by Jodie | Aug 15, 2016 | Aged Care, Australian Economy, Budgeting, Centrelink, Finances, Money, Retirement
Choosing how you age is not just about accommodation for you or your family. There are also a range of financial and emotional issues to plan for.
The quality of today’s health care means we are enjoying longer lives, with current life expectancy levels far exceeding those of previous generations. Accordingly, many Australians ought to make well thought out plans for their living and care arrangements in their later years a top priority.
But, some research alarmingly tells another story.
The insights
# A 2011 survey on housing in later life revealed that one quarter of the 5000 baby boomer respondents hadn’t considered the issue of their financial futures with respect to aged care at all.[1]
# Over 31% of respondents said they expected to rely on the government for their future housing and financial needs as they age, highlighting a gap in overall awareness of the social security system.
# Prior to 1 July 2014 most aged care facilities utilised an accommodation bond for residential aged care* – only one in three respondents understood how bonds worked, highlighting a gap
in financial literacy. (*Since July 2014 this has been replaced with refundable accommodation deposits/contributions.)
# Importantly, the same study also highlighted that over 64% of people would prefer to age in their current homes, rather than downsizing or moving into aged care.
# More than 353,800 people in Australia have dementia and by 2030 the number will grow to more than 500,000 according to peak body Alzheimer’s Australia, underscoring the importance
of planning for aged care early.[2]
The demographic shift
Currently, there are 400,000 Australians over the age of 85; approximately 1.2% of the population.2 However, the overall proportion of the population is expected to almost double to 5% by 2050 according to the Australian Bureau of Statistics.[3] Recent research from Calibre Consulting Engineers, tips that this seismic shift will stretch infrastructure considerably. The group predicts $22.5 billion worth of new aged care facilities will be required before 2031 to house this ageing population, especially as more baby boomers enter retirement.3 Also, for every 1000 people over the age of 70, 88 will need government assistance to afford aged care.[4]
The private vs public sector
Some pundits expect the private sector to step up to accommodate the gap in demand and supply. The ASX-listed aged care provider Estia, which has recently been the subject of media attention, has for example publicly slated plans to expand its number of beds from 4639 to 10,000 by 2020 as reported in The Weekend Australian recently.[5]
However, private sector growth on this magnitude could potentially be affected by recent cuts in government funding, which included a proposed $1.2 billion cut to the aged-care sector in the Liberal Party’s Federal Budget released in May.
Calibre’s Civil and Urban sector leader Brent Thomas is concerned that signs of further cutbacks and lack of political support will mean “prices will rise for available sites, and many seniors will be unable to afford the type of care they need in areas they want to live”.[1]
Aged care fees – have you factored them in?
Based on the current trend of cutbacks to this sector, the costs of aged care may well increase in the future. If that occurs it could also place significant stress on all of us as and when we age,
as well as our families. It’s important to therefore understand some of the main costs involved. For those considering residential aged care solutions there are two predominant costs.
Entry costs: also known as ‘accommodation payments’ are means-tested and can be paid as a lump sum, daily amount or a combination of both.
Ongoing costs: may include a basic daily fee, capped at 85 per cent of the single person basic Age Pension, a means-tested care fee and additional services fees.6 Costs for home care recipients include a basic daily fee that can be up to 17.5 per cent of the single person basic Age Pension.[2]
What can a holistic financial plan include?
With changes in government funding, plus the possibility of rising costs of living and higher housing prices, a holistic financial plan for later life is vital. Such plans can include:
- Timing or advice on aged care: i.e. funding options before the need to rely on aged care.
- Power of Attorney/guardianship: i.e. to help enable lifestyle, financial and medical decisions
in the event of reduced capacity.
- Choice of accommodation, understanding fees and accommodation payments/contributions
for aged care facilities and the implications of selling or renting the family home
- Tax planning
- Estate Planning
- Social security entitlements
- Cash flow/Budgeting and debt planning
- Home improvements: i.e. modifications to your existing family home such as installing ramps; rails; single levels; electrical controls; bathroom and kitchen safety features and accessibility-planned homes.
