Income protection and life insurance cover falling short: how safe is your family's future?

Income protection and life insurance cover falling short: how safe is your family's future?

Are you confident the life insurance or total and permanent Disability cover attached to your super will support your family if things go wrong? If so, it may be worth checking how well you're actually covered.

Life insurance is all about ensuring your family can maintain their lifestyle if you were to die or become seriously ill. Even people who do have some level of protection, might discover a significant shortfall if they had to depend on their current life insurance policies.

That’s because 70 per cent of Australians who have life insurance hold relatively low default levels of cover through superannuation.

Default cover may not be enough

The most common types of default life insurance cover in super are:

• Life cover (also called death cover) which pays a lump sum or income stream to your dependents if you die or have a terminal illness.

• Total and permanent disability (TPD) cover which pays you a benefit if you are disabled and unlikely to work again.

If you have basic default cover and are part of what is considered an “average” household with no children, then it’s likely you only have enough to meet about 65-70 per cent of your total needs. The figure is much lower for families with children. Indeed, a recent study by Rice Warner estimates that while current levels of insurance cover 92 per cent of death needs, they only account for a paltry 29 per cent of TPD needs.i

Such a shortfall means that you and/or your family would not be able to maintain your current lifestyle.

A fall in cover

The Rice Warner study found the amount people actually insured for death cover has fallen 17 per cent and 19 per cent for TPD in the two years from June 2018 to June 2020. This was driven by a drop in group insurance within super which has fallen 27 per cent for death cover and 29 per cent for TPD cover.

This was largely a result of the introduction of the Protecting Your Super legislation. If you are young or your super account is inactive then you may no longer have insurance cover automatically included in your super. You’ll now need to advise your fund should you require cover.

It may make sense not to have high levels of cover, or even insurance at all, when you are young with no dependents and few liabilities – no mortgage, no debt and maybe few commitments. But if you work in a high-risk occupation such as the mining or construction industries, or have dependents, then having no cover could prove costly.

Another reason for the fall in life insurance cover has been the advent of COVID-19. With many people looking for cost-cutting measures to help them through tough times, insurance is sometimes viewed as dispensable. But this could be false economy as this may be exactly the time when you need cover the most.

There is also the belief that life insurance is expensive which is certainly not the case should you ever need to make a claim.ii

An appropriate level of cover for you

It is estimated that an average 30-year-old needs $561,000 in death cover and $874,000 in TPD cover. As you and your family get older, your insurance needs diminish but they are still substantial. So a 50-year-old needs approximately $207,000 in death cover and $499,000 in TPD.

These figures are just for basic cover so may not meet your personal lifestyle. When working out an appropriate level of cover, you need to consider your mortgage, your utility bills, the children’s education, your daily living expenses, your car and your general lifestyle.

It’s also important to consider your stage of life. Clearly the impact of lost income through death or incapacity is much greater when your mortgage is still high, your children are younger, and you haven’t had time to build up savings.

While having some life insurance may be better than nothing, having sufficient cover is the only way to fully protect your family. So why not call us to find out if your current life and TPD cover is enough for you and your family to continue to enjoy your standard of living come what may?

Now more than ever, in these uncertain times, you may find that you too are significantly underinsured and need to make changes.

i https://www.ricewarner.com/new-research-shows-a-larger-underinsurance-gap/
(All figures in this article are sourced from this Rice Warner report.)

ii https://www.acuitymag.com/finance/confusion-around-life-insurance-leaves-australians-vulnerable-nobleoak

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Facing redundancy? What to do and how to make the most of it

Facing redundancy? What to do and how to make the most of it.

Hopefully it will never happen to you. But with the eonomic fallout from COVID still being felt, it pays not to take employment for granted.

Should you suddenly find yourself facing redundancy, here are a few things to consider.

If you are offered redundancy, how can you turn a potentially bad situation into a new opportunity?

In the first instance, make sure that you negotiate a good redundancy settlement. By law you are entitled to a certain amount depending on your years of service with the company.i You may or may not come under an award, but the Fair Work ombudsman has a calculator so you can work out your entitlement.

You may even be able to negotiate an increased payment (a golden handshake) in order to keep confidential any specialist knowledge that you may have.

