Employment or Business Income
Your income, however you earn it, is your foundation source of wealth. Without it, you have little chance of getting ahead. On the other hand, the more income you have the greater are your opportunities to grow wealth. Most people focus on their spending when considering their household finances. It is common to reduce spending, reduce utility usage or to take advantage of early payment discounts. If all else fails, it is a bad financial habit to put it on a credit card, and it not recommended. So why not look at the other side of the equation? That is, the income side. Unless you are retired or disabled, income is not a limited resource. Increasing income takes a lot of pressure off the spending side of the equation. Make an appointment and let’s talk it through. Call me.
Sources of Passive Income
Understand the difference between personal exertion income and passive income. The income you don’t have to go to work to earn is passive income. It is income that it still generating while you sleep. Common examples are rental income, share dividends and managed fund distributions. Other examples are royalties and pay-per-click. It is passive income that will see you through tough times where you might be sick, disabled or between jobs. Passive income is another form of financial safety net (see also emergency cash buffer and risk insurance protection) and also the income that you ultimately retire on. For a conversation about your particular passive income needs, call me.
Superannuation is Australia’s retirement savings system. Superannuation is not a product. There are many products that fulfil the requirements of superannuation. Rather than being any particular product, superannuation is a complex set of rules that puts limits on what you can and can’t do with your retirement savings. If set up properly and used effectively superannuation is by far the most tax effective way of saving for retirement. To do that you will need advice. Call me.
Personal superannuation is a retail superannuation fund that is set up to meet your needs. To have a personal super fund means that you are taking control and not leaving the decisions to your employer. With the help of an adviser, your personal super fund will have the investments that suit your attitude to risk and the appropriate amount of insurance to meet your needs. Unlike most employer funds, it is portable, which means that you can take it to any employer and ask for your employer super contributions to be paid into it. If you want personal super tailored to your needs, you must seek advice. Call me.
Of all the personal risk insurances, life insurance is generally the cheapest and the easiest to obtain. Every person should enough to cover their debts and provide for their family. Insurance is another form of financial safety net; a basic family protection if disaster strikes you, the breadwinner. If you think about your own circumstances, you will probably conclude that the amount of life cover you have in your work super to make your family’s life easier in the event of your death, is simply not enough. To arrive at a sum insured, just take a few moments to think the position you would like to leave your family in if something happened to you. Would you like your home mortgage paid off? Would you need extra child care? Would you like enough money to educate your children? Would you like enough money for your spouse to invest to produce at least a part time income? The decisions are yours and the assistance you need is right here. Call me.
Most Australians don’t have a Will but you do a great disservice to your family if you don’t have one. It is the basic tool we use to transfer money and assets in our own name to the people of our choice. If you don’t leave written instructions by making a Will, the State Government will choose for you according to a fixed formula. If the Government’s Public Trustee can’t find immediate family or defined extended family members, the Government will keep your money. Do you still not care? Make an appointment to talk about your estate planning because there are a few other things to consider depending on your family circumstances. Call me.
Income protection is personal risk insurance that protects 75% your work income. Most people can’t go a month without income and are totally reliant a regular pay cheque to buy food, pay the mortgage, pay bills and put aside savings. This is one financial product you should never buy direct or over the phone. The reason is that there are many products on the market and they are not all the same. Different products are suitable for different occupations and there are many traps for beginners, such as exclusions, payment offsets, and many definitions of disability. You definitely need advice and guidance here so please make an appointment and receive expert advice.
This is about nominating someone to receive your superannuation and any related life insurance in the event of your death. This is another essential part of your estate planning. The problem with nominating one or more beneficiaries from super is that under superannuation law, the list of people who are entitled to receive your superannuation is restricted to certain immediate family members. This can be a real problem for single people because it is not possible to nominate Mum, Dad, brother or sister unless there is a financial dependency relationship. There is a solution but it’s best to seek advice. Call me.
Enduring Power of Attorney
An Enduring Power of Attorney (EPOA) is an important legal document that gives someone else the power to make personal or financial decisions on your behalf, should you temporarily or permanently lose the cognitive capacity to do so. The reason for having an EPOA is that you may not always be able to make decisions when you need to. You may be too ill to make choices about your medical treatment, or you could suffer a disability such as a stroke that prevents you from communicating your wishes to others. Your Attorney should be someone you trust to make everyday decisions or important personal or financial in your best interest and to sign on your behalf if you are not able to do so. You can revoke the enduring power of attorney at any time and / or appoint a new Attorney so long as you have the mental capacity to do so. An existing Attorney can be suspended if he or she behaves improperly. You should seek legal advice from your solicitor or a suitably qualified legal professional. Call me for a referral.
