VITAL QUESTIONS TO A FINANCIALLY INDEPENDENT FUTURE

At Income Solutions we believe that there a three core questions that you need to answer in planning for a financially independent future.

The first of these questions is WHEN? When in your life and at what stage do you want the freedom to work because you want to and not because you must? Thus, allowing you to follow your passions and the opportunity of pursuing everyday what truly fulfils you.

The second of these questions is HOW MUCH? What is the income you will need to wake up each morning and live the life you envisage and provide you with the means to direct your focus and energy to what you care most about?

Lastly, the third of these questions is WHERE? Where is this income going to come from and how are you going to plan now for achieving this income stream into the future?

The above three questions are vital in planning your financial future, however if you are struggling to answer these questions don’t worry as over the coming eight weeks Income Solutions will be releasing a weekly series of short instructional videos to allow you to address clearly and in detail these fundamental financial questions.
Click on the following link to watch the first short video in this series titled: When?, How Much?, Where?
https://www.youtube.com/watch?v=P0TbiptGoZA

Stay tuned next week for video two titled : THE BEST INVESTMENT YOU WILL EVER MAKE

KEY CHANGES TO TAX AND SUPERANNUATION IN 2021

Given that for most of us superannuation provides a pathway to our financial future, providing us with a tax-free income stream for our retirement, it is worth noting key Tax and Superannuation legislation changes that will take place in 2021.

Superannuation Guarantee Increase:
There is a superannuation guarantee increase from 9.5% to 10% effect from 1 July 2021. This is part of a previously legislated increase to 12% by 2025. This superannuation guarantee contribution is what your employer by law is required to pay as part of their legal employment obligation. If you are an employee, there will be an increase in the amount being contributed to your superannuation account. If you are an employer, the increase will need to be factored into your 2021/22 budget.

Your Superannuation will follow you:
Your superannuation follows you from 1 July 2021, when an employee commences with an employer, the employer will pay superannuation benefits to the person’s existing fund (if they have one) or to their nominated fund. Default funds will only be used where a person has no existing super fund and does not choose a fund.
New enterprise agreements and workplace determinations will not be able to prevent employees from exercising a right to choose a superannuation fund. Restrictions in agreements and determinations entered into before 1 January will remain in force.

Minimum Pension Payment:
The 50% reduction in minimum pension payment for the 2020/21 financial year is scheduled to cease at the start of the new financial year on 1 July 2021. The SIS Regulations were amended so that the minimum payments from account based and market linked pensions were halved for the 2019/20 and 2020/21 financial years. Unless the Government decides to extend the reduction in minimums for 2021/22, the minimum payments will revert to their usual rates. Note: After the GFC, during which the minimums were reduced by 50% for three years, the minimum rates did not immediately revert to their usual levels but were set at 75% for a further two years.

The Low- and Middle-Income Tax Offset:
The Low- and Middle-Income Tax Offset (LMITO) will cease from 1 July 2021. LMITO is not included in PAYG withholding schedules. Instead, it is calculated by the ATO when the person’s tax return is submitted. This means the cashflow effect will be delayed for 12 months, such as through lower a tax refund, additional tax payable or adjustments to PAYG instalments.

The above points are just a few of the key changes to Tax and Superannuation legislation for 2021 and beyond, and for a more detailed and comprehensive analysis of recent legislative changes please contact your adviser who will be able to assist you by providing details on how these changes may affect you.

Adapting to have a Merry Christmas & New Year

This time of the year we say the words often and send them in greetings to the acquaintances, family and friends ‘Have a Merry Christmas and a Happy New Year’ but given the hectic and at times extremely unpredictable year we have had this year the sentiment expressed in the greeting provides cause for contemplation.

With us all having lived through an unprecedented year, this greeting causes us to ask the question; What exactly is a Happy New Year and Christmas’? Is it now a 2021 COVID free with no pandemic on the horizon and a vaccine distributed that allows us to travel wherever we want? or is it a Christmas where everyone is happy on the day and everything runs smoothly and we a delighted with all our gifts?

If 2020 has taught us anything it is that life can be messy both on a personal level and also on a broader community and even global level and if we wait until everything is perfect and just the way we think it should be then most likely we will never have a ‘Merry Christmas and New Year’.