Your redundancy payment may include long service leave, holiday pay and sick leave, so it can be a sizeable amount and that creates opportunity.

How is it taxed?

But first, how much will you end up with after tax? There is a tax-free element for redundancy payments, calculated as a base amount (currently $10,989) plus a service amount ($5,496) multiplied by the numbers of years of service. So, if you have 10 years’ service, your tax-free amount is $65,949.ii

Any redundancy payment above this amount is your Employment Termination Payment (ETP) and subject to tax. If you are below your preservation age (the age at which you can access your super) you would pay 30 per cent plus the Medicare levy on this sum or 15 per cent plus Medicare if you are older than your preservation age. In both cases this tax rate applies up to $210,000 with the balance subject to 45 per cent tax plus Medicare regardless of your age.iii

So what should you do with this money? A large sum can present many opportunities although much will depend on your present circumstances such as how close you are to retirement and what your financial commitments are.

If you are hoping to find another job, assume this could take at least six months, so make sure you have sufficient funds.

Now is the time to take stock of your household budget and look at ways to reduce your overheads to control your immediate demands. For instance, you may look at selling your second car.

But don’t rush to cancel everything. Indeed, your income protection policy, for instance, could still play an important role. Before you act, ask your insurer if they would consider waiving the premiums for a few months. Just because you have lost your job, does not mean you will not be covered if something should preclude you from working in another job. You may well find you are still covered even if you are not currently employed.

Look to the future

Depending on your circumstances, you could consider using some of your redundancy payout to improve your overall financial situation. You could reduce your mortgage and other debts, or perhaps to make an investment or fund a business opportunity.

If you are approaching retirement age, then you might consider putting some of your redundancy pay into super. While this may still be a good idea if you are younger, remember you could be unemployed for longer than six months and you wouldn’t want your money locked in super until you reach preservation age.

If you are still expecting to have a few more years in the workforce, then take the time to seek professional help on your next move and think outside the square. So, rather than just find a similar position to the one you have lost in the same industry, look at widening your horizons. A professional career advisor can help. In many cases, employers provide such assistance as part of a redundancy package.

While redundancy can be confronting, if you think of it as a catalyst for change then you may find it’s one of the best things that has happened to you.

Call us to discuss how to make the most of your redundancy payment.

i https://www.fairwork.gov.au/ending-employment/redundancy/redundancy-pay-and-entitlements

ii https://www.ato.gov.au/business/your-workers/in-detail/taxation-of-termination-payments/?page=4

iii https://www.etax.com.au/employment-termination-payment/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Would I be better off with an SMSF?

Would I be better off with an SMSF?

Self Managed Super Funds (SMSFs for short) can save you a ton of money — or cost too much — depending on your circumstances. Part of their attraction is the extra flexibility they offer in investing your super - e.g. in real estate.

This quick and easy guide explains exactly who they're best suited for. If you've ever wondered, it will help you decide whether it might be worth your while exploring the possibilities of Self Managing your own Super.

As well as control, investment choice is a key reason for having an SMSF. As an example, these are the only type of super fund that allow you to invest in direct property, including your small business premises.

Other reasons people give are dissatisfaction with their existing fund, more flexibility to manage tax and greater flexibility in estate planning.

What type of person has an SMSF?

If you think SMSFs are only for wealthy older folk, think again.

The average age of people establishing an SMSF is currently between 35 and 44. They’re also dedicated. The majority of SMSF trustees say they spend 1 to 5 hours a month monitoring their fund.i,ii

But an SMSF is not for everyone. There has been ongoing debate about how much you need in your fund to make it cost-effective and whether the returns are competitive with mainstream super funds.

So is an SMSF right for you? Here are some things to consider.

The cost of control

Running an SMSF comes with the responsibility to comply with superannuation regulations, which costs time and money.

There are set-up costs and ongoing administration and investment costs. These vary enormously depending on whether you do a lot of the administration and investment yourself or outsource to professionals.

A recent survey by Rice Warner of more than 100,000 SMSFs found that annual compliance costs ranged from $1,189 to $2,738. These are underlying costs that can’t be avoided, such as the annual ASIC fee, ATO supervisory levy, audit fee, financial statement and tax return.iii

If trustees decide they don’t want any involvement in the administration of their fund, the cost of full administration ranges from $1,514 to $3,359.