Emotional concerns and the importance of objective advice
Other facets of aged care strategies are the emotional concerns of both people facing this stage of life, as well as their families. It is vital that plans and conversations are documented and had well ahead of any declines in health and or mental cognisance. These often difficult conversations can
be significantly aided by an independent and objective third party, such as a financial adviser. Underscoring the importance of this step is the rising number of people expected to suffer from dementia in Australia by 2030, from more than 353,800 people currently, to more than half a million by 2030 according to Dementia Australia.[3]
Acceptance of moving to aged care can be particularly difficult and emotionally fraught, highlighting the case for a documented plan. According to the AHURI survey, considerations including access to familiar areas, family and friends are cited as vital aspects to include in a plan, which may or may not involve selling the family home.[1]
The flood of information available can also be hard to navigate. This is where a trusted financial adviser can play an important part of planning for the future and providing objective advice to assist you and your family.
COMMON QUESTIONS
What is “the means test” for residential aged care?
This examines your assessable income, including your Age Pension, as well as your assets, including your superannuation and in some circumstances, the value of your home.
What impact can it have on my aged care fees?
The result of this test will determine the costs you’ll be required to pay if and when you enter aged care accommodation and any ongoing means tested care fees.
Can I get in-home care still?
Yes, but when you are applying for home assistance an income test will determine how much you will pay; people with a higher income and or with a larger asset base will generally pay more.
Where to from here?
It’s essential to act early and make sure you have a plan in place; whether that is to stay in your existing home and seek in-home care, or to enter an aged care facility. By planning ahead and saving early you can establish your preferences as to how you age and put in place steps to maintain your financial wellbeing.
[1] Bridge, Davy, Judd, Flatau, Morris, Phibbs. (2011, September) ‘Age-specific housing and care for low to moderate income older people’ Report No. 174 for the Australian Housing and Urban Research Institute, UNSW-UWS Research Centre.
[2] ‘Greens Funding for Better Dementia Care Welcomed’, (2016, 22 June) Alzheimer’s Australia, Press Release, sourced at: https://fightdementia.org.au/media-releases/greens-funding-for-dementia-care
[3] Watkins, J. (2016, June 16). We need to speak up for our parents. The Sydney Morning Herald. Retrieved from http://www.smh.com.au/comment/we-need-to-speak-up-for-the-aged-20160615-gpjfag.html
[4] Australian Bureau of Statistics, 2015
[5] Cranston, M. (2016, June 1). $22.5 billion in Aged Care homes needed but will it be achieved? The Australian Financial Review. Retrieved from http://www.afr.com/real-estate/225-billion-in-aged-care-homes-needed-but-will-it-be-achieved-20160530-gp7qhr
[6] Ibid.
[7] White, A. Loussikian, K. (2016, June 11). Aged care and fast money an unhealthy mix. The Australian. Retrieved from http://www.theaustralian.com.au/business/aged-care-and-fast-money-an-unhealthy-mix/news-story/e56d693e174eb8e935834aec50ff6c6b
[8] Money Smart. Aged Care. Retrieved from https://www.moneysmart.gov.au/life-events-and-you/over-55s/aged-care
[9] ‘Greens Funding for Better Dementia Care Welcomed’, (2016, 22 June) Alzheimer’s Australia, Press Release, sourced at: https://fightdementia.org.au/media-releases/greens-funding-for-dementia-care
10 Ibid.
11 Bridge, Davy, Judd, Flatau, Morris, Phibbs. (2011, September) ‘Age-specific housing and care for low to moderate income older people’ Report No. 174 for the Australian Housing and Urban Research Institute, UNSW-UWS Research Centre.
by Jodie | Aug 14, 2016 | Australian Economy, Budgeting, Debt Management, Finances, Investments, Savings
With private school fees rising each year, it pays to start saving early.
Most parents believe a good education is an investment in their child’s future. But with the total cost of a private-school education approaching up to $500,000, finding a way to fund that investment can be daunting.
“Our research shows that sending children to private school is the second-biggest financial concern for parents, behind ensuring quality healthy food is on the table, so we know this is a top priority for many families,” says ANZ managing director, products and marketing, Matt Boss.
Annual tuition fees for elite Sydney and Melbourne private schools are close to $30,000 a year, but that is just the beginning. Parents can expect to pay significantly more when extracurricular activities, uniforms, laptops and other necessities are added in.
According to the Australian Scholarships Group Friendly Society, the total cost of sending a child born in 2015 to private school from kindergarten through to year 12 is $456,933. That’s a national average. You will pay more in Sydney and Melbourne, but less elsewhere.
Key tips
“I liken it to retirement – you can’t start saving five years out if you want to meet your aspirations,” says John Velegrinis, chief executive of the society. “We advocate starting early with at least a small amount and increasing savings as time goes on.”
