

Want to boost your financial wellbeing without giving up completely on being spontaneous?  Get on top of your finances and enjoy life more at the same time with our five step guide to living in the moment while saving for the future.

Don’t be a slave to your savings

Mastering money starts with a budget and there’s no doubt that feeling in control of your money is linked to your overall wellbeing.  But you might be reluctant to set a budget when it makes you feel like all your money is spoken for.  Life can seem very limited if you’ve already decided on the exact destination for each and every dollar.

So instead of becoming a slave to saving for the future, here’s a five-step approach that keeps your options open for doing some spontaneous spending once in a while, without losing out on your future financial stability as a result.

1 – Get cash flow savvy

Figuring out just where your money is going right now night seem like a hassle.  But it’s absolutely necessary if you’re going to achieve your goal of saving and also spending a little just for the sake of it.  Understanding your spending habits and patterns can shed some light on where you’re spending more than you need to, so you can start to make better choices with your dollars in step 2.

Doing this weekly makes it much easier to take control of cash flow.  A week of overspending can be balanced out quickly in the following week simply by making a few small sacrifices.

2 – Budget based on what matters

Now it’s crunch time for making good on those cash flow lessons you’ve been learning.  By looking at where your money has been going, you’ve got the knowledge you need to stop spending on things that are less important.  This frees up more dollars for your savings and what you really value.

Let’s take dining out for example.  If you have your heart set on an overseas holiday once a year, ask yourself if weekly restaurant meals are as important?  By cooking at home for three out of every four Saturdays and saving that money towards travel instead, you’re directing your budget towards what matters to you.

3 – Limit fixed commitments

Having more to spend in the present also depends on limiting how much of your income is already spoken for.  Mortgage and loan repayments, utility bills, insurance premiums, memberships and subscriptions are all regular payments that can add up to a big chunk of your outgoings.  While some of these are essential, avoiding buying things on credit or using a loan can reduce your ongoing costs and free up money to save towards your goals or spend spontaneously.

4 – Automate your savings

Whether it’s saving for a new car – so you won’t have that long-term commitment to paying off a loan plus interest – a holiday, or just a rainy day, setting up separate accounts for these goals helps you see that you’re making progress.  And making automatic deposits from your income into these accounts is the ideal way to ensure you’re making regular contributions towards your goals.

5 – Plan to spend spontaneously

As these savings balances start to grow, it can bring a sense of freedom in your current and future spending choices.  Knowing your goals are getting closer allows you to spend money freely and still be financially responsible for your future. And if you want to look forward to a guilt-free splurge, think about dedicating one of your savings accounts to spontaneity.  With a pot of cash on hand to spend at will, you can enjoy ‘live in the moment’ experiences now and again without your future goals or cash flow taking a hit.

Source: Money & Life

Steps to buying a new home

By | Financial advice | No Comments

Ready to take the plunge and buy a new home?  Make sure you know exactly what to expect from the home buying process with our simple step-by-step guide, covering everything from making an offer to moving in.

Making an offer – private treaty

In Australia, properties are offered for sale either through an auction or private treaty arrangement.  The process for buying your home will be different, depending on which sales method is being used.

When you make an offer on a property that’s for sale by private treaty, the owner – or the real estate agent acting on their behalf – will let you know if the offer has been accepted.  There are a couple of advantages with this type of sale.  You can make your offer conditional on the outcome of inspection reports or certain repairs being carried out to the property before settlement.  Plus, most private treaty contracts will include a cooling-off period, allowing you time to arrange inspections and ensure you’re 100% certain this is the property you want to buy.  The length of the standard cooling-off period varies between different states and territories.

Having an offer accepted on a private treaty sale doesn’t guarantee you’ve got the property.  Until you pay the deposit and exchange contracts, you run the risk of being ‘gazumped’.  This is when the vendor accepts a better offer from another buyer after they’ve said yes to your offer.  This is perfectly legal if no contracts have been signed and no money has exchanged hands.

Buying at auction

Going to an auction is quite a different experience to negotiating a private treaty sale.  You need to do all your homework and research in advance, as your decision to bid and buy the property is binding on the day of the auction.  There is no cooling-off period and you’ll be expected to sign contracts and pay the deposit immediately.