There is an even wider range of ongoing investment fees, depending on the type of investments you hold. Fees tend to be highest for funds with investment property because of the higher management, accounting and auditing costs.

By comparison, the same report estimated annual fees for industry funds range from $445 to $6,861 for one member and $505 to $7,055 for two members. Fees for retail funds were similar. Fees for SMSFs are the same whether the fund has one or two members.

Size matters

As a general principle, the higher your SMSF account balance, the more cost-effective it is to run.

According to the Rice Warner survey:

• Funds with $200,000 or more in assets are cost-competitive with both industry and retail super funds, even if they fully outsource their administration.

• Funds with a balance of $100,000 to $200,000 may be competitive if they use one of the cheaper service providers or do some of the administration themselves.

• Funds with $500,000 or more are generally the cheapest alternative.
Returns also tend to be better for funds with more than $500,000 in assets.

Even though SMSFs with a balance of under $100,000 are more expensive than industry or retail funds, they may be appropriate if you expect your balance to grow to a competitive size fairly soon.

Increased responsibility

While SMSFs offer more control, that doesn’t mean you can do as you like. Every member of your fund has legal responsibility for ensuring it complies with all the relevant rules and regulations, even if you outsource some functions.

SMSFs are regulated by the ATO which monitors the sector with an eagle eye and hands out penalties for rule breakers. And there are lots of rules.

The most important rule is the sole purpose test, which dictates that you must run your fund with the sole purpose of providing retirement benefits for members. Fund assets must be kept separate from your personal assets and you can’t just dip into your retirement savings early when you’re short of cash.

Don’t overlook insurance

If you considering rolling the balance of an existing super fund into an SMSF, it could mean losing your life insurance cover. To ensure you are not left with inadequate insurance you may need to arrange new policies.

If you would like to discuss your superannuation options and whether an SMSF may be suitable for you, don’t hesitate to call.

i https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

ii https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

iii https://www.ricewarner.com/wp-content/uploads/2020/11/Cost-of-Operating-SMSFs-2020_23.11.20.pdf

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Saving tax and interest to boost super

Boosting Your Super Balance by Saving Tax and Interest

Saving tax and interest to boost super

Boosting Your Super Balance by Saving Tax and Interest

Read how a couple close to retirement age was able to add an extra $225K to their Super fund over five years – without having to economise, or make any cutbacks whatsoever. In fact, they were able to spend $1K more per year while growing their wealth.

Sound incredible? We assure you it’s possible with the right kind of financial planning.

Overview

Joanne and Simon, both aged 62, were a married couple nearing retirement when they came to House of Wealth for financial planning assistance. They were looking forward to leisure and freedom in their retirement, but were worried their Super balance wasn’t enough to retire.

House of Wealth helped Joanne and Simon achieve their goals with these services:

  • Restructuring finances
  • Tax planning
  • Income improvement
  • Centrelink advice
  • Retirement planning
  • Investment advice

They were planning to retire in five years, at the age of 67. They had a combined Super balance of $555K. They also had a commercial investment property worth $465K, netting an annual rental income of $4K, with a mortgage of $230K.

Simon’s taxable income was $73K a year, and his tax payable was $16K. Joanne’s taxable income was $42K a year, and her tax payable was $5K.

Joanne and Simon’s Financial Goals

When they engaged House of Wealth as their financial planner, the couple’s financial goals were to:

  • Review their current investment strategies.
  • Minimize income tax payable on their current income.
  • Ensure they would be able to draw down $50K of annual tax-free income after retirement.
  • Be able to Access some Centrelink benefits, especially the Senior Concession Health Card

What the House of Wealth Financial Planner Advised

After talking to Joanne and Simon and making a full assessment of their finances, House of Wealth advised the couple to establish a Self-Managed Super Fund (SMSF) for more flexible management of their Super. We had the couple combine their Super balances into one SMSF for easier management and lower fees.

