Is your money personality set in stone?

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Our upbringings hugely influence the attitudes we have towards money. Did you observe your parents working hard to put food on the table? Was money a cause of conflict in your household? Was it spent freely, or were budgets obeyed? 

The money attitudes you were exposed to as a child aren’t necessary the ones you’ve taken on though. Some people exhibit money habits very different to the ones they grew up seeing, perhaps in a reaction to those circumstances or as a reflection of their personality. Take a look at a family of siblings and you might notice very different money personalities. 

Here are four of the most common money personalities:

Avoider

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As the name suggests, an avoider doesn’t want much to do with money. They don’t want to spend time thinking about it, which is why bills go unpaid and little attention is spent on investing and saving. There are many reasons why someone could be a money avoider, but two common ones are either feeling overwhelmed or confused around financial matters, or believing that money represents greed so it’s bad to focus on it.

Hoarder

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This money personality type excels with saving but struggles to spend. This can lead to Scrooge-like tendencies, as the hoarder finds it difficult to part with their money. They’re anxious that money could be taken away from them and they must have substantial savings at all times. The hoarder doesn’t have fun with their money – the greatest enjoyment they get is knowing it’s untouched. 

Spender

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The opposite to the hoarder, the spender enjoys buying things for themselves and loved ones, making them very generous but sometimes irresponsible if they spend more than they earn. They risk falling into debt and struggle to save enough money for substantial purchases such as a house deposit. Delayed gratification is foreign to the spender, who’d rather buy on impulse. 

Status seeker

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Unlike the other money personality types, whose habits might go unnoticed at first, there’s no mistaking the status seeker. They’re the ones with the newest gadgets, flashiest cars, most fashionable clothes. The status seeker uses money to exalt their image. They have high standards and are deeply invested in how others see them. Like the spender, the status seeker risks going into debt if they can’t afford their lifestyle. 


Perhaps you identify strongly with one of these types, or can see yourself in several. None are inherently bad, but they all represent unbalanced attitudes to money. 

While many of these beliefs can be quite entrenched, it is possible to change your thinking and foster a more positive money mindset. 

Here are some tips to bring these beliefs into equilibrium:

Understand the emotions that drive your decisions

The money hoarder tends to be driven by anxiety, while for the status seeker it’s insecurity. Identify your emotions – this observation will make you more aware of how you view and use money. 

Create and maintain good money habits

A budget provides a clear picture of where money is going. They’re useful for everyone to have, but are especially helpful for the spender and avoider.

Stop comparing yourself to others

The status seeker is the worst offender, but many of us also buy things to impress others. Focus on what you want and don’t worry about keeping up with the Joneses. 

Communicate with your partner about money matters

It’s possible you and your partner are different money personality types. Ensure you’re on the same page about shared spending, saving and long term goals. 

Practice gratitude

Appreciating what you already have will cut down on any unnecessary spending and anxiety around your finances. 

Get assistance

Whatever your attitude to money, it’s always worthwhile having someone in your corner to assist you to make the most of your financial situation. We are here to help.

FIRED up for financial independence

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Millennials are often accused of living for the present and wasting their money on smashed avocado. So it may come as a surprise that younger Australians are at the vanguard of a growing movement committed to the old-fashioned virtues of thrift and saving, but with a modern twist. 

Whereas the mantra of the Baby Boomers in the 1960s was ‘turn on, tune in, drop out’, their adult children also want to leave the rat race, but they want to do it with a substantial nest egg to allow them to pursue their dream lifestyle. The new mantra is ‘Financial Independence, Retire Early’, or FIRE for short.

The FIRE Brigade

The fundamentals of the movement come down to three lifestyle changes – living frugally, increasing income and investing the surplus – that they believe will help them achieve FIRE. 

The godmother of the FIRE movement is Vicki Robin, the author of Your Money or Your Life. Robin suggested to her readers that they consider the ‘hours of life energy’ a purchase entailed. For example, a person earning $60,000 a year who is contemplating buying a $30,000 car should ask themselves whether owning the vehicle is a reasonable trade-off for six months of their life. 

Robin's book came out during the pre-GFC consumption frenzy and failed to have much impact. However, over the last decade or so, increasing numbers of individuals and couples in their twenties and thirties have embraced its core message about stepping off the consumerist treadmill. 