This is why you’ll need to arrange inspections and carefully review the reports before going to auction.  You should also have your conveyancer look at the contract and inspection reports and request any changes to the contract prior to auction.  If you’d like a longer settlement period, for example, you need to arrange this before the auction.

Finances

Whether you’re buying at an auction or through private treaty, you’ll need to have funds available to pay the deposit on signature of the contract.  You should also make sure you have pre-approval for a mortgage up to the amount needed to pay the final sale price, plus all other costs associated with the transaction.

Deposits and contracts

10% of the sale price is the usual amount you’ll be paying as a deposit when you exchange contracts and commit to buying your first home.  So when you attend an auction or meet with a real estate agent after making a successful offer, bring your cheque book and make sure you have the funds in your account to pay this amount.

Having a conveyancer check the contract before you sign is very important, particularly if you’re buying at auction and won’t benefit from a cooling-off period.  Your conveyancer should be familiar with all the terms of the contract before you sign, so they can alert you to anything that might be a deal-breaker.

Inspection reports

Having your prospective home inspected for any sign or risk of pest damage or for building defects isn’t a mandatory part of the buying process.  But becoming a home owner is probably the biggest financial commitment you’ll ever make, so it makes sense to be as certain as you can be that you’re not about to buy a property that will need expensive repairs in future.

If inspections do reveal some type of problem, you may choose to use this information to negotiate a lower price with the vendor or decide on a lower bidding limit when you go to auction.  Your conveyancer can help you look for any issues in the report that may be significant and give you grounds for a reduction in price.

Valuation

Your mortgage provider will arrange a valuation of your property as they process your home loan application.  This is to ensure the lender isn’t loaning you more for the property than it’s actually worth.

Settlement

The settlement period is the time between contract exchange and transferring ownership of an existing property.  There are recommended settlement periods for different states, but generally speaking, vendors and buyers can negotiate a settlement to suit their circumstances.  For example, a longer settlement period may be requested by a vendor who hasn’t yet found their next home to buy.

During this time, your mortgage provider and conveyancer will work with you to prepare all the paperwork and the balance of the purchase price to complete the sale.  On the day of settlement there isn’t actually much you’ll need to do as your conveyancer and mortgage provider will finalise the legal and financial details of the transaction.

At settlement you’ll become the legal owner of the property.  Even if you’re not planning to move in straight away, it’s worth arranging a visit to ensure that everything is as it should be with the condition of property and any fixtures and fittings included in the contract.  And you should also arrange building insurance to cover your property starting from the settlement date.

Source: Money & Life

Four ways to declutter your finances

By | Financial advice | No Comments

Ready to discover the life changing magic of simplifying your money management?  Taking the lead from minimalism guru Marie Kondo, we bring you a step-by-step guide to applying decluttering principles to your finances.

Less really is more

Of course, we’re not talking about giving all your money away to make life simpler.  But simplifying your finances will almost certainly make it easier to stay on top of money matters.  When you’re dealing with too many bank accounts, bill payments, super balances and debts, you’re far more likely to lose track of what’s going on with your money.  And that means things can fall through the cracks, which leads to missed opportunities as well as long-term problems.

1 – Budgeting based on your values

Just as Marie Kondo lays down the challenge to only keep things that bring you joy, it’s just as important to prioritise things we value when spending money in the first place.  Understanding what you value most, and then taking a good look at where your money is actually going can be a powerful way to shift your spending habits.

2 – How many bank accounts?

Although it can help to have different bank accounts for savings goals, and another to make sure all your regular expenses are covered, keep multiple accounts to a minimum to save time and effort. Monitoring balances, interest and outgoings for so many accounts just makes things complicated.

Having four separate accounts should be enough for you to manage income and expenses with ease and keep everything simple and smooth with your cash flow and savings.  The majority of your money will go into the household account for everyday expenses, with two savings accounts, one for short term goals, like saving for a holiday, and another for your financial future.  Funds from this third account might go towards a rainy day fund, your super or some other type of investment.  And having a fourth account where you can channel about 10% of your monthly income to spend on yourself, guilt-free will allow you to save for the future without missing out on enjoying yourself, here and now.

3 – Simplify your super

Over a lifetime your super balance has the potential to become one of your biggest financial assets.  So making sure you’re receiving all the super contributions you’re entitled to and knowing where they are is an important part of financial housekeeping.  It’s not unusual to lose track of super if you’ve changed jobs or moved house a few times.  The MyGov portal (www.my.gov.au) and ATO offer a free service to help you find lost super.