We also advised them to:

  • Transfer the investment property into the Self Managed Super Fund. This would enable them to save 19.5% of income tax on rental income. With the rental income going directly into the Self Managed Super Fund, it would become tax-free.
  • Draw down a lump sum from their Super to pay off the mortgage on the investment property. This move would save approximately $15.5K in future interest payments.
  • Add an extra $10K per year to the Super fund in Simon’s name. This way, Simon could reduce income tax.
  • Adjust their investment portfolio considering that they would retire in five years.

The Results

Joanne and Simon were able to save $15K in tax, interest, and management expenses each year during the five years left until their retirement.

Despite the extra Super contribution, the couple was pleasantly surprised to discover they had $1000 more in cash to spend each year. This enabled them to enjoy some extra luxuries while knowing their savings were growing.

Each year, Joanne and Simon’s Super balance increased by an extra $45K – on top of their previous Super contributions.

When they retired at the age of 67, the couple’s combined Super balance amounted to over $1M, and they were easily able to generate an annual tax-free income of $50K.

Today, Joanne and Simon are a happily retired couple. They enjoy good health and financial freedom as they live out their dreams.

Wondering if there’s a way you can reduce tax or interest payments and have more money to put into your Super fund? To learn more about your options, book a Free Financial Health Check with House of Wealth today. Click here to pick a time and date.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Soaring to success in 2021

Soaring to success in 2021

The start of a new year is a great time to reassess where you are in life, your career or business - decide what you want to achieve and put some strategies in place to work towards achieving even your most ambitious goals.

The start of this new year is a little unusual as for many of us, 2020 was a challenging year. The hopes and dreams we had for 2020 may not, in many cases, have come to fruition as planned, whether they were related to your business, your career or personal in nature, were put on the back burner. So let’s look at how to ensure that 2021 is the year to get things back on track and achieve what you are aiming for.

Let’s start with the fundamentals, it’s impossible to get to where you are going, if you don’t know the destination and challenging to make the journey without a road map of how to get there.

Identify your goals

This involves some soul searching. What do you want for yourself personally and professionally? What are your priorities? Do you want to climb the corporate ladder and set your sights on that senior management position, or spend more time with loved ones? Have you got an idea for a new business or are you wanting to take your existing business to the next level?

Make sure you are specific about what you want and don’t be afraid to aim high. Studies show that specific and challenging goals lead to higher performance than “do your best” type of goals.i

Once you’ve identified your goals - jot them down. People who write down their goals, have been found to be 33 percent more successful in achieving them.ii There is something very powerful about the written word.

An incremental approach

Once you’ve got an idea of what you want, it’s time to devise some strategies to achieve them. It’s important to dream big but sometimes big dreams can seem intimidating. The way to make a big task less intimidating is to break it into smaller tasks and approach it incrementally. What do you need to do to set yourself up for that management role? Do you need to go back to study? Start taking on more responsibilities at work?

Set up your plan with things you need to do which will act like a series of stepping stones leading to your destination.

Allocate time and resources

The next part of your strategy is to think about what you need to have in place to support each incremental step in your plan. Do you need to set aside time on a daily basis, each week or every month? Do you need financial support or a loan? How will you access that support?

You don’t have to go it alone - think about whether you can get some external assistance in the form of a mentor or just someone you can use as a sounding board. If you are running a business there may be government support packages you can access or external consultants you can engage to help you on your way.

Staying the course

It takes discipline to stay on target when there are so many distractions along the way. Make sure that your strategy has some review points at particular times or when you have completed the tasks you have set yourself so that you can celebrate your wins and recalibrate the plan if necessary.

If 2020 showed us anything, it was that the best laid plans can and will change and be subject to circumstances beyond our control, so it’s important to have some contingencies in place. Even more importantly, be agile in your approach so that you can adjust and refine the plan as needed.

Having a strategy and a methodology to implement your strategy will give you the best chance of reaching your goals in 2021 and beyond. Add in a dash of determination and self-belief and you’ll be flying high on your way to the success you’ve dreamed of.

i https://psycnet.apa.org/record/1981-27276-001

ii https://scholar.dominican.edu/cgi/viewcontent.cgi?article=1265&context=news-releases

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Money Lessons from 2020 to secure a bright future

Use These Financial Lessons From 2020 To Secure a Brighter Future

Money Lessons from 2020 to secure a bright future

Use These Financial Lessons From 2020 To Secure a Brighter Future

It was a year most of us would like to forget. And yet, some of the toughest lessons of 2020 had a silver lining.