Home Loan Interest Rate
You shouldn’t pay more than you need to on your home loan. During the GFC a few years ago, interest rates rose, but many lenders were reluctant to reduce their rates all the way down with the fall of the official cash rate. Therefore, refinancing might be an option to consider depending on your circumstances. If you think you are paying too much interest ask for a review. Call me and I will put you in touch with a mortgage adviser who can review your situation.
Personal debt is something that should be limited. Borrowing to purchase personal items, consumables or lifestyle assets (e.g. a car, boat or caravan) is about instant gratification – i.e. wanting it now before you can afford it. Not only is the interest rate high, the interest is not tax deductible because the asset purchased is for personal use. Also, personal assets produce no income and typically decrease in value over a relatively short period of time. This is so much different to borrowing to invest in quality assets that are expected to rise in value over time, produce an income, and where interest is tax deductible. Personal debt can destroy personal finances so make an appointment to have a chat about your circumstances and let us help you get on the right track.
It is a myth that all real property is a guaranteed gold mine that will always rise in value. Caution should be exercised because property is a high risk investment, and the risk multiplies if borrowing to invest. Personal attitude to risk is something that most inexperienced investors don’t think about. What will suit one person as an appropriate investment may not suit another person. The true test is what allows you to sleep soundly and what keeps you awake at night. It is wise to make an appointment before committing to any investment, to allow us to help you understand your personal risk profile. The search for a suitable property requires research, patience and a dispassionate approach. Even though the concept of property investment may feel familiar because it is culturally widely accepted in Australia, the associated risks are significant. The level of returns and outgoings, including the mortgage, must fit well within your financial capability, and the risks and consequences of things going wrong must be identified and addressed. So unless you are good at financially evaluating an investment project, you should make an appointment for a financial review to ensure that the investment has every chance of working for you over the long term.
Trauma insurance is the least known and most claimed upon of all the personal risk insurances. This type of policy pays an agreed lump sum upon diagnosis of a serious medical condition, such as heart attack, cancer stroke. Even though most policies cover over 30 serious health conditions, most claims are for breast cancer, prostate cancer, heart attack, heart disease and stroke. To qualify for a Trauma claim payment, the severity of the condition must meet the medical criteria defined in the policy. Whether you can still go to work or not is irrelevant to this policy. The purpose of Trauma insurance is to pay for medical expenses, rehabilitation expenses and living expenses when seriously ill, but the claim proceeds can be used for any purpose. Trauma insurance should be seriously considered by every Australian adult of insurable age. It is another financial safety net for when serious health misfortune strikes but the condition doesn’t result in your immediate death. This cover is just as important, if not more important than life insurance because you are alive, seriously ill and possibly long term disabled. That means ongoing medical care and rehabilitation costs. Call me to make an appointment to see how this safety net applies to you.
Portfolio of Shares or Securities
Unless you are very familiar and comfortable with shares and other securities, you should exercise great caution. Speculation should be avoided at all costs. That is not investment. For the inexperienced investor, shares should be purchased with advice and as part of a diversified investment portfolio. Many people overlook the fact that shares are a high risk growth investment. The risk multiplies if borrowing money to invest. Personal attitude to risk is something that most inexperienced investors don’t think about. What will suit one person as an appropriate investment may not suit another person. The true test is what allows you to sleep soundly and what keeps you awake at night. It is wise to make an appointment before committing to any investment, to allow us to help you understand your personal risk profile. We can then refer you to a qualified and experienced share broker to assist you with a portfolio recommendation.
Specific Savings Goals
Unfortunately, the financial goal of about half of the Australian adult population is simply to make ends meet. Unfortunately, achieving this goal removes all possibility of saving and wealth building. In a world of credit cards and personal loans, it is the high level of personal debt repayment that commonly erodes the ability to save. Hence, setting specific savings goals often requires a change in one very common bad financial habit. That is the habit of ‘I want it now, so I’ll use a credit card’. To get ahead, your mindset needs to change from serial borrower to regular saver and prudent investor. Make an appointment and we can discuss your savings foals and how to achieve them.
Emergency Cash Buffer
One of the savings goals that should be considered as a priority is a cash buffer for those emergency purchases. This provides the ability to (for example) repair the car if it breaks down or buy a new refrigerator. A few thousand dollars will go a long way to coping with an emergency without having to resort to a credit card or personal loan. Saving up the emergency cash reserve is a great way to start relieving financial stress. Make an appointment to see me. Taking that first step in creating a new saving habit can put you on the track to a life of personal financial independence.
Long Term Disability Insurance
People regularly become long term disabled through serious illness or accident. Whilst this misfortune doesn’t happen to the majority of the population, it is financially devastating to those afflicted because ