Peace of Mind is King

We have all heard both sides of the argument between owning a home and renting a home. You would have all experienced loyalists to both sides of the argument passionately lecturing you about why their side is superior to the other. It all comes down to what it is you want to achieve, and above all else, peace of mind.

It is an interesting phrase, peace of mind, often referred to as a sleep at night factor. The Collins Dictionary defines it to mean ‘the absence of worry’.¹ Whenever making a decision in life – financial or not – I believe the criterion we should give the most weighting to is whichever option gives you the best sleep at night. There is no point making a decision and lying in bed at 2am every night worrying if you made the right one or not. That is not what life is about.

Circling back to the argument of renting a house versus buying a house. Each side has its own logic and merit, there is no doubt about that. A house is a lifestyle asset so we need to be prudent in ensuring the costs associated with owning or renting one does not adversely affect our lifestyle too much. Let’s break down some advantages and disadvantages of the two, and I will focus on living in the Geelong area as a reference point.

When you own your home, the first thing people realise is a sense of stability. The home is now yours, and provided you have no issues repaying the mortgage, it is very difficult for anybody to take it off you. Although, it can be done², think ‘The Castle’.

What’s more than the sense of stability is the emotional attachment you have with your home. This is often deemed priceless. Most people would have memories of their family home growing up. Because you own it, you can do what you like, such as drawing a height chart on the wall that you add to on your children’s birthdays, renovating, putting picture frames wherever you like, and if you’re lucky, you could even put a pool in.

Arguably, the most valuable aspect of home ownership is the opportunity to use the equity you potentially own to invest for the future. For this opportunity to become beneficial, you have either got to paydown the principal of your mortgage significantly, or are lucky enough to own a home in an area that has experienced large capital growth. The lifestyle on offer in the Geelong area is envied all around the world, which has lead to capital growth in recent years. So much so, they have developed a new estate in Armstrong Creek. The demand for homes in this area is so strong, that the average time a home listed by local agent, Armstrong Real Estate, spends advertised on the market is just 16 days. This estate is situated only 10-15 minutes from the Geelong CBD and numerous coastal beaches, what a great lifestyle that would be? If owning a home and having this sort of lifestyle sounds decent, at Income Solutions, we can help assist implementing the strategies necessary to ensure you can lead your desired lifestyle and still get a sound nights sleep without any worries.

Of course, as Gary Ablett now knows, the value of your house can just as easily drop³. There are risks. They do not always go up in value, and, as the owner of a mortgage, you are a slave to interest rates. Interest rates are an obvious issue and can affect your peace of mind. They’re currently quite low, however, they are on the increase. This can cause severe financial stress (4) and is something you’re unlikely to experience whilst renting. On top of rising interest rates are the costs of owning a home. Rates, insurances, maintenance, stamp duty when buying etc. These all add up and it is mandatory to allow for these kinds of costs in your annual budget before making the decision to buy a home. Remember, planning for these can still give you great peace of mind.

Alternatively, there is the option of renting. Viewed with a lot of unfair stigma in this country, renting can be seen as ‘dead money’. I agree, to an extent. In most cases, it can be cheaper to rent a house than it is to buy it. You can live in an area that best suits your lifestyle at a cheaper price. The demand for rentals in the Geelong area is also booming due to the lifestyle on offer; the supply of homes cannot keep up with the demand. Armstrong Real Estate lease out advertised homes in an average of 7 days, such is the popularity of this area.

A prudent renter should use the cash they save on their dwelling and invest this for their future. It is when this cash saving is simply squandered on lifestyle that rent does become dead money. Everybody’s favourite finance commentator, The Barefoot Investor, says in his book that if a person rented the same house their friend had bought, invested the difference in their associated costs, the renter would be in a better financial position in 20-30 years time. True, for the most part.

Another aspect of renting is the flexibility. This can also be seen as uncertainty. If the freezing winter’s of Geelong become too much to handle, it is very easy to simply sign a new lease and move to a place like the Whitsunday’s, not needing to worry about the extremely lengthy time it can take to sell your home. The other side of the same coin is also very real. A family of 5 receiving a letter from their property manager telling them they have 30 days to vacate the premises is surely going to cause a few sleepless nights. If the potential of this happening to you as a renter causes you severe angst and little-to-no peace of mind, then renting is probably not for you.