This year we have had to focus on adapting to change whether we have liked it or not, and while this has not been easy the lessons learnt of resilience and adaptability have been worthwhile and can even provide us with a strong platform to take into Christmas and the New Year. An example of this is early this year having to cancel a holiday would have created great disappointment, now there seems to be more of an attitude of ‘lets just wait and see if we can go’ and if not we can do some fun stuff at home!

Being adaptable with our expectations can free us to enjoy ‘whatever’ comes our way. While planning and goal setting is still extremely important and core to the process of arranging our lives, this year has reminded us all that there are areas of our lives and the people and community in it, that we have absolutely no control over and sometimes we just have to go with whatever may come our way and adapt accordingly.

So here at Income Solutions, when we extend the sentiment of ‘Merry Christmas & Happy New Year’, we are not wishing you a perfect Christmas hoping that all your Christmas Wishes come true or a New Year where everything in your life is just perfect and you never have to deal with problems or disappointments, we are wishing you moments of happiness and joy through resilience, endeavor and of course good health to allow you to navigate the messy and exciting world that we share with each other.

Merry Christmas and Happy New Year from the Team at Income Solutions.

Click on this cute ‘Friends’ New Years Eve party clip showing that never has the need for adaptable expectations been required more than on New Years Eve:
https://www.youtube.com/watch?v=RIBHT7_G1qE

Shares made Tangible

Too often when we read about the share market or discuss topics concerning investment we are presented with a complexity and diversity of options and advice, but the key to successful investment in the share market can be straight forward and even simple!

One of the underpinning investment philosophies applied at Income Solutions was detailed in a book that was published in 2007 titled ‘The Little Book of Common Sense Investing by John C. Boyle’. Since this book was published the share market has tumbled and soared but the evidence over the last 13 years has shown that the principals applied and expressed in this book have endured and served investors at Income Solutions and more broadly very well.

The stated principal of investing in the All Industrial Index allows people to invest in a wide range of publicly listed share market stocks and then leave it alone. What a lot of us may not realise is the companies that we are investing in are already part of our everyday lives and the following diagram provides an example of how:

This table demonstrates that by investing is the Industrial Index you are investing in companies and products that provide a platform for our lifestyles. Also featured is ‘the good, the bad and the ugly’ as by mentioning ABC Learning Centre’s we demonstrate it is not always ‘oranges and sunshine’ and sometimes companies do fail, but a lot do not and continue to thrive and provide investors with dividends and returns. The following table shows a snap shot of some of the companies in the All Industrial Index.

When a company may not be doing so well such as Qantas at the moment other companies may be thriving such as Woolworths, demonstrating that investing in shares doesn’t have to consist of prediction and expertise. Applying the principal of keeping it simple and investing in the All Industrial Index has proven over time to be a sound and effective long term option for investors.

COME TOGETHER THIS CHRISTMAS AND IMAGINE….

This year Christmas may really prove to be a joy and not because we will be receiving expensive gifts or planning elaborate meals paired with just the right wines, but because with the easing of COVID restrictions we will be allowed to come together in groups at home.

A year living with COVID restrictions has recalibrated Christmas excitement to:

Parents with older children living interstate anxiously watching when state borders will open so that they can see their children, maybe for the first time this year, over Christmas.
People with elderly parents in nursing homes will feel relieved to be able to pick their mum or dad up on Christmas Day or freely visit them.
Those managing to return from overseas will welcome being back in Australia to celebrate Christmas at home with family and friends, perhaps after many months of waiting for a flight.

While the examples and scenarios are varied, the fact remains that this year the focus is on people being able to come together with the people they love the most to enjoy Christmas, something that at this time last year we would have taken for granted.

While stress has been caused due to the complexities of COVID19 restrictions locally, nationally and internationally, it has also resulted in a greater focus on people just wanting to see each other and be together at Christmas. The worries surrounding what presents to give or receive, or the organising of food and decorations has resoundingly taken a second place…. which we at Income Solutions think is something that may just be a good thing!

Obviously we are not saying you should not design and spend Christmas exactly how you choose, but given statistics have shown that approximately 37% of people pile up billions of dollars in credit card debt over Christmas and the average bill is roughly $1,863 per credit card, and while this year Zip & Afterpay are predicted to further disrupt card credit, it may still be worth imagining a Christmas where people are not left with the bill long after the decorations are dismantled.