FIRE blogs, websites and books are largely devoted to money-saving tips such as trade your car for a bike, be content with fewer, cheaper items of clothing and forget about eating smashed avocado on toast at cafes. FIRE enthusiasts are also highly motivated to increase their income by working smarter, studying or starting a side business. When it comes to investing surplus income, they are also actively engaged with a preference for income-producing assets such as property and bonds and dividend paying stocks. 

Fuelling the FIRE

It’s not clear what has drawn so many Millennials to the idea of achieving financial independence earlier in life than their parents. It’s possible that the GFC had the same kind of impact on them as the Great Depression had on their grandparents. It’s also conceivable Millennials have less interest in flaunting status symbols than preceding generations. Or it could simply be the case that Millennials value freedom and autonomy and want to escape the rat race asap. 

Being Millenials, technology is central to spreading the FIRE message. The favoured online hangout of Australian FIRE fans appears to be the Reddit, sub fiaustralia, which has 8,400 subscribers. There are even Australian FIRE celebrities, such as ‘Aussie Firebug’. While remaining anonymous, Firebug has revealed he’s in his mid-twenties and determined to achieve financial independence by no later than his mid-thirties. He defines this as: “Having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses.” 

While its adherents skew towards the young, people of any age can embrace the FIRE philosophy. Many older Australians with modest super balances are doing much the same things as FIRE devotees, albeit out of the fear of having to keep working past retirement age rather than the hope of quitting their job in their thirties. 

A timeless approach

Despite its recent arrival, the FIRE philosophy is essentially a modern makeover of some timeless financial wisdom. Work hard, spend less than you earn and invest the surplus in assets that will grow your wealth and produce income when you retire. 

It could be argued that 26 years without a recession and access to easy credit has made many Australians too relaxed about living within their means. If that’s the case, the FIRE movement could be the spark we all need.

i https://www.reddit.com/r/fiaustralia/ 
ii http://www.aussiefirebug.com/about/

Making the most of a falling Aussie dollar

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One of the major themes for local investors in 2018 is the fall in the Australian dollar, and it’s not just Aussie travellers heading overseas who are affected. Currency movements can have a big impact on your investment returns, but where there’s risk there’s also opportunity. 

The Aussie dollar has dropped from a high of US81c in January to recent levels around US74c, its lowest in 18 months. So, what’s behind this decline and will it continue? 

The interest rate gap

The US dollar has been rising against most other currencies this year, including ours. Part of the reason for this is the increasing interest rate differential between the US and the rest of the world. 

The US Federal Reserve has lifted rates seven times since late 2015 from near zero to a range of 1.75-2.0 per cent. Federal Reserve chairman, Jerome Powell has said he expects to do so twice more this year and three times in 2019 due to solid growth in the US economy.i

By comparison, Australia’s official cash rate has fallen over the same period and sits at an historic low of 1.5 per cent. Commentators expect the next move will be up, but possibly not until late next year. 

Higher US interest rates relative to Australia make the US a more attractive destination for yield-seeking investors. As foreign money flows into the US market, demand for the US dollar increases and its value rises. 

Threat of trade war

Also weighing heavily on the Aussie dollar are the threat of an escalating trade war between the US and China and falling commodity prices, notably iron ore. 

The tit-for-tat tariffs placed on imports by the world’s two biggest economies has the potential to impact the Australian economy more than most. Australia is viewed as a resources-based economy and any rise or fall in commodity prices tends to be reflected in the value of our currency. 

When the first salvos in the trade dispute were fired in July, iron ore was trading at around US$63 a tonne down from a high of US$78 earlier this year and a peak of US$197 back in 2008. Australia is the world’s biggest exporter of iron ore, most of it headed to China for steel production. 

China’s growth eased slightly in the June quarter to 6.7 per cent, the slowest in 21 months. If tariffs put a dent in China’s economic growth and demand for iron ore, our dollar could head lower. 

While currency movements are just one factor influencing investment returns, it pays to understand the impact of a falling dollar to capitalise on the benefits and reduce currency risk. 

Managing currency risk

For local share investors, a drop in the Australian dollar is good for exporters and companies with offshore operations because it improves their competitiveness in overseas markets. 

The currency effect can also increase the appeal of global shares. Local investors who own ‘unhedged’ global shares have already enjoyed the double benefit of rising international share prices and a falling Aussie dollar. Hedged returns perform better when the Aussie dollar is rising or flat while unhedged returns do better when the dollar is falling. 