Personally, I understand that owning a home will cost me more money than renting one. Unfortunately, this country does not offer 10-20 years leases like other countries of the world(5). Therefore, I currently rent, with the goal to own a home in the near future for two reasons. Primarily, I would like to buy a nice little acreage around Geelong. These types of properties are hard to come by as rentals, and I would like to have full control over it. I am aware of the opportunity cost and it is a risk I am willing to take. Secondly, I plan to use the equity I build in my house to invest in my capital base. I will turn my bricks and mortar into an asset, and have it earn me some cash, rather than force me to spend cash on it.

The basic thing is I have a plan. This plan is what gives me peace of mind. At Income Solutions, we can help you create your plan, and, with a bit of luck and forethought, some decent peace of mind as well.

 

1 https://www.collinsdictionary.com/dictionary/english/peace-of-mind
2 https://www.afr.com/real-estate/residential/cancelled-east-west-link-houses-are-being-sold-to-the-public-with-conditions-20150416-1mmedq
3 https://www.news.com.au/finance/real-estate/melbourne-vic/geelong-star-gary-ablett-caps-off-homecoming-with-sale-of-gold-coast-home/news-story/017f13105e10ae150a73b0b8215497a0
4  https://www.yourmortgage.com.au/mortgage-news/nearly-one-million-households-are-in-mortgage-stress/248566/
5 https://www.smh.com.au/business/companies/renting-property-dont-hold-your-breath-for-a-long-lease-20141104-11eftx.html
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

Are you prepared for the end of Financial Year

The end of the financial year is the cue for most of us to look at our financial position heading into tax time. Hopefully you’ve made progress towards your goals. But if you find that your expenses are trending higher than you’d like or—shock, horror!—higher than your income, this could be the perfect time for a fiscal makeover.

The starting point is gathering up as much information as possible, beginning with the household budget.

Take a budget snapshot

You can’t set realistic financial goals and savings targets without knowing how much money you have at your disposal. If you don’t already track your income and spending, then take an annual snapshot as you go through your records to prepare your annual tax return.

Deduct your total spending from total income and what’s left is what you have to work with. Any surplus could be used to kick start a regular savings plan. If you discover a budget black hole, identify areas where you are overspending and could cut back.

Pay yourself first

Did you manage to save anything this year or are you are constantly counting on this month’s income to pay last month’s bills? Do you spend first and hope to save what’s left?

Instead of making saving an afterthought, pay yourself first and allocate a percentage of your income to a regular savings plan. Setting up a weekly or monthly direct debit will remove temptation and encourage you to live within your means.

Review your mortgage

If you have a mortgage this is likely to be your biggest monthly expense so it’s a good idea to check your progress at least once a year. Why not use some of the savings you’ve identified and increase your repayments to save interest? If your mortgage has a redraw facility you could use this to create a cash buffer for emergencies.

While you’re at it, go online and compare interest rates. If your rate is no longer competitive ring your lender to negotiate a better deal and consider switching loans if they won’t budge. Just beware of any exit fees.

Negotiate better deals

Your home loan is not the only expense worth haggling over. These days if you want to get the best deal on your electricity, phone, internet or insurance you need to ask. Before you do, ensure you understand what your current plan/policy covers and research what’s on offer elsewhere.

Make a practice of doing this once a year, when your plan or policy is due for renewal. The savings can be substantial and can be put to much better use reducing debt or growing your wealth.

Check your super

Do you know how much you have in super and how it’s invested? When you retire superannuation is likely to be your biggest asset outside the family home, yet almost one in four Australians don’t know which risk profile their super is invested in.i This can cost you thousands of dollars in retirement savings and takes only minutes to correct.

Go to your fund’s website or call the helpline to ask for your current balance and where it’s invested. As an example, a 25-year-old woman on $80,000 in a conservative option until she’s 70 could improve her retirement balance by $294,000 if she switched to a risk profile more in keeping with her age and circumstances.¹

Protect your wealth

Reaching your life and financial goals is not just about growing your wealth but protecting it.