We weathered bushfires, floods, a pandemic that’s not over yet and a recession that is. Through it all we emerged a stronger community. Many of us also learned some useful financial lessons that we can put to work in 2021 and beyond to help create a more secure future.

So what were the money lessons of 2020?

Along with frequent hand sanitizing and social distancing, one of the big take-homes of 2020 was a renewed appreciation of the benefit of saving for a rainy day.

Check your safety net

Faced with the shock and uncertainty of the economic shutdown, and the first recession in almost 30 years, we initially snapped shut our wallets. When the government’s stimulus payments began landing in bank accounts, followed up with tax cuts, those who could squirreled some away.

In the June quarter 2020, the ratio of household savings to income jumped to 22 per cent, compared with a mere 4 per cent in the same period the year before. i

This was highlighted in a recent survey asking people what they intended to do with the personal income tax cuts that were brought forward in last year’s Budget. While saving was the most popular goal for 57 per cent of respondents, this rose to 66 per cent for people aged 18-34.ii

Not only had younger people never experienced a recession, but they were also more likely to be affected by job losses and insecure work.

As general rule of thumb, it’s a good idea to have the equivalent of around three months’ income in cash so you can ride out life’s curve balls. You could put your savings in a bank savings account or, if you have a mortgage, in a redraw or offset account linked to your loan.

Diversify and stay the course

While cash in the bank is a relief if you receive an unexpected bill or your income fluctuates from month to month, it won’t build long-term financial security.

Once you have a saved enough for short-term emergencies, you need to channel some of your savings into investments to fund your future goals and retirement income needs.

Another positive lesson from 2020 was the power of a diversified investment portfolio to ride out short-term market shocks. Actually, that’s two lessons.

While having a mix of investments helps cushion the blow when one asset class or investment goes through a rough patch, it’s equally important to stay the course. The performance of diversified superannuation funds last year is a good example of these two principles in action.

For example, Australian and international shares plunged 27 per cent and 20 per cent respectively in the three months to March last year as the economic impact of the pandemic became clear. But losses for members of diversified super funds were limited to 11.7%. By the end of June returns were down just 0.5% on average and have bounced back strongly since then.iii People who sold in March would have missed the recovery that followed.

Insure against loss

While savings and a diversified investment portfolio provide a degree of financial security, there may be times when more financial support is needed.

One sobering lesson from the pandemic, fires and floods was that life is fragile and material comforts such as your family home can’t be taken for granted. That’s where insurance comes in.

Sadly, many of those who lost their homes and other belongings during the summer bushfires and floods were not insured, or inadequately insured.

While homes are precious, there is nothing more precious than life itself. Having an appropriate level of life insurance and total and permanent disability (TPD) insurance will provide financial support for you and/or your family to continue your lifestyle if you were to become critically ill, injured or pass away.

As a new year beckons and you make a list of your goals and wishes, take some time to reflect on the lessons of the past. If you would like to discuss ways to build financial security in 2021, contact us now.

Could you use some help from a financial adviser to start building a financial safety net for yourself and your family? An easy way to find out what that help would look like for you, would be via a Free Financial Health Check with one of our Financial Planners. You'll have the chance to discuss your finances and the possibilities without any obligation whatsoever.  Click here to schedule your Free Financial Health Check.

i https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release#key-statistics

ii https://www3.colonialfirststate.com.au/content/dam/colonial-first-state/docs/about-us/media-releases/20201124-media-release-tax-cuts-final.pdf

iii Returns for median superannuation Growth fund, Chant West.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


'Tis the season for wise spending decisions

'Tis the season for wise spending decisions

The traditional festive holiday season is likely to be a little different this year, but one thing is likely to remain the same – the temptation to spend and the post-Christmas budget hangover.

Last year Australians spent about $1000 each for Christmas on presents, decorations, travel and charity donations. For 28 per cent of us, this expenditure meant using credit cards or buy now pay later (BNPL).i

While many will use credit again this festive season, the current economic circumstances may make us think twice about our spending. It’s not just what you spend, but how you spend that could make all the difference.