ANZ research showed only one in 10 parents start an education savings plan when their children are young.
ANZ commissioned the research as part of the launch of ANZ School Ready, an interactive tool to help parents forecast the true cost of sending children to various schools around the country.
“While not everybody wants to send their children to private schools, the site allows parents to forecast the true cost of those schools and helps them better plan for one of the most important investments they will make,” says ANZ’s Boss.
Education costs have been rising at twice the rate of inflation for the past 10 years, or an average of about 6 per cent a year. So any savings plan needs to provide a return above inflation.
ANZ research showed 46 per cent of parents identified a savings account as the key form for funding private schooling. But with most savings accounts and term deposits paying interest below 3 per cent – and that’s before you pay tax on the income at your marginal rate – it pays to consider the alternatives.
Your mortgage
Using the redraw or offset account attached to your home loan is a simple solution. Even when interest rates are low, as they are now, any savings you park in your mortgage earn an effective after-tax return equal to your home loan interest rate. According to Canstar Research the most competitive variable home loan rates are currently a bit below 4 per cent, which is well ahead of inflation and bank account interest rates.
Investment portfolio
Parents with a longer time frame might consider investing in managed funds. The easiest way to build a diversified portfolio of assets including exposure to local and international shares, property, fixed interest and cash is via managed funds. Some managed funds even allow you to set up a regular savings plan. If it sounds complicated, speak to a financial planner. And invest in the name of the parent expected to be on the lower tax bracket to maximise the after-tax outcome.
Insurance bonds
Personal finance commentator Noel Whittaker says insurance bonds can be a tax-effective choice, especially for parents on higher incomes with a time horizon of at least 10 years. Rather than hold investments in your own name where earnings may push you into a higher tax bracket, investment earnings from insurance bonds are taxed inside the bond at the corporate rate of 30 per cent. This means you don’t need to account for them in your annual tax return.
And grandparents can invest in the bonds without affecting their pension entitlements. Insurance bonds can also be transferred to the kids at any time with no capital gains tax.
Education savings plans
Specialist education funds allow you to make regular payments or a one-off lump sum. There are funds designed for primary, secondary and post-secondary education. Velegrinis says returns have averaged around 5 per cent over the past three years.
As these funds are registered as educational scholarship plans they attract tax benefits that are passed on to families.
While the cost of private school education can seem prohibitive, many parents save money by sending their children to local, public primary schools before going private for their secondary education. Religious systemic schools may also be a financially attractive alternative.
Whatever school you choose, the sooner you begin a savings plan the easier it will be on your household budget.
by Jodie | Aug 9, 2016 | Economy, Finances, Investments, Money, Retirement, Savings, Wealth
A goals-based investment approach isn’t focused on ‘beating the market’.
It’s about tailoring your investments to meet your personal goals.
Performance comparisons are unavoidable in the investment world. Every day you see investment managers measuring their success by how much they’ve outperformed the market, or their peers, over a given time period.
The problem with this is that most people don’t invest because they want to beat the market. Most people simply want to make their money work harder so they can improve their lifestyle, educate their children or save for their retirement.
So why not start with the end goal and work backwards to find the right investments? That’s essentially what a goals-based investment approach does.
A tale of two investors
Let’s look at two investors who have very different circumstances:
- Harriet is looking to save $100,000 to put towards a house deposit in the next 2-3 years.
- Carla is retiring soon and looking for an income of $60,000 every year for the next 20 years.
These two women are likely to have very different investment profiles. For example:
- Harriet has a shorter timeframe, so she may not be able to take as many risks with her money (bearing in mind she may not have time to wait for markets to recover from an unexpected downturn). Harriet also needs to make sure she will be able to access her entire lump sum at once, possibly at short notice when she finds a home, so liquidity is important.
- Carla has a longer timeframe, so she can afford to invest in higher-risk assets knowing she has more time to recover any short-term losses. Because she needs income, her investments will be geared towards those that pay high levels of interest or dividends. Liquidity is less of an issue for Carla as she is likely to leave the bulk of her money invested for the long term.
These two investment strategies will look very different. But one thing both women have in common is that they have a specific goal that doesn’t relate to any particular market benchmark or index.
This important change of mindset can help investors become less distracted by what the markets are doing in the short term. It also gives you something more personal and more meaningful to measure the performance of your investments against.