It’s important to review your insurance policies annually—or as your circumstances change—to make sure you and your family have adequate cover. Insurance can be a significant cost for families, but the income it provides when accidents or illness strike is worth every cent.

So why not go beyond the usual search for last-minute tax deductions this June to do a thorough review of your current position. If you would like us to help you make the most of the year ahead, give us a call.

¹ MLC Wealth Sentiment Survey, 5 April 2018,
https://www.mlc.com.au/personal/blog/2018/04/how_to_add_thousands
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

Handling Financial Stress

You’ve probably heard of social stress – fear of fitting in, feeling anxious about meeting new people. Or you might have experienced stage fright – the stress of public speaking, performing, or presenting in front of people. But there’s another form of stress on the rise that’s potentially affecting Australians much more regularly and seriously than getting butterflies before giving a speech. It’s a different type of stress to… well… stress about.

According to some researchers, close to one in three Australians suffers from significant financial stress. The consequences can be a lot worse than momentary embarrassment from tripping over your words. Alarmingly, nearly 35% of people experiencing financial stress have used drugs or alcohol to manage their negative feelings about money.i Chronic stress – something that’s experienced over a long time – can lead to physical symptoms, including sleep problems.

What is financial stress?

The definition of stress is ‘mental/emotional strain/tension resulting from adverse or demanding circumstances’. Financial stress is when those circumstances have to do with money. As with other sources of stress, money problems can make people prone to withdrawing or lashing out at their loved ones. This in turn, detrimentally impacts family dynamics.

One regular report series by an Aussie bank discusses a few types of financial stress that affect most of the population. The main one is housing payment stress, which is expected to worsen in the future. Then there’s bill stress; sadly, about 16% of households can’t always pay their power bill on time.ii Some families always have to work to make ends meet; they’re experiencing low level but constant financial stress, which can also be damaging.

How to reduce financial stress

It’s all too tempting to say that the solution to financial stress is ‘more money’. In fact, many studies on financial stress talk about how participants pin the blame for their stress on other people. On partners not telling them about joint account activity, or kids needing things they can’t say no to. And therein lies an important clue on tackling financial stress.

Sometimes (not always), arguments over financial matters – a cause of financial stress – are themselves caused by miscommunication. That said, talking about money is never particularly easy. Even when it’s with a partner or loved one. That’s why it can help to create parameters for these conversations. One common ‘rule’ that low-financial-stress couples have is that they agree to discuss purchases from the joint account over a certain amount. Some also like to set ‘free spending’ limits for each family member (taking the form of pocket money for kids) so everyone feels like they’ve got a bit of both accountability and freedom. This is basically a function of household budgeting.

Some other simple ways you can reduce your financial stress levels as a household include:

    • Revise your budget regularly. Every time your income or expenses change, it’s time to review your discretionary spending.

 

    • Thinking about large amounts of money and longer time spans can be overwhelming. If budgeting is stressful, try breaking it down to a daily or weekly calculation.

 

    • Sometimes, anxiety can be caused by thinking about the same things over and over. Get it out of your head and write down the financial problems you’re worried about.

 

    • Can’t keep up with which bills are due when? If you’re not already on direct debit (but could be), consider making the switch.

 

    • See how long you can go without buying anything non-essential. Introduce a bit of friendly competition with your partner or older children.

 

    • Approach each financial ‘problem’ as something that can, in fact, be solved. That’s the first step towards making an actionable plan.

 

  • If you have several different debts, make a plan to not take on one more debt unless you’ve paid off at least two. We can also assist you to decide whether debt management or consolidation is appropriate for your circumstances.

If you or a loved one are experiencing financial stress, let us help. Make an appointment today to discuss how you can tackle the source of your hassles head on.

https://financialmindfulness.com.au/personal-financial-stress-devastating-australian-lives/

ii https://www.mebank.com.au/getmedia/ce8faccb-4301-4cf7-afd7-871f9c45305e/13th-ME-Household-Financial-Comfort-Report_Feb-2018-FINAL.pdf

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

TAX TIME – Child Care Benefit & Child Care Rebate

Lee Nickelson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

It’s that time of year again, time to hunt around for your MyGov username and password in order to log in and update Family Income details (see my previous Blog on how to avoid Family Tax benefit overpayments).  This year for those utilising subsidised child care, there is an additional form, to be completed PRIOR to 2 JULY 2018 – the Child Care Subsidy Assessment.

