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by Jodie | Sep 1, 2014 | Budget, Budgeting, Debt Management, Finances, Insurance & Protection, Money, Women
What’s your biggest financial challenge?
We all have an area of our finances that we know could do with some attention but
let’s face it – most of us would rather think about something else. The problem is
that by doing that, we’re costing ourselves money – and more than likely causing
ourselves unnecessary stress.
For instance, if you have several superannuation accounts, you are probably paying
account and management fees across all of them, rather than having that money
working for you and building your retirement savings.
Similarly, if you have a credit card debt of $3,000 and you only make the minimum
repayments, this could cost you up to $6,000 in interest charges alone.
None of us like to cost ourselves money but the task of fixing the situation can seem
like too much hassle: “Where do I start? Who do I ask? Am I making a mistake?”
These are the questions we ask ourselves and without easy answers, we often opt to
do nothing.
MoneySmart Week understands these are common challenges and aims to do
something about them. Running from 1 – 7 September, MoneySmart Week is an
independent, not-for-profit initiative designed to raise awareness of the importance of
financial literacy and to encourage all Australians to take action on their finances. The
initiative was founded in 2012 by members of the Australian Government’s Financial
Literacy Board, led by Paul Clitheroe AM.
This year, they’re running the MoneySmart Week Challenge.
The MoneySmart Week Challenge asks people to pick one financial challenge to
address and provides a free, step-by-step guide to completing the challenge with a
range of great resources that can help answer any questions you have along the way.
People can sign-up online and pick from the following Challenges:
• Ditch Your Debt – credit and debt
• Sort Your Super – superannuation
• Manage Your Money – budgeting
• Protect What’s Precious – insurances
• Build Your Worth – saving and investing
• Plan Ahead – estate planning
• Female Financial Fitness
There’s even a savings Challenge for secondary school-aged students: Start Early.
The best way to deal with money stress is to become financially resilient and we all
know that resilience is built from facing up to our challenges. By taking simple steps
to improve your money health, you will save yourself money and build your resilience.
Take the first step today by signing up for the MoneySmart Week Challenge at www.
moneysmartweek.org.au 
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by Jodie | Aug 8, 2014 | Advisers, Australian Economy, Debt Management, Economy, Finances, Insurance & Protection, Investments, Self Managed Superannuation Funds
Lots of people are now very interested in the option of borrowing through their Self-Managed Superannuation Fund. An option that has come under the spotlight for the Financial System Inquiry.
The ability to borrow is a great benefit to having an SMSF, but should never be the core focus and certainly isn’t appropriate for all funds.
Since 2007, the Limited Recourse Borrowing Arrangement (LRBA) for loans by an SMSF, have been available.
The industry body SPAA (SMSF Professionals Association of Australia) has a set of guidelines to ensure responsible approach to borrowing.
Here’s their Top 5 for SMSF Trustees to ensure they check off:
1) Understand the technical rules
Four technical rules apply if trustees are to comply with the LRBA requirements:
– The loan must be limited recourse. This means the loan is taken out separately to other investments in the fund. Therefore, if the arrangement fails — for example, if the fund can’t make interest repayments — then the lender can only claim against the specific property, not the other assets in the fund;
– A single acquirable asset must be purchased;
-The asset must be held in trust for the fund: and
– The fund must have the right to buy the asset after the loan has been paid off.
2) Ensure it is a worthwhile investment
Putting a property in a super fund won’t make it a better investment. It’s important that trustees consider a number of factors in order to ensure the property is a good investment. Like the level of income expected, growth prospects for the area, possibility of finding tenants, ongoing expenses etc.
While LRBAs can offer flexibility, restrictions apply on improvements to the property or when replacing the property. Rent should also be at commercial rates and any residential property must be leased to unrelated parties, companies or trusts.
The type of property may also be an issue with the bank. The bank may not be prepared to lend on some types of commercial or residential property.
Also check legal fees and stamp duty, or property-related expenses such as rates and taxes. Trustees should also be mindful that a change in interest rates or loss of a tenant will affect the net income received.
3) Make sure you can service the debt
The most obvious consideration for trustees is to ensure that any gearing will not be excessive. Remember, borrowing to invest can magnify losses as well as gains.