So, if you plan to use credit to help manage your Christmas spending, what are the options?

Buy now, pay more later?

Even before COVID, more and more people were turning away from the traditional credit card and opting instead for a buy now, pay later payment method. BNPL providers in Australia include companies such as Afterpay and Zip, but there are many more.

The use of BNPL may be due to convenience or an aversion to debt, or a bit of both.

In a recent report, the Australian Securities and Investments Commission (ASIC) found BNPL transactions jumped by 90 per cent to 32 million in the 2018-19 financial year.ii

Meanwhile, the number of credit card accounts fell 7 per cent in the 12 months to March 2020 from 14.6 million to 13.6 million.iii

But for those who still use a credit card, it is estimated that more than 2 million Australians have gone over their limit since March this year as the economic slowdown takes its toll on household finances.iv

Initially BNPL was popular with millennials, but over time more baby boomers and Gen X have opted for this form of credit which boasts that it is interest free. Compare that with interest on credit card balances which are mostly in double digits and can even be as high as 20 per cent.

But don’t be fooled.

Watch for fees

There may be no interest rates on buy now pay later, but there are fees and these can quickly add up.

All BNPL providers have slightly different terms and conditions, but fees may include:

• Late fees of up to $15 a month
,
• Monthly account keeping fees of up to $8 a month

• Payment processing fee of $2.95 every time you make an extra payment

• Establishment fees can range from zero to $90.v

Of course, that does not mean you should avoid buy now, pay later offerings. If you meet all your payments on time, then it can be a useful form of credit. The key is to be cautious.

For instance, do not run up debt with multiple providers. Not only can that prove expensive, but it can also be difficult to manage. It can soon become expensive if you have late payment fees to pay to several providers.

ASIC research found one in five BNPL users missed payments in the 2018-19 financial year. This translated into fee revenue of $43 million for providers, a jump of 38 per cent over the year and financial hardship for 21 per cent of users. As a result, ASIC said some people were cutting back on meals and other essentials or taking out additional loans to make BNPL payments on time.

Bank alternative

Now the big banks are meeting the challenge of BNPL to traditional credit cards head on, with the launch of interest free credit cards and partnerships with BNPL providers.

While the new interest free credit cards have no interest charges or late fees, they typically have a minimum monthly payment and a monthly fee in months where you don’t make a transaction.

Finding money for everyday items, let alone festive spending, has become a juggle for many this year. The gradual transitioning away from support payments such as Job Keeper and Job Seeker won’t make things any easier.

Whatever your financial circumstances, if you monitor your money carefully and make changes to your expectations, then there is no reason why this festive season can’t be just as good this year as last. One of the lasting benefits of 2020 may well be that it makes us more proactive about managing our money wisely.

i https://www.finder.com.au/australias-christmas-spending-statistics

ii https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-280mr-asic-releases-latest-data-on-buy-now-pay-later-industry/

iii https://www.afr.com/companies/financial-services/credit-cards-slump-as-customers-shift-to-buy-now-pay-later-20200512-p54s4z

iv https://www.finder.com.au/press-release-october-2020-over-the-limit-pandemic-pushes-2-million-aussies-beyond-credit-means

v https://moneysmart.gov.au/other-ways-to-borrow/buy-now-pay-later-services

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Easy ways to boost your credit score

Easy ways to boost your credit score

Easy ways to boost your credit score

 

Easy ways to boost your credit score

Most Australians are only vaguely aware – or completely unaware – of the fact that credit-reporting agencies monitor their financial transactions.

While most Australians don’t give much thought to what’s on their credit report, the credit score that’s based on the contents of that report can have a significant impact on your financial choices. A modest score may mean you miss out on getting a mortgage or business loan.

There’s no shame in relying heavily on your credit card or delaying bill or loan payments to help ride out the financial impacts of the pandemic. However, it is worth understanding how the financial decisions you’re making can affect your creditworthiness.

Know the score

Australia’s credit reporting agencies make it as easy as possible for people to access their credit scores. You should be able to get a free copy of your consumer credit report by contacting the relevant credit-reporting agency or putting in a request via its website.i

The two big players in the credit-reporting industry are Equifax and Experian, but Illion may also have a ‘consumer credit report’ on you. If you’re based in the Apple Isle, the Tasmanian Collection Service will be keeping an eye on whether you’re paying your bills.