This requirement has arisen because from 2 July 2018, the Child Care Subsidy and Additional Child Care Subsidy will replace the current Child Care Benefit and Child Care Rebate.  The new payment system will pay directly to your approved child care provider to reduce the fee you pay.

You should complete a Child Care Subsidy assessment or claim before 2 July 2018 to ensure you don’t miss out on child care fee assistance from 2 July 2018. The new subsidy cannot be paid to your service on your behalf if you do not complete the assessment [1].

What will they ask?

Three things will confirm a family’s level of Child Care Subsidy.  The assessment will confirm:

  • Combined family income – A tiering system will apply to determine percentage of eligible subsidy, which fully phases out for income above $351,000
  • Activity level of parents – the parent with the lowest level of activity will determine the hours of subsidised care
  • Type of child care service – this determines the hourly rate cap [2]

Example

Judy works 3 x 8 hour days per week earning $60,000.  John works full time, and earns $80,000 giving them an adjusted taxable income of $140,000.  They have two kids aged 2 and 3, attending day care 3 days, where the centre is open 11 hours per day.  Centre based day care fees are $125 and $129 per child per day – gross fees per week $762.

Current rules mean Judy and John receive up to 50% of their child care fees back each week up to the annual cap of $7,500 per child – so for approximately 40 weeks of the year, Jim and Judy will receive $381 back per week in child care rebate.

Under the new rules, the estimate of subsidy for the above example would result in approximately $455 per week (up from $381) without an annual cap.  Judy and John will be significantly better off. [3]

Things start to change if Judy and John earn more than $251,248 – their percentage subsidy rate starts to decrease from 50%.  If they earn more than $186,958, a $10,000 subsidy cap is also applied per child. [4]

If you would like to know more, the sources below provide some great detail about the changes.

We are also here to help if you have any questions as well as help to complete the Centrelink assessment.

 

[1] https://www.education.gov.au/new-child-care-package-transition-families

[2] https://docs.education.gov.au/system/files/doc/other/the_new_child_care_package-2_0.pdf

[3] https://www.goodstart.org.au/subsidy-estimator/other

[4] https://www.education.gov.au/child-care-subsidy-combined-family-income-0

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

Are You Engaged With Your Super?

Lee Nickelson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

Hands up who knows where their super is invested and what fees they are paying for the administration services they receive?   Anyone..?  You aren’t alone in the unengaged zone.  What is also emerging is that women are less likely than men to regularly engage with their superannuation¹… which is another issue in itself.

Seems crazy doesn’t it.. our superannuation assets have ballooned to $2.3 trillion² yet we aren’t paying attention.  Most rental property owners pay attention to the rent they charge (asset performance) and get quotes on repairs/bargain with real estate agents (manage costs) – so how do we start paying attention to our super?

The ‘Compare the Pair’ advertising campaign for industry super has been around for a couple of years now, but what has become interesting is there has never been a better time to compare superannuation funds.

Recent legislative changes to Regulatory Guide 97 have required superannuation funds, industry funds included, to disclose their fees and costs in a more transparent way resulting in a raft of new Product Disclosure Statements being released.

Many of the clients I have worked with since these changes have been surprised to realise their ‘cheap’ industry funds, aren’t the cheapest option out there anymore.  But on the flip side, it isn’t all about being in the cheapest fund – especially if it is at the expense of asset performance.  Investing in cash because it has low fees is unlikely to be in your best interest long term.

Different assets (cash, term deposits, shares, property) have different performance characteristics, and your superannuation administrator is investing a percentage of your money in each of these assets on your behalf. Make sure you are paying attention to the percentages you have in each asset class as this is one of the main drivers behind investment performance.

So why not log in whilst you are winding down before Christmas and get engaged with your super – check out what fees you are paying and how you are invested.  If you aren’t confident reviewing your superannuation yourself, we are here to help.