If the property is negatively geared you really need to do your sums to make sure the fund will have enough cash flow to be able to pay the expenses, which are over and above the income that will be received from the renting of the property.
Cash flow could come from income on other investments of the fund or from contributions, such as those made by an employer, or personally.
Neutral or positive gearing is advantageous as it doesn’t deplete the fund’s resources.
4) Look at insurance needs
Insurance helps to protect the fund and the property against the loss of a member. Trustees should look at life insurance, total and permanent disability (TPD) insurance and income protection as part of their overall insurance needs.
Proceeds from an insurance policy can be used to contribute to the outstanding loan on the LRBA.
5) Finally — put an appropriate borrowing strategy in place
Besides the previous four tips, there’s a number of key criteria for an appropriate borrowing strategy:
– Age of the fund members. Questions around the fund’s ability to pay for loans are pertinent if the members are retired;
– Diversification. The age-old investment rule applies here. A diversified investment strategy simply reduces the investment risk of a fund;
– Don’t choose a property under the borrowing rules that will need modifications within a short timeframe as the whole arrangement may need to be restructured, which may prove costly; and
– Avoid property spruikers and seminars designed to ‘stitch you up.’ If it’s too good to be true, then it probably is.
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by Jodie | Jul 21, 2014 | Advisers, Debt Management, Finances, Insurance & Protection, Men, Money, Women
Aussies we know are a pretty easy going bunch and this is probably one of the main reasons we’re also a terribly under-insured nation.
The ‘she’ll be right mate’ attitude is pretty pervasive, with most of us thinking ‘it’ll never happen to me.’
And then, wondering what’ll happen to the family when you’re gone can be perceived as a little morbid. Some hubbies have told me that the missus can take care of herself and the kids, remarry or go back to work to deal with outstanding debts. (None of them I considered as potential ‘father of the year’ candidates.)
Consider the flipside tho – if your kids have just been deprived of their father – at huge emotional cost, then you’ll also depriving them of their mother, sentenced to work out of necessity, when a bit of cover could have taken care of the big debt items.
Think you can afford it? Seriously, if you can’t afford the$100 per month whilst you’re earning an income, it’s going to be even harder for the family to find the $1000 or $4000 per month without the bread-winner and their income. Nobody I know has ever gone bankrupt paying for insurance; but families can, because they weren’t!
Chat to an adviser today about appropriate levels of cover and funding options that may mean you will never personally be ‘out of pocket’ either.
by Jodie | Jun 23, 2014 | Advisers, Australian Economy, Budgeting, Finances, Insurance & Protection, Interest Rates, Investments, Superannuation, Taxation
Finance Minister, Mathias Cormann has delayed the introduction of ‘Super Dashboard and Disclosure’ legislation until 1 July 2015. The intention of this was for members to be able to choose a Superannuation fund, get full disclosure from their fund as to the fees they pay and what exactly they have in their portfolio. Government has obviously identified this as a gap in the Super industry and will be working toward fuller disclosure by Super funds.
This begs the question though, “how many Australians actually know the details of their Super portfolios, the costs and management fees of the investments held and how many actually care?”
The sobering reality for many of us is that we are now facing a budget that is going to leave us less well off, regardless of income or age. Minister Joe Hockey is unfortunately confronted by a double edged sword: he faces the problem of tackling the country’s debt burden and the growing cost of an ageing population, with less workers in the field supporting the ‘system.’
One way to reduce debt is to cutting spending on services and in turn, add various tax increases the government labels as levies. Most agree that the current situation is unsustainable, so the government will be left with very few options.
Most likely, one solution will be pushing up the pensionable age and where this will finally rest can only be speculated at. It is obvious that many Australians are going to have to retire much later, and possibly, with much less. Unless, you start taking charge of funding your own retirement – from now!
Superannuation will play an increasingly important role in all our futures. What we do today is going to affect our Super tomorrow. This brings us back to the choice of super fund we now make and the associated costs involved. Small percentage differences can have a huge impact at the end of our working lives. The Gatten Institute has recently reported that fees and costs in Australian Super funds are higher than those in most other countries with similar retirement systems, although these fees have started dropping in the last few years, they still have a long way to go.
As there are so many funds to choose from and most Australians are left confused through choice and probably reason that one fund is as good as another. But as we know, all birds have feathers, but not all birds can fly! Besides fees and costs, other aspects to consider are things such as investment options that funds offer, exit rules, ease of interaction, taxation concerns, control over investments, insurance options and transparency.