After all, you’re investing to achieve goals, not returns. So isn’t that what you should be focusing on?
by Jodie | Jul 1, 2016 | In The Media
Adviser Director of Wealth Planning Partners, Amanda Cassar has launched a crowdfunding campaign to raise $10,000 for The Hunger Project (THP).
To support the campaign, Ms Cassar plans to go to Ethiopia as part of the Business Chicks Leadership and Immersion Program.
by Jodie | Jun 22, 2016 | In The Media
“I work all night, I work all day to pay the bills I have to pay. And still there never seems to be a single penny left for me.” If you’re a bit of an ABBA tragic like me, chances are you’re familiar with these lyrics.
Sometimes running your own business starts as the dream, and then the reality of making ends meet turns it into more of a nightmare.
You’ve probably heard the old cliché that ‘cash is king’. I’d actually like to take issue with and declare that ‘cash flow is the true king’. When running a small business, cash flow is paramount, and the lack thereof can be severely frustrating.
Watching others in business splurge before the end of financial year to save tax may even bring on a touch of the green-eyed monster, especially when we’re not in a position to be able to do the same. But don’t worry – chances are nearly every small business has had cash flow issues at some stage, and some sleepless nights while becoming a profitable enterprise.
I Have a Plan…
Depending on what business you’re in, sales can be seasonal, or you have some much better months than others. If you’ve been going for a few years, check your historical data in your accounting software tool or system and see when your highs and lows in income traditionally fall.
If you’re in financial services, just before the end of the financial year is the best month for you; retail may be November and December; spring months for wedding and baby services; July to October for bookkeepers and accountants, with quarterly spikes for BAS returns.
Conversely, there will likely be times when things are much slower. Building services and offices traditionally shut up shop for part of December and January. Take a look at what happens for you.
Can you use the slower months to launch some marketing or sales campaigns? Is it time to get on top of some social media advertising or do other activities to stimulate sales when you know it will be a little quieter?
Also, quick invoicing is key to maintaining healthy cashflow, which can be easily managed through software tools such as QuickBooks Online. Falling behind on your invoices by taking notes to action them later can leave you without income for periods of time, which you want to make sure you avoid. So software can assist here in producing and sending off invoices instantly and on your mobile right then and there so nothing slips through the cracks.
All the Things I Could Do…
Chances are you know when your big expenses fall due. Insurance premiums, extra wages, utility costs and higher stock needs. Again, check your monthly data, whether through QuickBooks Online or another tool, and watch for the pattern to emerge.
Are you able to start smoothing some of the spikes? Can you ensure big bills aren’t due in the quiet months? Can you allocate more profits from the good months to future bills? Are you able to change when the annual payment falls or adjust payments to half-yearly or quarterly?
If it’s really tough, sort your bills into the ‘must pay’, ‘important to pay’ and ‘flexible options’ groups. Prioritising expenses is a great plan!
Another top tip is to invest in a payroll service if you don’t already have one. Accounting for wages, superannuation, GST and other taxes can take a lot of time, especially for the already time-poor business owner, but a good payroll service can be invaluable. You’ll always know exactly where you stand and how much to allocate to cover costs. Check out the benefits of QuickBooks Online payroll services and see what benefits it can bring to your business.
Things can get a little rough in small business and learning a few tricks to keep your head above water will help you stay positive, maintain focus and in control enough to turn a healthy cash flow once again. It may also mean you don’t need to go to Las Vegas or Monaco and win a fortune in a game.
VISIT WEBSITE
by Jodie | Jun 7, 2016 | Insurance & Protection
It’s devastating to watch the nightly news and see reports of young drivers, especially P platers, who are fatally injured or worse, killed on Australian roads. As a mum of two P-platers, it certainly concerns me.
Unfortunately, there are no signs of this problem reducing. The anxiety and fear parents have about their children driving are real, and are highlighted by the figures below:
- 45 per cent of all young Australian injury deaths are due to road traffic crashes
- Of all hospitalisations of young Australians, almost half are drivers involved in a road traffic crash and another quarter are passengers
- Young drivers (17 – 25 years) represent one-quarter of all Australian road deaths, but are only 10 – 15% of the licensed driver population
- A 17 year old driver with a P1 licence is four times more likely to be involved in a fatal crash than a driver over 26 years
- One-third of all speeding drivers and rider in fatal crashes are males aged 17 – 25; 6 per cent are females aged 17 – 25
References
Australian Institute of Health and Welfare (2007). Young Australians: their health and wellbeing. Cat. no. PHE 87. 2006, Canberra: AIHW, available here.