1. https://www.commbank.com.au/content/dam/caas/newsroom/docs/2017-06-28-financial-security-report.pdf

2. https://www.superannuation.asn.au/resources/superannuation-statistics

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

Capital VS Income – Which is more valuable?

When we ponder our wealth, most of us immediately jump to the capital value of our assets. We believe that if we own things that are worth more than what our neighbour owns, we are wealthier. But are we?

 

Firstly, most of us believe our house is our greatest asset, therefore representing the bulk of our asset base. There is a stark distinction between a financial asset and a personal or lifestyle asset. Centrelink does not assess the homes we live in as financial assets because by definition, our house is a lifestyle asset. This is mainly due to the simple fact that our house costs us money rather than making it for us. Yes, if you use your equity wisely, you can purchase a financial asset, but more on that another day.

I want to focus on comparing capital and income.

Australian’s believe simply owning as many financial assets as possible is the key to wealth creation. The more they’re worth, the wealthier they are. I challenge this theory. Imagine I owned a financial asset base in retirement worth $1million, and this generated around $25,000 of income a year. You own a financial asset base in retirement worth $800,000,¹ which produces income of around $35,000 a year. I am $200,000 wealthier than you in capital perspective, however you’re $10,000 worth of annual income wealthier than me. Who is the wealthier person?

Let’s say our ideal retirement income is $35,000pa. I would need around another $400,000² worth of the financial assets I own, just to generate that much income. You only need $800,000. My balance sheet might have a higher bottom line, however, your income statement is stronger again. Which is more valuable? An asset base that you would need to slowly drawdown on to reach your ideal income level? Or an asset base which produces your ideal income level without needing to sell any of it? And, you did not need to save as hard for it.

If you need to sell portions of your capital base in retirement just to breakeven, you bring in avoidable and unnecessary risk you just do not need. You might hypothetically own a parcel of shares, that historically have failed to pay regular dividends, and thus, to make your $35,000 you need to sell some. What if this happens on the same day President Trump puts out a ridiculous Tweet, and in a knee-jerk reaction from the public, the market drops? (In reality I would tell you to buy more shares, because in this situation I like to say that they’re on special so stock up, similar to bananas at Coles) What if this also happens on the same day the RBA raise the cash rate by 50 basis points so the offer to buy your investment property gets revoked? You cannot chip off a couple of bricks or sell the spare room to pay for your annual flights to Bali. Not to mention that whenever you sell shares or a property, you have to fork out relatively high transactional costs and in the case of property, wait around 90 days to see the cash in your account. And once you do sell your shares or property, you do not want to leave too much of the net sale proceeds in the bank, because 2% interest rates are not helping your income situation too much.

Income is spending power and spending power enables us to do the things we want to do. We do not want to see the retirement finish line on the horizon, to suddenly realize we are riding a truck full of assets, but are income poor. At income solutions, our definition of wealth is an absence of financial worry, an income stream you cannot outlive, and a meaningful legacy for those whom you love. This definition is deliberately ambiguous enough for anyone to apply his or her own situation to it.

I now ask you if the financial asset base you are slowly building meets this definition?

If you would like to organize an informal discussion about you and your financial situation, please do not hesitate to contact me at [email protected] or alternatively at 03 5229 0577.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.
¹Assuming a growth asset base earning 4.35%
²Assuming an asset base of cash, earning 2.5%

Tap & Go -A Disconnect-

Gareth Daniels is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

 

Budgeting has always been a watch word for people who want to plan for a successful financial future.  At times it has even been a  bit of swear word for some as it has implications of being restrictive, a list of things that you can’t do if your serious about saving for a house, a holiday or just putting away for a rainy day.

As a planner I have always been more inclined to regard budgeting as a positive action, I need to know where my money is going in order to ensure I can keep enjoying my today whilst I build for my future.  This concept of staying on top of cashflow has never been easier or more difficult.

Apps such as Pocketbook; TrackMySpend; MoneyBrilliant; and Goodbudget mean that rather than having to keep receipts, take note in a book or fill in columns on a spread sheet you can link these apps’ to your bank accounts so they automatically track your cashflows by picking up the transactions that take place.

This is incredibly powerful particular if you really engage with the app’ as by categorising transactions (such as phone and groceries) they learn what those expenses are going forward meaning it has never been easier to see where your money is going.

And then comes the down side; the disconnect being how much you are spending and the ‘tap happy habit’ meaning it has also never been easier to spend

Talking to an older client the other night she spoke about how powerful it was to her to physically spend paper notes; she hated ‘breaking’ a $20 as she would then run the risk of frittering the rest of it away.  It was a reality check to actually take a note or even coins out of your purse or wallet and hand over your hard earned in order to buy something.

The reality is that people’s budgets don’t only blow up because of spending on big ticket items; it’s the odd $20, $10, $30, $10, $20 here and there.  And that is now a very easy thing to do without realising.

The ability to simply tap a card to complete a transaction has created a disconnect between the reality of what is being spent and the understanding or perception of what is being spent.

https://www.abc.net.au/news/2017-07-26/cash-usurped-by-credit-and-debit-cards/8744024

So what to do?  Well take the good with the bad…

  1. Understand what you earn; know your take home pay
  2. Use a cashflow management tool (like an app’) to track your outflows specifically identifying
    1. Non-negotiable expenses (rent or mortgage, utilities*, petrol, groceries etc)
    2. Set savings
    3. Discretionary spend (enjoying yourself!)
  3. Make informed choices about where your savings should go
  4. Draw a connection between how often you’re tapping and what that means for your true level of expenditure

Knowledge is power and power is control; you’re working hard and its your lifestyle; be in control of what your spending and enjoy life today while building for your future and don’t get sucked into spending too much just because the banks have made it easier to spend!

*You can make some strategic decision here too around what you ‘need’ to spend on your mobile phone and internet packages versus what you want!

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.

Income Protection Insurance

Gareth Daniels from Income Solutions

Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee 

Are you looking at purchasing your first home or planning on starting a family soon? If so this is the perfect time to look at getting an income protection insurance policy in place or re-evaluating your current policy.

Buying a new home or starting a family, or both, is such an exciting time and you’re probably getting lots of different opinions from family and friends on what you should be doing, so let’s break down the facts.

What is Income Protection Insurance?

Essentially, it pays up to 75% of your income if you are unable to work due to injury or illness. If you have debt, dependants, or both. We all know that whether your income is coming in or not, the bills still need to be paid. It is advisable to have income protection insurance to help pay those bills and support your loved ones in unforeseen circumstances.

When paying your income protection insurance, you have main 2 options, paying through your superannuation fund or paying directly from your income.

Paying through your super fund

If you choose to pay your income protection through your super fund, it will cover the premium giving you more money in your pocket to pay for other things. This strategy is useful if you are trying to pay down your mortgage or have school fees to pay as the premium is coming from your superannuation, not your wage, so there is more money in your pocket to pay down your mortgage or pay for childcare or school fees.

However, there can be some restrictions on claims, dependant on your policy, we advise that you speak to your financial advisor to clarify these specifics.

Paying income protection from your wage

Alternatively, you can pay your premium straight from your wage, and in many cases, this can prove a greater tax deduction compared to the tax rebate that will be paid into your super fund.

For example, take the average Australian wage of $60,000. This person will pay around 32.5% tax each financial year (not including the Medicare levy). If they pay their income protection insurance from their wage they will get back about 32.5% of that premium at tax time.

How do I know if I have the right cover?

These days everyone has a super fund, and you may have a level of income protection insurance by default, however this policy may not be right for your personal situation. So, feel free to grab your super fund statement and come in for a coffee and a chat and we can look at the right coverage for your current situation.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. 

Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.

 

 

 

Generations of Wealth

Alison Adams from Income Solutions

Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee 

 