To assist us in sticking to our Christmas budget it can pay to remember that the happy Christmas spending feeling we get when shopping in stores along to Michael Buble singing uplifting Christmas Carols, may soon dissipate and lead to regret when the next month we view the resulting amount on the bill we receive. This regretful feeling could only be exacerbated this year given many people have faced lost work, closed businesses and have a reduced income due to COVID.

To borrow some of the lyrics sung by the iconic John Lennon, just…. Imagine:

Imagine there’s no Christmas financial stress
It’s easy if you try
No big over the top presents expected
Only kind words and small gestures
Imagine all the people just enjoying being together

Imagine there is no credit card blow outs
It isn’t hard to do
Nothing to spend 2021 paying off
And no Payment Plans too
Imagine all the people living without this financial burden into the New Year

You may say we at Income Solutions are dreamers
But we are not the only ones
We hope you will consider
A Christmas recalibration too.

To assist you with your Christmas Financial Plan, the attached Daily Telegraph article offers some up to date Christmas 2020 budgeting ideas:

https://www.dailytelegraph.com.au/lifestyle/smart/how-to-budget-for-christmas-spending-in-2020/news-story/04dd900b1a3062fb3dc5c0fa52828413

Avoid Shattering Financial Outcomes

On Saturday 14 November in the financial section of The Age, it was disturbing to read the following question from a distressed 88 year old man having to face self described ‘shattering’ financial problems due to an unsuitable Self Managed Investment Fund:

I am caught between a rock and a hard place and hope you can help me, as I feel completely distraught. I have had a Self-Managed Super Fund for years within the Dixon Advisory system. It includes a Term Allocated Pension (TAP) to complicate matters even more. Briefly, I have been with Daryl Dixon since he was a one-man operation. And, importantly, Daryl vetted every buy and sell throughout. My fear about the size and complexity of Dixon was allayed by this fact, as I trusted him. Daryl retired unexpectedly and it took me a while to discover that this was why I received no replies to my calls, about November last year. I have ended up with a portfolio that includes a proportion of the Masters property funds in trouble in the US; but also with two unlisted funds. I am 88 years old and have had my share of health difficulties and not observed the developments closely enough. I have no idea how long I will live and this loss feels shattering. Now I am looking for a way out. The industry funds do not accept TAPs and I have two assets – Fort Street Real Estate Capital Fund IV and Evolution Road Maintenance Group (ERMG) – that are unlisted and not saleable. It is a high-risk portfolio unsuitable for my means and age. So, there are two problems – 1. What to do with my very diminished funds, now $213,000 (a loss of about $200,000 in less than a year)? 2. How to go about seeking compensation from Dixons? A.S.

In responding to the question; What to do with my very diminished funds and How to go about seeking compensation? The financial editor, George Cochrane outlines a very lengthy process in which ASIC has begun launching civil proceedings. Further, a little depressingly he also states that “you are not Robinson Crusoe”, and there are many general themes highlighted in the above question that provide a cautionary tale for all of us:

• The failure of a clear succession plan to ensure that a client continues to receive the highest standard of advice and care that does not rely on anyone advisor, but a documented and cohesive investment structure and philosophy that can be managed by successive qualified advisers.
• The problems associated with Active Management over a passive Global Index Management. Active fund management and speculation has resulted in the purchase of Masters Property Trusts that are in trouble in the US and two unlisted funds.
• The stated fact that at 88 years of age and dealing with health issues you are not able to observe developments closely and poor advice that has resulted in a high risk portfolio that is totally unsuitable. This highlights the importance of meeting with your adviser at least one a year to review and adjust your investment portfolio to your changing needs together with a passive income stream that you can set and forget into the future.
• The financial editor detailing the conflict of interest involving the Financial planner Darryl Dixon, directly investing in Dixon owned and operated entities and products. Refer link to full article at the bottom of this page

While the situation highlighted is painful for the individual involved, it is reassuring both for Income Solutions and our clients that they are provided with the peace of mind that the financial structure and investment philosophy adopted at Income Solutions ensures that the above issues and conflict of interest could never occur, and the following table shows why:

We offer financial planning services that provide people with advice based on the best products and investments that are available. Income Solutions does not own or operate these entities but simply researches and recommends the best available options in the market place. The Contract Agreement for your investment is between yourself and the product providers with Income Solutions providing instructions and facilitation services to ensure everything is executed and managed to the highest of standards.
At Income Solutions we read the above question with regret that people have to deal with the financial scenario presented, however it reaffirms the processes, structures and investment philosophy in which we operate and we know with confidence that our clients will never be facing the issues presented in this article when they are 88 years of age (or ever). Click on the following link to access this full article:

https://www.smh.com.au/money/super-and-retirement/what-to-do-with-unsuitable-smsf-investments-20201112-p56e2r.html

The ‘Last Dance’ for active fund management?

In a recent Australian Financial Review article, Aleks Vickovich, Wealth editor makes a compelling case outlining evidence on why we might be seeing the ‘last dance’ for active fund management and speculation as the figures show consistently a passive investment global indexed model continues to outperform.

In this article he uses the analogy of the Netflix series “The Last Dance” that many sports fans will be familiar with and where one of the greatest athletes of our time Chicago Bulls star Michael Jordan is portrayed leading a languishing and underperforming Chicago Bulls to a ‘golden decade’ of success that today NBA clubs still dream of achieving. While the series does a lot to highlight oversized suits with padded shoulders it also contains a very current lesson about managed funds.

Like the scoreboard at the end of a tightly contested Michael Jordan lead championship NBA game, the following chart demonstrates that the figures do not lie:

T

The above figures make us ask the question; are we seeing the ‘last dance’ of active fund managers that claim to have the skill to select stocks that generate above average returns for clients? or value fund managers that select stocks based on the assumption that they are overpriced? Again, the figures show a continued underperformance when compared against an indexed model.

In this Financial Review article, Vickovich also states that the Global Financial crisis and COVID19 have further compounded the reasons why active fund managers might really need the superior skills akin to Michael Jordyn to compete with the Global indexed figures providing returns for passive investors.

This Financial Review article can be accessed via the Income Solutions facebook page at
https://www.facebook.com/incomesolutions

BUDGET LIKE A BUSINESS

A budget is key to running a financially responsible business and equally a budget is key to running a financially responsible household. It is irrelevant whether you are a single person living alone or a parent with a large family, or if you are a well remunerated executive or getting by on a students allowance, the fact remains the best way the manage your finances is to know exactly what money is coming in and what money is going out.

Reviewing your budget every few weeks allows you to monitor what money you have coming in against what money you been spent for that period, clearly showing you if these figures are in line with the projected figures you budgeted for at the beginning of the financial year. This approach allows you to adopt a mindful and considered approach to the money you are spending and categorizing what may be viewed as essential such as electricity and car insurance against what expenditure may be seen as a discretionary, such as a choice to enjoy an expensive dinner, buy an item of clothing or for those on a limited budget to decide whether they buy their lunch each day or make their own.

Being mindful of the money we spend allows us to make informed decisions about the choices and lifestyle we want to live both now and into the future. We can choose whether we want to save and travel in 2 years or whether we would prefer to purchase a membership to the AFL Club that we support. Either is fine, but by mapping a budget we can make decisions that we have thought through and provide us with the best use of our funds, without a budget we might simply bounce around from option to option and make decisions that we really haven’t thought through in any detail.

Monitoring the budget we put in place each financial year empowers us to see if our expenses are gradually creeping up in any one area and may prompt us to make that call to the bank to get a better rate on our mortgage or shop around for a better rate on electricity. To be able to accurately detail the income we have coming in to our individual household may inspire us to look at ways that we can increase this amount by perhaps investing in further education or look at the business or job opportunities which could be available to us. Otherwise, a budget can simply give us peace of mind knowing our finances are on track!

One of the many benefits of a budget is that it provides us with a format to think logically and clearly about the ‘business’ of running our households and by dedicating a relatively small amount of time each financial year to set and detail a budget, together with a few moments each fortnight to track income and expenditure, we are providing ourselves with the information that we require to make well thought through everyday financial decisions.

Click on the following link to be inspired by Income Solutions client Wayne Lucas speaking on how he Budgets, the tools he uses and the benefits it has provided:

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