The fund you’re with now can also help you track down super balances held in your name and consolidate them into a single fund.  Not only will consolidating super give you fewer funds and statements to keep track of, it can also save you a fair amount in fees.  Before you decide to close any of your existing accounts, it’s important to check whether you’ll still have the right level of insurance cover as you’ll often have personal insurance policies – such as life or income protection insurance – arranged and paid for through each super fund.

4 – Do away with debt

Clearing multiple personal debts once and for all can seem like an impossible task. As you struggle to get back to zero, temptation can creep in to just borrow more and become resigned to debt as a permanent part of your financial situation.  One option is to consolidate your personal borrowing into a single repayment to make it easier to chip away at the outstanding balance.  Your mortgage provider may be able to refinance your home loan so you can bundle debt repayments with your mortgage and benefit from a lower rate of interest as a result.

Source: Money & Life

9 retirement thought starters for people in or nearing their 40s

By | Financial advice, Retirement | No Comments

It’s never too early to begin to think about your retirement.  Here are 9 thoughts to get you started.

1 – Do I have to retire by a certain age?

You can retire whenever you want to in Australia, but your financial situation, employment opportunities, health and wanting to coordinate with your other half could play a big part.

2 – How much money will I need and where will I get it?

Industry figures show individuals and couples around age 65, looking to retire today, would need an annual budget of $42,953 and $60,604 respectively to fund a comfortable lifestyle, or $27,425 and $39,442 respectively to live a modest lifestyle (which is considered better than living on the Age Pension).  Note, these figures also assume people own their home outright and are relatively healthy.

3 – Have I considered what it’ll cost to do the things I enjoy?

Life expectancy in Australia is increasing, so spare a thought for things outside of just your living costs and utility bills.  What kind of money might you need to do the things you enjoy, such as sport, keeping up with any hobbies you might have, any travel you’d like to do and how often you see yourself eating out?

4 – How and when can I access my super savings?

Generally, you can start to access your super when you reach your preservation age, which will be between ages 55 and 60, depending on when you were born.  As for what you do with your super (which from age 60 you can access tax free) you’ll have a few options.

You may access a portion of your super via a transition to retirement pension (TTR), which you can do while continuing to work full-time, part-time or casually if you want greater financial flexibility.  Alternatively, if you stop work altogether, you may choose to take your super as a lump sum of money, or move it into an account-based pension or annuity, if you want to receive a regular income.

There will be different tax implications for different people and remember your super doesn’t guarantee an income for life, as it will come down to how much super you’ve saved over the years.

5 – Will I be eligible for government assistance?

Along with your savings, government benefits, such as the Age Pension, could be an important part of your income in retirement, if you’re eligible, which not everyone will be.  For instance, the value of various assets you have and any income you receive (in addition to other requirements) will determine whether you’re eligible for the Age Pension and what amount of money you’ll receive in Age Pension payments.

6 – Will I still be paying off my current debts?

If you’re going to be carrying debt into retirement, you may want to think about ways to reduce it sooner rather than later.  Some things you might do:

  1. Work out your debts and what they total;
  2. Look into whether you might benefit from rolling your debts into one;
  3. Look at whether you can afford to make extra repayments;
  4. Shop around for providers with lower interest rates and no annual fees.

7 – Are there other things I should think about?

  • Insurance – You might have insurance, but what you require in retirement could be quite different to when you’re working;
  • Investments – You might consider a more conservative approach to anything you’re invested in, as when you’re young you often have more time to ride out market highs and lows;
  • Estate planning – You may want to document how you want your assets to be distributed after your gone and how you want to be looked after if you can’t make decisions.

8 – Is it a possibility I might relocate or downsize?

Your living arrangements in retirement should be based on more than just your finances.  Your health, partner, family and what activities you’re interested in will all play a part.

If you are set on moving to release money from your property, planning ahead could help you feel more in control as you can assess any out-of-pocket costs in advance.

9 – Am I in a position to make additional contributions to my super?

The more you can put into super, the more money you could have when you retire.  And, if you put some of your before-tax income into super, these amounts will generally be taxed at 15%, which is lower than the tax most people pay on their employment income.