Parents of teenagers are aware of the above risks, especially as their children get closer to driving age. The emotional impact resulting from these events are immeasurable. However, the financial stress can be limited with the right strategies in place.
A lump sum benefit may assist in providing a young adult with medical help and rehabilitation. It may also allow a working parent to cease working and provide care and attention to their sick child.
Child Cover – A general overview
Child cover pays a lump sum benefit if the insured child suffers a specified traumatic illness or passes away. Some of the specified conditions covered in this product are consistent with conditions suffered from a car accident, such as:
- Severe burns
- Major head trauma
- Loss or paralysis of limb
- Death
Minimum entry age: 2, Maximum entry age: 15
Expiry age: 21 ( with an option to convert to Life Cover with optional Trauma without medical underwriting)
Minimum sum insured: $10,000, Maximum sum insured: $200,000
Case Study:
Jennifer and Adam speak to their financial adviser regarding their wealth protection needs to protect their young family financially. They have two children, Harry and Gemma, who are 15 and 13 years old respectively. Like all typical teenagers, Harry can’t wait to get his licence and go out for drives with his mates. Jennifer and Adam understand the risks with young drivers and they admit to having concerns.
Jennifer and Adam’s financial adviser recommend Child Cover as an added option to their risk strategy to address these concerns.
Tragically, 3 years later, Harry was a passenger along with 3 other teenagers in a car being driven by a P plater. Harry suffers severe burns to over 40% of his body and head trauma. Jennifer and Adam’s Child Cover policy paid a lump sum benefit of $200,000. This benefit enabled them to provide their son with the appropriate medical care and rehabilitation. In addition, Jennifer used some of the funds to enable her to take 6 months off work to be by Harry’s side during this difficult time.
Don’t hesitate to get in touch with one of the Wealth Planning Partner’s advisers now for more information on how we can assist your family.
by Jodie | Jun 1, 2016 | Economy, Finances
Economists and traders around the world closely monitor dozens of economic surveys and indicators that are released each week across a range of countries. However, the most important market indicators which can shift the needle on global market performance are:
GDP figures: The gross domestic product (GDP) is the most comprehensive of all economic indicators as it is an aggregate measure of a country’s total economic production and spending. It represents the market value of all goods and services produced by a country over a quarter on an annualised per cent basis, net of inflation. It comprises personal consumer spending, government purchases and investment, private investment spending on new equipment and buildings, including housing, private inventories; and the balance of foreign trade, which is calculated by subtracting imports from the level of exports.Given how comprehensive GDP figures are, and the relationship over time with corporate earnings, GDP figures for the world’s largest economies are the most closely watched indicators.
Inflation: The main indicator of inflation that is closely watched is the Consumer Price Index (CPI) which measures changes in the prices of average consumer items. The overall reading provides a summary of how average living costs are changing. Meanwhile, the Producer Price Index measures the change in prices of goods produced by manufacturing firms. In theory, if these rise significantly, the costs will be passed onto consumers, leading to faster growth in the CPI. As with unemployment data, the importance of inflation figures is raised because most central banks target a rate of growth in inflation when setting the level of short-term interest rates. Typically central banks target a level of inflation of around 2%, although in Australia the Reserve Bank is targeting a rate of inflation between 2-3%.
Employment figures: Are another closely watched summary indicator of economic activity.
This owes to the fact that not only do employment and unemployment data give a simple, timely and transparent view of overall growth, but also because most central banks directly target a level of the unemployment rate when they set short-term interest rates. In addition, employment growth leads back into future growth in an economy by influencing consumer confidence and spending. On the first Friday of each month, the U.S. Bureau of Labor Statistics releases monthly unemployment and job creation figures for the US economy. The release of these figures can drive swings in both bond and stock markets.
The housing market: Housing figures are more localised than other data. Local metrics include housing starts, new home sales, new building permits and house prices. Housing activity indicators tend to be watched closely as the sector is particularly impacted by changes in sentiment (due to the size of the transactions involved) while housing activity is the most impacted by interest rate changes.
Consumer activity: Consumer spending and retail sales figures are closely followed, as seeing what people buy and where they buy can provide valuable information about the economy. Consumer confidence surveys are another metric, as they give an insight in to what the future trends in spending may be. Stock prices may also closely reflect the future opinions about consumer activity.