Credit scores range from 1 to 1000 or 1200, depending on the agency rating it. If you discover your score is around 500 or better (again, depending on the agency) you can take comfort in the knowledge you’re of above-average creditworthiness. If your score is lower, there are some simple remedies.

Credit repair 101

While credit reporting agencies guard the finer details of their credit-score calculations, they are transparent about what will cause people’s credit score to fall and what is required to rectify the situation.

Here’s what you need to do to boost your creditworthiness.

Sort out any unpaid bills

People often discover unpaid bills – the technical term is ‘delinquencies’ – on their credit report that they either didn’t know existed or which they assumed were ancient history and covered by a statute of limitations.

If you’ve been wrongly charged for something, act quickly to get the charge removed. Start by contacting the business that has mistakenly billed you. If that doesn’t resolve the issue, contact the credit reporting agency.

If you’ve been legitimately charged but didn’t get the bill or were unable to pay it, contact the creditor and negotiate repayment arrangements.

Stop applying for credit

In the current unpredictable environment, it can be comforting to know you have access to plentiful credit in an emergency. But credit agencies view multiple applications for credit in a short period of time as a sign of financial distress, so think twice about applying for another credit or store card. Even if you don’t ever get the card, the fact you’ve enquired about doing so is listed on your credit file.

On this point, it’s worth considering alternative options before applying for credit. While applying for JobKeeper or JobSeeker, or withdrawing money from your super account, may have other financial implications, your credit score won’t be impacted.ii

Don’t put off paying bills for too long

The Australian Banking Association recently announced that borrowers who have deferred bank loans will not have their credit rating affected until at least March 2021.iii That’s welcome news, but don’t assume all companies will be as generous.

Unless the business you owe money to has put in place other arrangements, if they send you a bill for $150 or more and you don’t pay it off within 60 days of the due date, your late or missing payment will stay on your credit report for the next five years.

Get on the front foot

Even if you think you’ve been careful in your spending, debts can quickly mount up or get lost in the bottom of a drawer, so it’s worth getting into the habit of checking your credit score from time to time just to be sure.

This is particularly important if you are hoping to borrow money to buy a home, start a business, or for a major purchase. If you’d like advice about getting your finances back into shape and maximising your ability to access credit in the future, please call.

i https://moneysmart.gov.au/managing-debt/credit-scores-and-credit-reports

ii https://www.societyone.com.au/blog/early-access-to-super

iii https://www.smh.com.au/business/banking-and-finance/credit-rating-amnesty-for-loan-deferrals-extended-20200913-p55v5y.html

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


“Hey what just happened to my super balance?” — How Shares and Other Asset Classes Perform Over Time

Depending on how your Super is invested, you may have noticed your balance drop quite a bit in value soon after the COVID-19 pandemic took hold. If a significant portion of your portfolio is invested in the share market, a widespread drop in share prices would be a likely cause. Share markets suffered quite large losses as worries about the crisis spread.

At such times, it’s only natural to wonder if investing in shares is the right thing to do.
This is a question about Asset Allocation. And the best way to answer it is to consider your investment objectives.

If you’re a longer-term investor, with a time frame of five years or more, you’ll be hard pushed to achieve reasonable objectives without the benefits of growth investments such as shares or property.

Growth investments experience greater volatility than other classes of assets. In other words, their prices experience larger swings – in both directions – up and down. Even so, good quality assets, bought at reasonable values, whether shares or property, will generally rise in value over time.

Average Rates of Return

When you invest in growth assets it is important to understand you should be targeting an average rate of return. In this context, average means taking the rate of return over successive years and calculating the average.

Some years you may achieve returns well in excess of your target, while in others, the return may be lower, and sometimes negative. But so long as you achieve your targeted average over the longer term you will meet your objective.

It’s also important to understand that different asset classes will outperform, or underperform in different years. You can see this effect at work by looking at five major asset classes over the 10 years to June 2018.