To illustrate the impact of hedging, Vanguard’s International Shares Index Fund (hedged) returned 11.46 per cent in the year to June 2018 while the same fund unhedged returned 15.44 per cent. 

Avoiding the cash trap

While currency risk can be a challenge for share investors to manage, one of the biggest risks when the Aussie dollar is falling is to leave all your cash in the bank. At a time when historically low interest rates have already reduced the amount you receive from cash investments, your purchasing power is further reduced when you buy overseas goods. 

While investment decisions should never be based on currency factors alone, understanding the impact of a falling dollar can help you minimise currency risk and make the most of opportunities.

i ‘US Fed raises interest rates, expects 2 more hikes this year’, by Akin Oyedele, Business Insider Australia, 14 June 2018, https://www.businessinsider.com.au/federal-reserve-fomc-statement-and-interest-rate-decision-june-2018-2018-6?r=US&IR=T

Does size matter?

When I started out in finance some decades ago, one of my first roles was working in the sales and business development area for a major fund manager who specialise in Australian Equities. One of the presentations that we would regularly roll out to financial planners and their clients was focused on the benefits of a diversified share investment across not just a small portfolio of Blue Chip Large Cap (capitalisation) shares, but a much bigger portfolio of medium and small caps as could be achieved funnily enough through the use of our Managed Fund.

The slides in the presentation would depict the change on the top ten biggest listed companies in the Australian Share Market across various decades going back twenty or thirty years and showing how what was considered Blue Chip, big and safe, wasn’t necessarily still in the top ten or possibly even listed in the Share Market many decades later. By diversifying your shares across a much larger number of sometimes smaller companies would improve the resilience of your portfolio across the years. You can see the kinds of changes I mean here, The ASX top 10 ? then and now

What I took away from this presentation was a little bit more mathematically simplistic and that is if the top ten companies of today are not the same top ten companies of the past then one of two things has to have happened; either the value of those top ten companies has to have fallen more than the value of those companies smaller than them, or some of the smaller companies need to have grown at a faster rate and overtaken the big companies to now replace them in the top ten. This is true for larger segments, say the top fifty stocks versus the next one hundred and fifty.

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I’ve held this belief that small caps and medium caps size shares, or companies, outperform their larger brethren over the long time for pretty much my entire working career. Although there has been much research and debate about factors that add value to portfolios over lasting time periods, such as those discovered by Fama and French and some of their earliest research, right out to a very recent publication from VanEck around Equal Weighted Portfolios, one of the truly consistent long-term factors is this ability of smaller companies to outperform larger companies over the long term. Even if this trend may work in reverse over shorter time periods, such as recently after the global financial crisis in 2007 where there was a sustained outperformance by large caps over the rest of the market as many investors sought safety and quality in big names and big brands.

It has been long thought that the distribution of performance across the majority of the market was normally distributed, that is, around the average return of the share market as a whole, the majority of stocks would cluster and then with a small number of outliers both positive and negative in the tails on the distribution. However, recent research has confirmed what instinctively we know from the outperformance of small over large is that these distributions of returns of individual companies and their share prices is actually skewed to the positive.

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This also makes some instinctive sense in that if you have a losing investment on a share, generally speaking, you can only lose a hundred percent (100%) of the value of that investment. Once the share price goes to zero, you’re done. However, there is no cap to the upside, a share price can double and double again and double again in the right circumstances. Therefore, in a distribution curve the tail to the right for positive returns can be quite long and disproportionate to the losses on the left.

By choosing to pay less attention to the large cap nature of most share indices, like the S&P/ASX 200 or the All Ordinaries Index, which are market cap weighted such that the biggest and most valuable companies have the largest proportionate weighting in the index, to focusing on some other form of weighting; whether it would be equal weight or a cap on weighting for the largest investments, will help potentially capture some of the natural bias in share markets to the outperformance of the smaller, under-dog companies.

So, when you’re constructing your share portfolio one of the many inputs you might want to consider will not just be the appropriateness of “Blue Chips” in your portfolio, but how much faith you put in size over statistics.

Super and inheritance: making your wishes known

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People often think their superannuation will be treated as part of their estate when they die and distributed according to their Will, but that’s not the case. Unless you have nominated your beneficiaries, the decision as to who receives your super is in the hands of the trustees of your fund. 

When that happens, the trustees normally direct all funds to your dependants – your spouse, your children, financial dependents and people with whom you had an ‘interdependency relationship’ such as living together. 