Manufacturing data: Is based on surveys of the top manufacturing firms monitoring commercial activity such as future contracts and orders. For example the Institute of Supply Managers (ISM) Manufacturing Index monitors production, new orders, employment, supply times and inventories. These measures allow investors an inside view of national economic conditions which they use to help determine the relative strength of stock markets. For example, when the index is increasing, shares markets should also increase reflecting rising corporate earnings or profits. The purchasing manager index (PMI) is a similar indicator that is calculated for a range of countries in addition to the US. The Chinese PMI, for example, has recently received a lot of focus.
It has weakened below 50 (signifying weakness) which has raised concerns over the outlook for the Chinese economy and with it global growth.
At the top of the list of data which has recently raised concerns sits China’s PMI figures. The world’s second largest economy is a manufacturing giant, and for good reason global investors closely monitor developments in this key indicator of industrial activity. China’s PMI as at 20 January 2016 was 48.2, having contracted further from a volatile month of August 2015, when it was 49.7.
It is universally agreed that any number below 50 signals a contraction. In addition, the JP Morgan Global Manufacturing PMI gauge shrank from 51 in July to 50.7 in August, reaching a two year low. It then marginally improved to 50.9 by December 2015; nonetheless indicating a slowdown that is no longer limited to just China. JP Morgan.
Plan ahead to meet your lifestyle goals
At times like this market movements can be hard to ignore, and all the related terminology overwhelmingly complex. However, seeking professional financial advice can give you clarity. Your financial adviser can help you build a diversified portfolio and establish a long term plan if you haven’t already done so, or adapt your existing plan to ensure it’s appropriate to weather market ups and downs. Having a long term financial plan in place can help you reach your savings and lifestyle goals.
Speak to your Wealth Planning Partners adviser today for more information.
by Jodie | May 31, 2016 | Finances, Savings, Wealth
Think having a Will in place means your estate plan is taken care of? Here are five examples that might make you think again.
Most people appreciate that having a Will helps you formalise what you’d like to happen to your assets if you pass away.
While there’s no doubt a Will is an important part of the estate planning process, it may not be enough to prevent unfavourable outcomes for your family.
59% of Australians have a will and 22% expect to make one…
Here we look at five common estate planning mistakes, including some real-life examples of what happens when things go wrong.
Top 5 estate planning mistakes
1. Having an outdated/invalid Will
Your Will needs to be reviewed and updated regularly to ensure it still accurately reflects your goals. This is particularly important when your family situation changes, as shown in the following example:
Bill had a family trust holding significant assets. After divorcing his wife Marlene, Bill inadvertently left Marlene in the family trust deed as the controller (appointor) of the trust.
When Bill unexpectedly passed away, Marlene was left in control of the family trust. She wound up the trust and transferred the trust assets to herself.
2. Not having a wealth transfer strategy
One of the reasons trust structures are popular for wealth transfer is that they give you greater control over how and when your assets are used. For example:
Jack made a Will following Mark’s birth many years ago. Mark, throughout his adulthood, developed spendthrift habits. When Jack passed away, leaving his estate to Mark as his only son, Mark squandered the estate.
Had Jack established a trust fund in his Will for Mark, appointing a professional and independent trustee to manage and administer the trust fund, Jack’s estate could have been passed on gradually.
3. Not using testamentary trusts
When your beneficiaries are minors, a testamentary tax structure can provide significant tax advantages over a family trust. For example:
Rob and Raelene were a professional couple with four young children. Rob passed away suddenly and didn’t have a Will in place. All assets were held in his name only.
When Rob’s assets were distributed to his children, they had to pay tax at children’s rates. Had Rob made a Will, he could have set up a discretionary testamentary trust, enabling income to be distributed to their four children at the adult rates of tax – creating significant tax savings for the family.
4. Not involving family members
There’s a tendency for people to avoid talking about sensitive topics like wealth transfer with their families, and particularly beneficiaries. The benefit of including your family in these conversations from an early stage can help makes sure well-meaning wishes are carried through.
For example, if you would like one of your children to get involved in the ongoing management of your charitable donations, you need to ensure they are aware of your goals and intentions so they can carry on your legacy as intended.
5. Not looking at the full picture
If you don’t have one professional looking at the complete picture of your estate plan, it increases the chances your assets won’t be distributed evenly. For example:
Mary was a single parent who wished to benefit her three children equally if she passed away, and signed a simple Will accordingly.