Occasionally the asset class which outperformed in one year showed a poor, or even negative, return the following year. This illustrates the importance of having a diversified investment portfolio covering all the major asset classes.

Financial year returns for major asset classes

Year to 30 JuneCashAustralian Fixed InterestListed Property Trusts (Aust)Australian SharesInternational Shares
20103.9%7.9%20.4%13.8%5.2%
20115.0%5.5%5.8%12.2%2.7%
20124.7%12.4%11.0%-7.0%-0.5%
20133.3%2.8%24.2%20.7%33.1%
20142.7%6.1%11.1%17.6%20.4%
20152.6%5.6%20.3%5.7%25.2%
20162.2%7.0%24.6%2.0%0.4%
20171.8%0.2%-6.3%13.1%14.7%
20181.8%3.1%13.0%13.7%15.4%
20192.0%9.6%19.3%11.0%11.9%
Average3.0%6.0%14.3%10.3%12.9%

Source: Vanguard Interactive Index Chart. All figures shown are before fees and taxes.

Always remember…

  • Seek professional advice to choose appropriate investments for YOU. These should have been well researched for their financial soundness, whether they are individual investments or managed funds.
  • Be sure to have a portfolio which is diversified across major asset classes and subclasses. The balance of the portfolio should be designed to achieve your long-term objectives at an acceptable level of volatility. Diversification is harder to achieve when you’re starting out – but becomes easier as your portfolio grows in value.
  • Try not to panic when you see values fall. It is human nature to be concerned when you see the value of your assets fall. However, markets eventually recover and a sound investment will perform over the longer term. Selling after a downturn will not help you achieve your objectives.
  • Review your portfolio at least annually to ensure it is still appropriate to your objectives and market conditions.
    Past performance is no guarantee of future results.

Would you like advice on managing your investments?

Contact House of Wealth today for a free financial planning consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


So, What is Financial Planning Exactly?

People tend to think of Financial Planners as the people you go to when you have money to invest.

In other words, you don’t really need them unless you’re wealthy.

In fact, investment advice is just one aspect of what Financial Planners do.

Moreover, we work with people of all income levels.

So, what do we do, exactly?

Broadly, we use our knowledge to help you achieve your goals and objectives by tailoring strategies to address your specific needs.

In particular – we provide assistance and guidance on:

  • Budgeting – reviewing your finances and identifying opportunities to manage debt and save money. Far from being restrictive, a well-constructed budget gives you the confidence to spend on things that are important and necessary week to week, whist ensuring you’re on track to achieve bigger, or long term financial goals -e.g. buying a home, putting your kids through Uni, getting started with a property investment portfolio etc.
  • Risk Management – guiding you on protecting your family and your assets in the event of illness, injury, disability, or death.
  • Tax Planning – because we’re connected to an accountancy practise, we help you minimise tax through a variety of means, including ownership structuring with trusts etc and optimal distribution of assets among family members to maximise allowances.
  • Government Benefits and Allowances – determining your eligibility for the many different types of government assistance and benefits, such as pensions, family benefits, co-contribution allowances. And ensuring you receive the correct entitlements.
  • Retirement Planning – helping you find answers to the important questions such as; “how much money do I need to retire?”; “what do I need to do before I retire?” and “will I be able to retire comfortably now?”
  • Estate Planning – we show you how best to structure your assets to benefit your estate when you are no longer here.
  • Education on Financial Matters – helping you to understand your investments and other key financial matters. This builds your knowledge, confidence and ultimately makes you more capable of achieving better financial outcomes for you and your family.

One of the most important first steps of financial planning is to start thinking about important goals you would like to achieve.

Another is simply to get started on your Financial Planning journey as early as possible. This will help sharpen your financial senses and develop an understanding of what needs to happen, and by when, for you to realise your goals.

The main advantages of having a professional planner help you are:

  1. You benefit from greatly your planner’s knowledge, experience and perspective on financial matters.
  2. Working with a planner makes you accountable as your planner acts as a kind of financial coach. Checking in with you to make sure you are following through on your plan.
  3. Besides all that, your planner will also help you make sound investment decisions and provide you with periodic valuations of your investment portfolio.

Are you interested to know more about working with a financial advisor?

Contact House of Wealth today for a free consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.