Source: AMP News and Insights

Financial focus – decade by decade

By | Financial advice, Holistic | No Comments

Everyone has a different life journey they’re on but getting on top of key financial goals as you follow your own path could see you enjoying a more comfortable lifestyle and being ready for the next chapter to begin.  Read our guide to getting all your money matters sorted out, one decade at a time.

In your 20s

Goodbye debt – the real danger in your 20s comes from building up debts that will need to be paid off before you can use your income for other financial goals.  Buying a home, investing or saving for retirement – all these things can end up on pause indefinitely while you get debts under control.

Hello investing – any investment is unlikely to earn more than you’d pay in interest on personal borrowing, so it’s important to pay debts down before getting started with investing.  However, investing while you’re young is important because the gains you can make through compounding returns really add up over time.  Keeping surplus money in cash or in a bank account could leave your savings losing value thanks to inflation.

Your super – super is likely to be one of your most tax-efficient ways to invest.  So give some thought to your super fund as one of several options to turn savings you have now into future income.

In your 30s

Personal insurance – your 30s are often a time when commitments and responsibilities start to ramp up.  Career, kids and a mortgage could all be coming into the picture.  If you haven’t arranged personal insurance until now, make sure it’s on your checklist.  You may have cover through your super fund, so remember to check your super statement and consider whether it’s enough cover to provide for your family.

Paying for education – if you have kids then private education fees may be on the cards in the years to come.  Making some timely investments that can earn enough to cover those costs will save your cash flow from being squeezed when you may have many other big bills to pay for including household expenses, your mortgage and more.

Your super – as your super balance starts to grow through superannuation guarantee contributions, keeping an eye on things like fees and investment options will ensure you’re on track for a comfortable retirement in a few decades’ time.

In your 40s

Manage spending – the great news is you’re probably hitting your straps in your career and earning more but living expenses can skyrocket at this time if you have a mortgage and kids are on the scene.  Now is the time to focus on what you value and budget accordingly.

Reduce money stress – if you’re struggling to manage cash flow, focus on your spending and lifestyle priorities and feel like your finances are out of control, a financial plan can help.

In your 50s

Get mortgage-free – if you still have a big home loan balance, now is the time to chip away with extra payments so you can get mortgage-free before retirement.  Not only will it save you on interest in the longer-term, it means more of your retirement income can go towards ticking things off the bucket list, rather than keeping a roof over your head.  

Invest wisely – once you’re in the clear with debt, consider putting any cash flow surplus into super.  As you get closer to retirement, it’s important to make sure your super is invested in a way that won’t put your savings and income at risk when you decide to retire.

In your 60s

Manage your savings and income – apart from your home if you own one, your super is likely to be your biggest asset at retirement.  So it makes sense to do some careful thinking and planning before making choices about how to maximise income from your retirement savings.

Get ready to hand over – being in the best of physical and financial health means you can look forward to a retirement with few restrictions.  While you’re feeling and living well, it’s a good idea to get your Power of Attorney and estate plan arrangements organised.  This will allow you to get the help you need if and when things change, and you’re less capable of taking care of your finances.

Source: Money and Life

4 tips for women to take control of their super

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

Faced with average lower earnings, possible time out from the workforce to raise children, and longer life expectancy, it can be a struggle for women to save enough money in their super. According to the 2017 HILDA survey, Australian women are retiring with an average superannuation balance of $230,907 while men are retiring with about twice this amount.

But if you’re a woman earning an income, it’s never too late to play catch up.  Looking at your super and taking action now could make a difference over time to how much savings you have in super for retirement.

1 – Get to know your super better – it’s your money

Superannuation, or ‘super’, is money set aside while you are working so that when you stop working it will provide you with an income in retirement.  If you are an employee, your employer should be making super contributions to a superannuation fund on your behalf. These payments, known as super guarantee contributions or concessional (before-tax) contributions, will be equivalent to 9.5 per cent of your salary or wages.

If you are self-employed, you will need to pay yourself super to provide for your retirement.  You can make regular contributions or make lump sums less frequently, to suit your cash flow.  To get to know your super better, start by checking your balance regularly, along with the insurance and investment options you have to make sure they are the best fit for your circumstances.

The Australian Taxation Office (ATO) recommends that you check your employer is paying the correct amount of super on your behalf.  If you are unsure how much your employer should be paying you can use the ATO’s Estimate my super tool.  If your employer is not paying the correct amount you can report this to the ATO online.