Sometimes financial advice is not about dollars and cents but instead becomes more about goals and objectives.   As Financial Advisors, in the business of building wealth for our clients, we felt it was important to define “wealth” What is wealth   The concept sounds simple enough, and in many ways it is simple. We like to quote John C Bogle, the author of The little book of Common Sense Investing, “simple but not easy”.  Often, the “not easy” part involves the goal of leaving a meaningful legacy to those whom you love.  We find this is a common theme amongst our clients. It is one thing to invest for your own future but once you have successfully taken that journey, commonly thoughts turn to making sure your hard work benefits your children and grandchildren. So, what is needed?  Successful estate planning takes an investment of time, careful consideration of your desired outcomes and the assistance of a quality Financial Advisor and specialist Estate Planning Lawyer. Did you know that your superannuation account balance and jointly held assets are not administered by your Will?   For estate planning purposes, these types of financial assets are called “non estate assets”. For the majority of people, their superannuation account is likely to be one of their biggest assets. Another contender for biggest asset may be the family home, commonly jointly owned.  In summary, the two assets often representing the bulk of an individual’s wealth may not be dealt with by their Will.  What about if the bulk of your financial assets are deemed “estate assets” and in the event of your death, these assets will be distributed to your loved ones in accordance with your Will. That should set them up for a financially sound future, right?  One of the biggest destroyers of wealth is the transfer of wealth from generation to generation. Consider your own family circumstances. Even if your family has so far been lucky enough to have escaped the statistics around relationship breakdowns, gambling or drug addiction, how do you know what the future holds for your children or even for your grandchildren?  There are ways that a quality Will can provide a regular income stream to your loved ones and at the same time, protect their inheritance.  David Ramsay, founder and Principal Financial Advisor at Income Solutions likes to say “you love your children and grandchildren; at best, you hope to like their partners”. Here’s some food for thought, consider these scenarios:

  1. Sadly your father passes away and in accordance with his Will, you and your brother inherit the family home. The home sits in prime real estate, with upcoming re-zoning changes making you and your brother think it’s a good idea to rent the house out for a couple of years and sell when all of the changes have passed, holding out for a bigger profit. It’s currently worth $1m, however you believe your strategy could triple that value. Your father had a very simple Will and the home passes to you and your brother, held jointly at 50% each (currently a $500,00 inheritance to each brother). Both you and your brother are married, with young children.  3 months later, you unfortunately pass away in a car accident. Your Will makes provisions for your wife and young family.  Your wife meets with the lawyer and lists all of your assets, including the $500,000 share of the inherited family house. Her Lawyer tells her that unfortunately a jointly held asset is not governed by the Will, and by law, the surviving brother is now the sole owner of the inherited family home. Your wife and children have no legal claim over your share of the house.
  1. 6 years ago you met your second wife, married and now have 3 beautiful girls together. You believe that your family is complete; you have your 3 girls and also 2 sons from your first marriage.  Your ex-wife lives nearby and, although you’ve had rough patches in the past, your 2 sons come and stay every other weekend and because you live nearby you are able to attend their various sporting and school events and enjoy a good relationship with them. The boys have a good relationship with their step sisters, however as they are entering their late teens, lately the relationship between your second wife and the boys is often strained.  Your motto is that things will improve once they get through their teenage years. Unfortunately you have an industrial accident at work and pass away.  You have a current Will which makes provisions for your current wife to inherit the majority of your assets, with smaller amounts distributed to all of your children.  You’ve had discussions with your second wife about how you would like her look after all of your children, and upon her passing, distribute your assets evenly. These wishes were reflected in her Will, drafted at the same time you drafted your Will. Your second wife is advised that, following your death, her existing Will is invalid and she makes arrangements with her Lawyer to draft a new Will immediately. After all, she’s the only parent left for her girls.  The new Will is drawn, making provisions for your 3 daughters but excluding any provisions for your 2 sons.
  1. You have worked hard and sacrificed through the years to build a sizeable investment portfolio. The portfolio derives enough income to support your lifestyle and consists of growth assets that should continue to support both your children and grandchildren when you pass.  You have never been in the business of spending money “for the sake of it” and when you hear about DIY Will kits that you can purchase for $69.95 at the local newsagents, you go for it. After all, it’s pretty simple – you want your kids to inherit it, don’t touch it and live off the income, just as you have. When they pass, you want their Will to provide the same directions to their children. You’ve even sat all of your kids down and told them as much and they all agreed.  You pass away a contented man, proud of your life’s achievements and the way you’ve provided for your family’s future. Only problem is:
  • Daughter number 1 has a marriage breakdown 2 years after you pass away.  She directly inherited your assets in her own name, meaning they formed part of the divorce settlement. Half of your inheritance has now been distributed to her ex-husband, who, truth be known, you never really liked anyway.
  • Son number 2 has never been good at managing his money. Before you passed, you asked your other children to keep an eye on him, but they’re so busy with their own lives that they can’t keep track of him as well.  A few ill advised investment decisions later and he’s lost at least 3/4 of his inheritance.
  • Son number 3 is self employed and just prior to your passing, he ran one of the biggest engineering businesses in town (a great source of pride for you). Unfortunately the majority of his business involved supplying and servicing the machinery at 2 local car manufacturers. Since those manufacturers have closed down, he’s put on a brave face but in truth, new business has proved too hard to find and he’s just about to declare bankruptcy.  The only thing that can save him is your inheritance but due to a quirk of bad timing, he is forced to use the inheritance to pay his debts and close his business. He’s not in debt, however he has no business and no inheritance.