But wouldn’t it be better to nominate exactly who you want to inherit your super death benefits? (Death benefits is the term for all of the money in your super account plus any life insurance.) You can generally nominate beneficiaries with either a binding or a non-binding nomination, although some super funds only provide a member with the ability to make non-binding nominations. 

Make your wishes binding

For binding nominations, the trustees have to carry out your wishes, provided you have nominated eligible recipients. If a nomination is non-binding, it tells the trustee how you would like your benefits distributed, but leaves the ultimate discretion with the trustee, taking into consideration your circumstance and relationships at the date of death. 

Under super law, death benefits can only be left to a dependent or your personal legal representative (the executor of your Will), in which case it will pass into your estate for distribution according to the terms of your Will. 

It’s important to note that a binding nomination generally only has a limited life. Every three years you need to advise your super fund in writing of your nominated beneficiaries or it becomes invalid. 

If you have not nominated a beneficiary and have not yet organised a Will, then your super will be distributed according to a state-based formula which may not reflect your intentions. 

Consider taxation

It’s also important to take tax into account when nominating beneficiaries. If your spouse is alive then it is likely your death benefits will go to your partner as a lump sum and/or an income stream referred to as a reversionary pension. There is no tax liability if it’s paid as a lump sum unless both you and your spouse are aged under 60 when you die. Also, the maximum your spouse can have in their pension account is $1.6 million. So there are considerations if the death benefit pension causes your spouse to exceed this income. 

If your spouse predeceases you then the benefit will be divided between other dependants. Be aware though that there’s a difference in the definition of dependants under super and tax law. 

Under super law, a child of any age may receive your death benefit, but under tax law if they are aged over 18 and not financially dependent on you, they will be subject to 17 per cent taxation on the taxable component of the sum they receive. For this reason, your adult children may be better off receiving the money through your estate as they will only pay 15 per cent tax, saving the 2 per cent Medicare levy. 

Non-dependent adult children cannot receive a reversionary pension; instead they must take a lump sum. 

If you are legally divorced, then your ex-spouse is no longer deemed a dependant under super law. However, if you still want to leave your super to your ex-spouse it must go to your estate and be paid from there. Interestingly, your ex-spouse will receive the money tax free. 

Self-managed funds

For those with a self-managed super fund, you can use a clause in the fund’s trust deed to either nominate a valid dependent who will receive the benefit or else have the money paid to your legal representative who will pay the money into the estate. 

Making sure your hard-earned money is distributed according to your wishes is not an onerous task, but it is an important one. Not nominating a beneficiary, or nominating someone who is not eligible to receive your super, can lead to lengthy delays and emotional upset at what is already a difficult time for your family. 

Seeking professional and legal advice can help to ensure that your death super benefits are considered as part of your overall estate planning and that your wishes are carried out.

Have oil prices peaked?

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Australian motorists are not the only ones hoping that global oil prices have peaked after reaching four-year highs in 2018. Not only do high oil prices flow through to the price of petrol at your local service station, but they also increase the cost of doing business for everyone from farmers to airlines and push up the cost of living for households. 

On June 22 the Organisation of Petroleum Exporting Countries (OPEC) plus Russia agreed to increase output by one million barrels a day, or about 1 per cent of world supplies, to relieve global shortages and lower oil prices. Even so, the price of Brent Crude rose to US$75.60 a barrel immediately after the announcement amid concerns the target may not be met. As at June 29, the oil price had surged 64 per cent in 12 months, but if OPEC and Russia succeed in lifting supply prices should begin to fall. 

There are several international oil prices quoted in the media, but the price of Brent Crude is considered the major global benchmark. 

What’s going on?

OPEC’s latest turnaround follows four years of determined efforts to limit oil production and boost prices. The price of Brent Crude crashed from US$115 to US$30 a barrel in 2014 as cash-strapped producers including Russia and Venezuela increased supply. At the same time, the US expanded production from fracking. 

Then early this year the freezing northern hemisphere winter pushed up the price of oil as demand spiralled. Brent Crude was trading at a sustained high of around US$80 a barrel until May, when US President Donald Trump withdrew from the Iran nuclear deal. 

Under the 2015 deal, nations including the US, France, Britain, Russia, Germany and China agreed to lift international sanctions on Iran’s oil exports in return for OPEC’s third largest producer winding back its nuclear capability. 