When Mary died suddenly, her main asset was her super and she did not have a death benefit nomination in place. One of her children was a financially-independent adult working as an accountant, while the other two were school aged children living at home.
The trustee of the super fund decided to pay the death benefits to Mary’s two school-aged children (to be held on trust), rather than to her deceased estate. This meant that her adult son missed out on receiving any benefit from super, while her two younger children received a greater share of Mary’s overall wealth.
by Jodie | May 24, 2016 | Economy, Finances, Investments, Money, Savings, Wealth
Bonds are one of the four major assets classes, but they’re probably the least understood. Here’s why they’re an important part of many portfolios.
What are bonds?
Bonds are essentially loan arrangements that governments and large companies use to raise money.
These loans generally have a fixed term and a fixed interest rate, with the interest either paid in full at the end of the term (i.e. at the ‘maturity date’) or in instalments along the way.
How do you invest in bonds?
A simple way to invest in bonds is through managed funds or Exchange Traded Funds (ETFs). This generally means your money is pooled with other investors in a diversified bond portfolio, which reduces the risk that any one borrower will default on the loan.
You can also invest in bonds through your super – bearing in mind that a typical ‘Balanced’ investment option allocates around 30% of its assets to bonds (also referred to as ‘fixed income’) and cash.
Why invest in bonds?
1. They provide a reliable source of income
Investing in bonds with high-quality borrowers (e.g. governments and blue-chip corporates) can give you a steady and reliable source of income over a set time period. This often makes bonds a good option for retirees or investors who want to generate ongoing income.
2. They offer higher potential returns than cash
Bonds typically pay a higher rate of interest than cash and term deposits, compensating investors for the additional risk associated with lending money.
Unlike cash investments, bonds also offer the potential for capital appreciation – which tends to happen when interest rates fall. This is because new bonds are typically issued with lower interest rates than older bonds, making the older bonds more valuable when traded.
This feature of bonds makes them a good hedge against dwindling returns from cash investments in a falling interest rate environment. The flipside is that bonds may lose value when interest rates rise.
3. They can be a good hedge against share market volatility
Bonds provide diversification benefits for investors because they tend to behave very differently to shares.
The table below shows the performance of Australian shares, Australian bonds and cash over the last 10 financial years, plus the average return over the last 30 years.
As you can see, some of the strongest years for bonds are when shares are in negative territory.
by Jodie | May 17, 2016 | Advisers, Australian Economy, Budget, Budgeting, Finances, Money, Savings, Women
Tracking where your money actually goes can make revealing reading.
ASIC’s 2012 consumer-spending figures show the average household spends $69,000 a year: Australians splash $78.4 billion a year on their cars, compared to just $2.2 billion on public transport; almost twice as much on gadgets as on fashion; and four times as much on beauty products and services as education.
To budget successfully it’s important to make your budget and spending limits realistic. MoneySmart has a range of suggestions for reducing outgoings without driving yourself to the point where you get fed up with the whole thing – a danger that’s highlighted in its advice and tips.
When you set out your budget and savings plan, think about what saving that money will achieve – list your goals.
The key to any successful budget management is to also work out your goals and plans. It’s much easier to trim spending or be more determined re-negotiating insurances or even your mortgage when you know what those savings will achieve. Tying your savings to a goal makes sense. If you know the savings will reduce your Mortgage or see you heading off on that holiday sooner, you’re more likely to stay on task.
RMIT’s women and money survey found that providing for family was most women’s main financial priority, but women’s incomes are most likely to be reduced when they start a family. There’s also caring for ageing parents thrown into the mix that can impact on income, savings and finances.
The best way to stay in control of your finances, is to build savings and investments as early as possible. Part of your monthly budget should include a regular savings amount.
Around 10 per cent if often given as a ‘rule of thumb,’ paid through a direct debit or regular BPay into a separate savings account. However, as everyone’s circumstances are different, it may be worth seeking your own independent financial advice.
Five steps to successful budgeting
- Do your own financial health check, listing all your income and expenses, using a tool such as a budget planner
- Decide your immediate and longer term financial goals, and consider getting some financial advice to help you do this
- Look at how you can trim spending to save more
- Set a weekly or monthly budget with spending limits in key areas. Use a diary or the MoneySmart TrackMySpend app to help you stick to these
- Set up a direct debit to put your savings into a separate account