These 3 scenarios are fictitious, however similar scenarios are happening each and every day.  Sadly, they are preventable. Advice from a good quality Financial Advisor and specialist Estate Planning Lawyer would ensure sound investment strategies could accompany estate planning protections. The outcome being that the transfer of wealth through generations can successfully be achieved.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.  Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.

WOMEN – Professional Self-Taught Jugglers

Spotlight on Women - WEbsite SizeWhether you are single or in a relationship, one thing we all have in common is that we are juggling many roles all at once. I learnt quickly that once you begin to add little munchkins to your clan, the number of balls that you are juggling dramatically increases. When I thought I had achieved some rhythm to my new found skill of juggling, it was time to return to work. I had no idea what I was in for in regards to the level of organisation it would require trying to fit in my own personal time, setting goals for now and later, while continuing to run a house!

Returning to work is a big decision. For some it is financial and for others it is to assist with self-fulfilment. Whatever the reason, finding the right work life balance is crucial. There is no right or wrong level of work life balance. The solution that works for your family is individual.

Following returning to work, I began to experience guilt. Guilt for not being able to spend more time with my little ones, that I wasn’t completing as much at work as I had (in comparison to my old, full time employed, child free self), that the house wasn’t as tidy as it used to be and the list goes on! I had to find a way to put a positive spin on what I was doing and the reasons as to why I had returned to work. I realised it was to achieve my goals! Our goals often take second place to day to day activities, however even without realising it, it is another one of those balls we are juggling. Understanding and knowing why I was back at work and the benefits my employment brings to myself and my family was very important, empowering and motivating. Without goals, it is easy to question why. It helps you stay on track towards reaching those goals which are important to you. Also, it is hard to know if you are on the right track, if you don’t know where you are heading.

Goal setting doesn’t just end with the things you want to do in the next 12 months. Goal setting should include what you and your family want to do in 5 years – family holidays, education for your children, a new car, when it is that you and your partner would like to stop work or wind back into retirement. As far away as these milestones may seem, without having an active plan in place, time will continue to fly by. Without a solid plan our goals rarely materialise.

Planning your exciting goals and aspirations doesn’t have to be a weighted time consuming ball that you have to learn to juggle along with everything else. It is easier than you think if you work with someone who can help you plan and keep you motivated. It is very rewarding when you realise you are actually living and experiencing the achievement of the goals you wrote down.

We use systems all the time without realising. Just like we put systems (well try to!) in at home to make our home life easier, it is vitally important to establish systems that ensure your money is working for you, and your family.   Something as simple as structuring your banking correctly can have a big impact on how hard your money works for you.

Now that you are back at work and earning additional money to put towards your household, it is important to ensure that all the sacrifices that have been made to earn this money have not gone to waste. You need to ensure that your hard earned money is working for you.

I have written about my own personal experience, as a Mum working part time. In my professional life I am a Financial Planner with Income Solutions.   I regularly hear stories just like mine, which provided me with the motivation to create a tailored presentation for women which provides some examples of the impact receiving financial advice can make to your day to day lifestyle as well as your long term goals. For more information, book a one-on-one meeting or a workplace Income Solutions for Women session.

Invest in yourself – it could be the best investment you’ll ever make!  

Jess Hall, Financial Planner

 

Please note: The advice in this article is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

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