by Jodie | May 10, 2016 | Budget, Budgeting, Finances, Savings, Wealth, Women
The average household spends more than $69,000 a year. Neal Vaughan explores the best ways to manage that.
Wondering why you spend almost everything you earn, living from payday to payday and hardly saving? It could be you’re too busy to keep track of your money.
Or you’re refusing the challenge of taking control: the 2014 ANZ Survey of Adult Financial Literacy in Australia, found women aged 28 to 59 years had lower scores than men on financial control, though they were better than men in keeping track of finances.
Women of this age were more likely to have missed a loan or credit card repayment and also more likely to have been unable to save money in most weeks. Greater discomfort with comparable levels of debt appeared to contribute to women’s lower scores on this index,” stated the survey.
In the same year, a study into women and money conducted by RMIT University’s Roslyn Russell and La Trobe University’s Amalia Di lorio found almost 50 per cent of women say they sometimes run out of money completely during the year.
That’s something that financial adviser Amanda Cassar has often seen in her career.
Cassar says “it is a fact that even very successful women generally end up with lower savings than their male counterparts, and with less than half the super savings” according to the 2013 Australian Bureau of Statistics’ gender indicators report of median super balances for women aged 45 to 55.
A financial health check-up with your adviser, and creating a monthly budget will help you save more when you’re earning well.
Get budgeting
So what is the best way to go about setting up your own budget? The first thing to do is to put some time aside to write down all your expenses and incomes.
You may find that with a little extra care you can trim back your outgoings and save more than you thought, so you can start putting your money to work for tomorrow, not just today.
Primary school teacher Sofija Egic considers herself reasonably careful with money. However, she was surprised how easily having a simple budget with set spending limits, plus a regular direct debit to a separate savings account, helped her put a sizeable amount aside each month.
She has just purchased her first investment property with her partner Sam.
“To be honest, we used to spend without thinking. When you’re both flat-out working, it all seems essential until you actually list it down. We spent a Sunday morning working out a formal budget – a set amount for groceries, a limit on what we spent going out, getting a bus instead of a cab home – that sort of thing.”
It may seem a bit dull, but if you go to the Australian Securities and Investments Commission’s MoneySmart budget calculator, you can liven things up by downloading the TrackMySpend app.
You can use this app to track your day-to-day spending, which can alert you when you overspend (based on your pre-set budget limits on certain types of purchases).
ANZ’s budget planner is a detailed helpful tool for you to figure out your income and expenses and in the long term what you can achieve with your savings.
ANZ’s MoneyMinded hub can take you through the budgeting process, using the MoneySmart tools, to help you feel less stressed about the future.
by Jodie | May 3, 2016 | Australian Economy, Budget, Debt Management, Economy, Retirement, Superannuation, Taxation
Treasurer Scott Morrison has handed down his first Federal Budget – the Coalition Government’s third. The winners are low and middle income earners, unemployed youth and small business, and there are significant changes to superannuation.
Note: These changes are proposals only and may or may not be made law.
Summary
- A lifetime cap on non-concessional (after-tax) superannuation contributions of $500,000 will apply from 7.30pm on 3 May 2016.
- The income tax threshold at which the 37% tax applies will increase to $87,000 pa on 1 July 2016, from the current $80,000 pa.
- The tax rate that applies to small business companies will reduce to 27.5% for businesses with a turnover up to $10 million in 2016/17. Further tax concessions will apply in future financial years.
A range of superannuation measures will also apply from 1 July 2017.
- The annual cap on concessional (pre-tax) super contributions will reduce to $25,000, regardless of age.
- Concessional super contributions may exceed the annual cap if certain conditions are met.
- Those aged between 65 and 74 will be able to make super contributions regardless of whether they work or not.
- Tax deductions will be able to be claimed for personal contributions regardless of employment status.
- A lifetime limit of $1.6m will be placed on the amount of superannuation that can be transferred to start pensions.
- Earnings on investments held in ‘transition to retirement’ pensions will be taxed at 15% (currently 0%).
If you’d like to read more, click here: FPA Budget Wrap 2016
by Jodie | May 3, 2016 | Australian Economy, Economy, Finances, Investments
Australians have long been attracted to property as an investment. But we also tend to have a blind spot when it comes to the costs of owning it.
Property holds a special place in the hearts and minds of Australians. But do we let our love for property cloud its true value as an investment?
A strong property market, low interest rates and generous tax breaks have all been magnets for property investors in recent years. The challenge for property investors is making sure you’re weighing up the performance of your investment against what it’s really costing you to own it.
So what are the costs of owning an investment property?
1. Upfront costs
If you’re looking to borrow to fund your property investment, the starting point with many lenders is a 20% deposit. On a $600,000 property, that’s $120,000. If your deposit is less than 20%, you may need to pay Lenders Mortgage Insurance – which can be a significant one-off cost.
Typically the biggest cost when buying a property is stamp duty, which varies from state to state but is close to $23,000 on a $600,000 property in NSW[1].
Add to this legal fees ($1,500-$3,000), building and pest inspections ($300-$500) – potentially for multiple properties – bank valuations ($300-400) and loan establishment costs ($500-600).
Add them up, and these costs could potentially add around 5% to the cost of your investment.
2. Ongoing costs
Once the property is yours, you can obviously start using it to generate an income from tenants. The downside is the ongoing costs.
Loan repayments are usually the biggest cost. For example, a $480,000 home loan with a 30-year term and a 6% p.a. interest rate will generate loan repayments of $2,878 per month. And remember that only the interest portion of these repayments is tax-deductible.
Other ongoing costs include council and water rates, strata levies (if applicable) and home and landlord insurance. You may also have to pay land tax for larger or higher-value properties.
3. Exit costs
At some stage you may want to sell your investment to realise the capital growth you have hopefully earned. The major costs here are likely to be real estate agent fees (typically around 2% of the sale price) and capital gains tax (CGT), which is payable at your marginal tax rate.
You may be eligible for a 50% CGT discount if you hold your property for more than 12 months, but CGT can still be a significant expense – particularly for higher income earners.
For example, if you bought an investment property for $600,000 and sold it for $750,000 three years later, 50% of the total capital gain (i.e. $75,000) would generally be subject to capital gains tax. If you’re in the highest marginal tax bracket, that tax bill could be as high as $36,750 (including the Medicare Levy and Temporary Budget Repair Levy).
Property investing for the long term
There’s no doubt astute investors can make good money from investing in property, particularly in favourable market conditions. But it’s essential to weigh up all of the costs associated with buying, owning and selling an investment property.
Generally speaking, property should be looked at as a long-term investment for 5-10 years – giving you time to achieve the capital growth and income you need to average out the costs and make it a successful investment.
[1] http://stampduty.calculatorsaustralia.com.au/stamp-duty-nsw