Many super funds arrange life and disability cover for their members, for a fee.  Having insurance can provide a good sense of security for you and your family.  It’s important that you know what cover you have as you might have similar cover under another type of policy.  This might mean you are paying for the same cover twice, however you will not be able to claim twice.

2 – Consolidate your super and save on fees

It’s a good idea to make sure all your super is in the same place.  If you’ve changed jobs, different employers might have made your super guarantee payments to different funds over the years.  This means you could have ‘lost super’ in accounts you’ve forgotten about.  If your super is in multiple funds, you also have to pay separate administration fees to each fund, which eats into your retirement savings.

3 – Contribute more and watch your super savings grow

Want to see your super grow faster?  You can make payments into your super fund account in addition to the Super Guarantee 9.5 per cent that your employer pays on your behalf.  This could really boost your super over time, and can help you make up for periods when you are not working.  Even small amounts could make a difference.

The different types of additional contributions that can be made to your super fund are:

  • Concessional (before-tax) super contributions – these are super contributions you make before you pay tax on them;
  • Non-concessional (after-tax) super contributions – these are super contributions you make from sources that have already been taxed.

Be aware that the Federal Government applies monetary caps to these contributions to limit the tax concessions associated with making super contributions.  Some types of contributions if made in excess of these caps are subject to tax rates of up to 49 per cent.

4 – Don’t forget your TFN, otherwise you may pay more tax

To confirm if your super fund has your tax file number (TFN), take a look at your super statement.  If your TFN is not listed, contact your fund and give it to them.

The benefits of providing your fund with your TFN are:

  • Your fund will pay less tax on employer contributions (and pass the savings on to you);
  • Concessional contributions are generally only taxed at 15 per cent, which means you could lower your taxable income;
  • You are less likely to lose track of a super account;
  • You will not miss out on government super payments – for example, the government co-contribution if applicable;
  • You will be able to make personal (after-tax) contributions to the fund.

 Source: Colonial First State

6 things to avoid as a new investor

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

Whatever your age, if you’re thinking of dabbling in investments like shares, managed funds or cryptocurrencies, here are a few things to steer clear of.

When looking to invest, it’s generally wise to think about:

  • Your current position and how much you can realistically afford to invest (consider what other financial priorities you have or existing debts you may be paying off?);
  • Your goals and when you want to achieve them;
  • Implications for the short/medium and long term;
  • Whether you understand what you’re actually investing in;
  • Whether you know how to track performance and make adjustments;
  • If you want to invest yourself, or with the help of a broker or adviser.

As a general rule, investments that carry more risk are better suited to long-term timeframes, as investment performance can change rapidly and unpredictably.  However, being too conservative with your investments may make it harder for you to reach your financial goals.

  • Low-risk (or conservative) investment options tend to have lower returns over the long term but can be less likely to lose you money if markets perform badly;
  • Medium-risk (or balanced) investment options tend to contain a mix of both low and high-risk assets.  These options could be suitable for someone who wants to see their investments grow over time but is still wary of risk;
  • High-growth (or aggressive) investment options tend to provide higher returns over the long term but can experience significant losses during market downturns.  These types of investments are generally better suited to investors with longer term horizons who can wait out volatile economic cycles.

There are risks attached to investing, which means while you could make money, you might break even, or even lose money should your investments decrease in value.

On top of that, liquidity, which refers to how quickly your assets can be converted into cash, may be an issue.  Depending on what type of investment you hold or what may happen in markets at any point in time, you mightn’t be able to cash in certain investments when you need to.

Investment diversification can be achieved by investing in a mix of:

  • Asset classes (cash, fixed interest, bonds, property and shares);
  • Industries (e.g. finance, mining, health care);
  • Markets (e.g. Australia, Asia and the United States).

The reason diversifying may be a good thing is it could help you to level out volatility and risk, as you may be less exposed to a single financial event.

Many investors get caught up in media hype and or fear and buy or sell investments at the top and bottom of the market.  Like with anything in life, it is easy to get stressed and concerned about the future and act impulsively but like with other things this may not be a smart thing to do.

While there may be times when active and emotional investing could be profitable, generally a solid strategy and staying on course through market peaks and troughs will result in more positive returns.