Financial Planners make it their business to know the intricate ins and outs of funds, they have the tools to compare funds as to the benefits and advantages of one fund over the other. It is a therefore, a ‘no-brainer’ that everyone who owns a superannuation fund should at least have one discussion with a professional who can assess your situation, and possibly set an action plan in place that can deliver the desired outcome for every Australian.
The team at Wealth Planning Partners make it their aim to stay up to date, so don’t hesitate to give us a call for a no obligation visit, to discuss your needs. Now’s the time to start taking charge of your financial future.
by Jodie | Jun 13, 2014 | Advisers, Australian Economy, Economy, Finances, General, Insurance & Protection, Investments, Money, Self Managed Superannuation Funds, Superannuation, Taxation, Term Deposit
So most of us have heard about Self Managed Super funds, but where do they fit in the somewhat complex world of superannuation funds?
Basically, there’s three options at the disposal of a working Aussie.
1. The Industry Fund, some refer to as a union fund. Typically, an industry will have a designated fund for members of a certain profession, such as the MTAA for motor trades employees or CBUS for those in the construction industry. Most come with a default amount of low cost insurance, low fees and have a limited range of investment options. A very vanilla, often cheap and very easy option, especially when just starting out.
2. A retail fund, Master Trust or Wrap is a platform that offers the ability to choose from a wide range of managed funds and direct share options. Often they are the choice of an engaged employer who likes to offer additional benefits to staff, or those working with the assistance of a financial adviser. Some allow capping of fees, family linking or taxation at a member level and a choice of investor directed insurance options. They’re certainly more sophisticated and come at a higher cost than an industry fund due to the extra ‘bells and whistles.’
3. The self managed super fund is different again with the members running, administering and managing their retirement savings. There are inherent dangers for getting it wrong, and many still choose to partner with professionals so their goals can be reached. Fees can be higher depending on choice of service provides, whilst others realise substantial savings. Control & flexibility, personalised insurance, streamlined admin and extra investment options including direct property are big draw cards.
There seems to be a lot of confusion and conflicting information in the market for people researching their options in regard to self managed superannuation funds. Some sites advise that you need at least $250k for the exercise to be worthwhile and others advise that as little as $70k will do the trick.
Truth is, it comes down to you.
Firstly analyse: What are your reasons for wanting to do a SMSF?
For most the answer comes down to two big issues – control and flexibility.
After that are secondary considerations such as fees, administration and taxation.
Since the GFC or global recession began in late 2007, most haven’t been able to fully recoup losses and fund returns remain lower on average with high volatility. Many clients express the feeling they’d be better off with a property or term deposit (which may or may not be true.) Others believe that constant government meddling with legislation changes, capping deposits allowable and possible tax alterations mean it’s all just too hard to keep up with.
Having control means you’re able to choose assets that aren’t typically available in a standard industry or retail fund, such as Exchange Traded Funds (ETFs) or residential and commercial property. Flexibility provides the options or being able to pick and choose, and buy and sell at your leisure.
Fees are often touted as the ‘be all and end all’ when investing and certainly can make a impact. We’ve all seen the ‘compare the pair’ ads where only fees are ever considered. No thought is given to the impact of tailored financial advice, a strategy that includes salary sacrifice, additional investments or co-contributions and having the investments match your personal risk profile. All of which may lead your fund ahead in leaps and bounds and sometimes negate a slightly higher cost structure.
So when comparing an industry fund to an SMSF, it’s highly possible the fees on the industry fund will be lower than the administration costs of an SMSF. This however doesn’t take into account the impact of suddenly being more engaged with the fund, loving the assets you’ve chosen, contributing more and the immediate ability to defer and possibly reduce the 15% tax payable on all contributions.
Accountants often charge around $2000 and upwards for the tax return and an additional $500 or more for your annual audit. But competition is a wonderful thing and in many cases has brought prices down. But pay peanuts and you may get monkeys. So, do be careful!
If in doubt, invest in the time to sit down with a professional who specialises in SMSF to discuss your goals and see whether it fits in your financial journey. Amanda from Wealth Planning Partners would be happy to assist, or check out the SPAA website for your closest qualified specialist Adviser.