The first sign that oil prices may have peaked came on news that Saudi Arabia and Russia were discussing a possible increase in oil production. In late May the price of Brent crude eased back to levels around US$76 a barrel before settling at US$77 after the June 22 meeting sealed the deal.

Who’s affected?

Holidaymakers may feel the pinch after Qantas chief executive, Alan Joyce warned airfares could rise in response to this year’s oil price hikes. Jet fuel costs have climbed 50 per cent in the past 12 months which will eat into airline profits, depending on how much of the cost they are prepared to absorb before lifting fares.i

Rising oil prices also erode profits of transport companies and businesses that rely on the movement of goods or the use of heavy machinery. Australian farmers face the double-whammy of rising fuel costs on top of the effects of drought. 

Consumers ultimately pay for higher oil prices as they flow through to the cost of food and other goods. 

There are some winners from constrained oil exports though. Australian gas producers stand to gain from increasing demand and high prices as they ramp up production and exports. 

Relief ahead for motorists

Rising oil prices have inevitably been passed on to local motorists, although there is relief in sight. The national average price of unleaded petrol rose by 14.7 per cent in the three months to June to a four-year high of 153.3c a litre. Prices edged lower towards the end of June in response to the downward trend in crude oil prices.ii

Rising oil prices have been exacerbated by the weaker Aussie dollar which has fallen from US81c earlier this year to recent levels below US74c. 

Petrol prices vary enormously between regions, cities and even within suburbs. Australian Competition and Consumer Commission chairman, Rod Sims has urged motorists to use fuel price websites and apps to shop around (you could try MotorMouth or Compare the Market.)iii

i IATA, http://www.iata.org/publications/economics/fuel-monitor/Pages/index.aspx 
ii Australian Institute of Petroleum as at June 24, 2018,https://aip.com.au/pricing/pump-prices 
iii ‘Petrol prices stable to March but now hitting four year highs’, ACCC, 5 June 2018,href="https://www.accc.gov.au/media-release/petrol-prices-stable-to-march-but-now-hitting-four-year-highs

Helping you find your financial path

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When it comes to personal finances and ways to build your wealth it seems that everyone has an opinion – and a preferred pathway for wealth accrual. From your mate down the pub who likes to share his stock market tips to your friend at work who has a constant stream of ‘get rich quick’ schemes, to your mother-in-law who exposes a more prudent ‘slow and steady and sock it in super’ approach. 

The truth is there is no one-size-fits-all approach to generating wealth and setting yourself up for the future. Everyone has different objectives, preferences and levels of comfort. 

When deciding on your own financial path, there are a few things that you need to consider. 

Your preferred lifestyle

This is really about understanding what you value in life and what’s going to make your existence meaningful. Success means different things for different people. For some, it’s a big house, two cars in the garage and lots of space to entertain. For others, it’s being able to take an overseas trip once a year. Others still might be dreaming of a tree or sea change and an early retirement. You don’t have to fit into anyone else’s idea of an ideal situation. You just need to work out the lifestyle you want and to set financial goals that allow you to lead it. 

Stage of life

It’s also worth taking stock of what stage of life you’re in. You may be just at the start of your career and beginning to build your wealth, thinking of starting a family and saving for a home deposit or setting your sights on retirement and trying to maximize your nest egg. Your goals and needs shift as you move through life and the world’s a very different place to what it was thirty years ago, meaning the perspective of those in different generations may not be applicable to your own financial pathway. No matter where you’re at, it’s important to have a plan that enables you to meet your immediate needs as well as work towards your long-term goals. 

Focus on your goals and objectives

When it comes to goal setting the important thing is to make them precise and achievable. If goals have tangible outcomes they are easier to measure and reward. Rather than just hoping to ‘build your wealth’, set something concrete like ‘own my home outright within ten years’, or more immediately, ‘set aside enough to take the kids to the beach for the summer’. Again, keep in mind that everyone is different and your goals won’t necessarily mirror those of your peers or colleagues. 

Comfort with risk

Once you’ve set your goals, you need a plan of action. Incremental, actionable steps you can take to make your dreams a reality. An essential part of making a plan is understanding your comfort with risk. There are a lot of factors determining your risk tolerance: your own life experiences, the amount of time you have set to meet specific goals, your ability to cope with market volatility etc. In general, diversifying your portfolio helps mitigate risk (it’s seldom a good idea to have all your eggs in one basket), but the most important thing is having an informed risk strategy that works for you and doesn’t keep you up at night. 