Source: AMP News and Insights

7 ways to reduce your credit card debt once and for all

By | Debt management, Financial advice | No Comments

If you’ve realised you might have a problem with your credit card debt, it’s time to take back control.

Sit down, take a deep breath and work out a step-by-step plan.

  1. Stop all but essential spending on your credit card.  Try and get by without your credit card and use cash wherever possible while you work on your plan.  You could even set yourself a challenge not to spend any money for a week!;
  2. It sounds basic, but start by listing how many cards you have and what you’re paying for them in interest;
  3. If you have more than one card, start chipping away at the low-hanging fruit.  Consider paying the card with the highest interest rate off first or if the rates are similar, work on clearing the smallest debt;
  4. If you can’t pay a card off in full, see if you can pay more than the minimum each month to reduce your balance more quickly and save on interest.  It could be worth setting up a direct debit on your payday to pay a fixed amount;
  5. Once you’ve paid off a card, close the account and work towards having a single card to help make your finances easier to manage;
  6. If you feel that your interest rate is too high, you could consider transferring any remaining balance to a card with a lower interest rate or rolling the debt into an existing personal loan or mortgage, these tend to have lower interest and fees.  Many providers offer great rates to consolidate, but make sure you pay the card off during any honeymoon period with the new provider so that you don’t start accruing interest.  Check the fine print—what interest rate will you pay after any promotional period ends?  You don’t want to just kick the can down the road;
  7. If all else fails, don’t be afraid to ask for help from your credit provider.  There may be a way you can work out a spending plan that takes into account your financial circumstances.

But how do you make sure you don’t fall into the same credit trap again?  It’s all about developing more healthy financial habits.

  • Reduce your credit card limit(s) to take temptation off the table;
  • Try not to use credit to pay for the basics like food, groceries and utility bills.  See if there are any ways you could adjust your household budget or make savings elsewhere so you’re only using credit as a last resort;
  • Avoid cash advances because they may attract higher interest rates;
  • Be wary of store cards and any fees you’ll pay – they are just another form of credit card;
  • Keep track of your spending.

Don’t forget to take advantage of credit card reforms

  • You can cancel your card or lower your limit online for all new accounts;
  • You won’t be charged any back-dated interest, and;
  • You’ll be assessed on your capacity to repay your debt when you ask for an increase.

Once the credit card’s sorted, it could be time to move on to any other debts you might have.

Source: AMP News and Insights, 18 December 2018

How close are we to a cashless society?

By | Financial advice | No Comments

With tap and go payments becoming ever more popular and the advent of instant transfers between domestic bank accounts, how much longer will we be using cash as a form of payment?

According to recent survey results produced by You Gov Galaxy and commissioned by payments provider Square, the average answer to the question of “How much cash do you carry?” is likely to be ‘about $38’ if you’re under the age of 40.  Baby boomers are much more likely to have a few more notes and coins on them, carrying $72 in cash on average.  Almost five million Aussies haven’t visited an ATM within the last 4 weeks or can’t even recall the last time they withdrew cash.

Put this together with the Reserve Bank of Australia’s report from 2016 that found only 37% of payments in Australia were being made in cash and you can see where we’re heading – a time when having cash just won’t be necessary or practical for the vast majority of the transactions we make.

Tap happy?

Unfortunately, the convenience of tap and go payments may end up having a negative impact on our ability to keep our spending within reasonable limits.  According to a study from the University of Sydney, people can be expected to spend up to 50% more by paying with any payment type other than cash.

“There’s good empirical evidence that people spend more money when they don’t actually have to use cash, and that goes across different alternative forms of payment,” says Donnel Briley, Professor of Marketing and Behavioural Psychology at the University of Sydney.

A survey of high school students back in 2017 demonstrated that many teens simply don’t understand key concepts around personal borrowing with credit cards.  This makes them particularly vulnerable to the perils of buying something without really thinking through how much it costs in real terms.  When there is interest to pay on their purchase, as well as the opportunity cost of having already spent the money, young people can be particularly vulnerable, to buyer regret as well as serious financial struggles when they’re saddled with repayments on long-term debts.

Good and bad for business

As well as presenting economic challenges for consumers, a cashless world also has pros and cons for businesses.  While some small and medium sized businesses might celebrate saying goodbye to hours spent counting notes and coins – 216 hours on average each year according to the You Gov Galaxy/Square survey – others could be losing out on revenue with less cash changing hands.