Knowledge is power

As with anything, having a good investment strategy requires know-how. But with so many different people offering their opinion and the constant buzz of the 24-hour new cycle, it’s easy to get confused or worse, spooked. This is where a financial advisor comes in. Our job, first and foremost, is to listen – to be a sounding board for you to bounce ideas off and help you clarify your goals. We’ll then work with you to devise a plan that’s going to help you achieve them. 

And don’t forget, we are with you for the long haul. Your finances and investments can never be a ‘set and forget,’ for just as economic circumstances change so will your own. What you need then is an expert in your corner guiding you through the rough times and the windfalls. One who understands your dreams, attitude and resources – who has the skills to keep you on the right track.

Budget changes support a brighter retirement

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With tax cuts grabbing most of the attention in the May 2018 Budget, some quiet tweaks to superannuation and retirement income were drowned out in all the noise. But these small changes could have a big effect on the amount of money that ends up in your nest egg when you retire. 

Here’s a rundown of some of the more significant proposed changes:

Income opportunities for retirees.i

The expansion of the Pension Loan Scheme will allow all Australians of Age Pension age to boost their income using the equity in their home. Under the scheme, retirees will be able to borrow up to 150 per cent of the Age Pension (currently 100 per cent), or $11,799 a year for singles and $17,787 for couples who are on the full Age Pension.

The loan is a reverse mortgage with an interest rate set at 5.25 per cent a year, about 1 per cent below the average commercial rate.ii The loan is typically not repaid until the home is sold and the Government guarantees that the debt can never exceed the value of the home. Currently, only part-pensioners can access the scheme. 

In addition, all age pensioners will be able to earn up to $300 a fortnight in employment income, or $7,800 a year, without reducing their pension. This is an increase of $50 a fortnight and, for the first time, self-employed pensioners will also be eligible. 

Recent retirees aged 65-74 with an account balance below $300,000 will be given an extra year to make voluntary super contributions without having to meet the work test.

Super help for young members

Younger Australians at the start of their working life could also receive a boost to their retirement savings – of more than $500 a year in some cases.iii From July 2019, insurance premiums won’t be taken out of your super (unless you request it) if you are under 25, your account balance is less than $6,000, or you don’t make contributions for 13 months and the account is inactive. 

While life insurance is not a priority and can eat away at small balances for many young, single people, the change will mean younger fund members with dependents will need to take extra steps to ensure they have adequate cover. 

Younger members will also benefit from a 3 per cent annual cap on passive fees for account balances below $6,000 while exit fees will be banned on all super accounts.

Finding lost super

The Government also hopes to reunite more people with their lost super by requiring super funds to transfer inactive accounts (where contributions have not been received for 13 months) with a balance below $6,000 to the Australian Taxation Office (ATO). The ATO will automatically reunite inactive accounts with active accounts where the combined balance will be at least $6,000. 

At the other end of the scale, people who earn more than $263,157 from multiple employers will be able to exclude wages from certain employers from the Superannuation Guarantee (SG) from 1 July 2018. This will help employees avoid unintentionally breaching the $25,000 a year concessional contributions cap. Employees may then be able to negotiate with their employer to receive additional income taxed at marginal tax rates.

Easing restrictions on SMSFs

Self-managed super funds (SMSFs) will be able to add more members, with the limit increased from four to six members. This will give larger families the flexibility to include more than two adult children. 

Well-run SMSFs will also be rewarded with a reduction in their administrative burden and compliance costs. Funds with three consecutive clear audits and annual returns lodged on time will be able to switch from annual to three-yearly audits from July 2019.

All these Budget measures are simply proposals for now and will need to be passed by both houses of Parliament. If passed, they should provide opportunities for many Australians to save more during their working lives to boost their income in retirement.

i https://www.budget.gov.au/2018-19/content/factsheets/3-financially-prepared.html#pwb 

ii https://www.canstar.com.au/home-loans/reverse-mortgages/things-consider-reverse-mortgages (3 August 2017) 

iii https://www.canstar.com.au/superannuation/budget-2018-super-changes-save-young-people-500-per-year/ (9 May 18)

 

 

 

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Ready...set... Are you good to go for the new financial year?

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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.i

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.

i MLC Wealth Sentiment Survey, 5 April 2018, 
https://www.mlc.com.au/personal/blog/2018/04/how_to_add_thousands

Tackling Financial Stress

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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. 

i 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