A 2017 survey by ME Bank reports a 51% fall in cash payments in the last five years for industry employees traditionally remunerated in cash, such as tradespeople and hospitality staff.  Tipping and on-the-spot charity donations are two of the biggest casualties of the disappearance of cash, with each recording falls of 45% and 44% respectively in the frequency of cash payments in the same period.

Easier than EFT

A significant game changer for Australia’s move towards being cash-free could well be the National Payments Platform (NPP).  Officially launched in February 2018, the NPP technology could end up replacing many EFT and cash transactions but hasn’t been offered broadly by financial services institutions yet.  Assuming that widespread adoption of the NPP, and its associated services like PayID and Osko, are just a matter of time, the move towards a cash-free economy could pick up speed in the months and years to come.

Source: FPA Money and Life

Gearing can be a great way to grow your wealth but it carries risks

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

If you are you borrowing money to invest, or considering doing so, it’s important to ensure you aware of the risks involved.

Gearing, or borrowing money to invest, can be a great way to grow your wealth, but it isn’t for everyone.  The aim is to borrow money at a lower rate of interest than the return you will earn by investing that borrowed money – to make a profit.

We often hear about gearing when people talk about investing in property – that is, they’ve taken out a mortgage to help pay for the property or they hope to benefit by negatively gearing it for tax purposes.  However, many investors use gearing to fund other asset classes, such as direct shares and managed funds.

Gearing can magnify your gains, but it can also magnify your losses.  Here are some factors to consider:

Market conditions

Gearing pays off when asset prices are poised to rise or are rising, but what happens if they fall?  The dramatic plunge in share prices in the wake of the global financial crisis in 2007 and 2008 was a sharp reminder of the risks of gearing.

Thus, an important consideration is how you expect markets to perform.  If you follow the markets, you’d know that share markets have been on a 10 year bull run and that the property market, especially in Sydney and Melbourne, has been booming in recent years although it is beginning to slow down and values decrease through late 2018 and early 2019.

After such good runs, it’s no surprise that some experts believe both of these markets could be in for a correction in the near-term.  World markets are also fairly volatile, given talk about trade wars and problems with countries like Russia and North Korea.  Could there be some unpleasant surprises that affect investment markets?

Interest rates

Interest rates have been low for the past decade, but they are starting to rise in some parts of the world and at some point, the Reserve Bank will also lift them again in Australia.  In addition, it’s possible that your bank could lift the rates it charges you because it faces rising regulatory costs.  How will higher interest rates affect the returns on your investments?  Will you have the capacity to pay these higher rates?

Margin calls

If you have taken out a margin loan, there is the risk that if the assets you have used as security for this loan drop in value, your bank will ask you to provide additional security or pay down part of the loan.  If you don’t have the money available, you may even have to sell the asset at a loss to meet the bank’s demands.

There’s also the risk that your lender will adjust the loan to value ratio or LVR on your loan.  The LVR is the amount of your loan divided by the total value of your shares or property.  Most lenders require you to keep the LVR below a maximum of 70 per cent.

If the lender lowers the LVR, you will have to find the extra cash to pay the lender.  If you don’t have it, you may have to sell part of your investments to raise the cash or you may have to provide additional security for the loan.

Timing

Another risk is that your income may lag behind your interest payments.  On the investment side, the income you receive may be delayed because your property currently has no tenant in it or a company decides not to declare a dividend.  In addition, your income could also be affected if you lose your job or fall ill.

Reducing the risks

The following are some of the ways in which you could reduce the risks of gearing:

  • Have an emergency cash stash in an account that you can use to meet any margin calls.  You will have to respond quickly if your bank makes the call, perhaps within 24 hours or less;
  • Consider getting some income protection insurance in case you become sick or injured and unable to work;
  • Borrow less than the maximum amount the lender offers you.  This will reduce the chances of you experiencing a margin call;
  • Diversify your investments.  Spread your investments across different industries, regions and asset classes.  If one type of investment falls, another may rise, smoothing out the volatility in your portfolio and making a margin call less likely;
  • Make regular interest repayments on your loan to prevent your debt from growing;
  • Be vigilant.  Keep a regular eye on your investments, the market and your margin loan and be ready to adjust your strategy if circumstances change.

Source: Money & Life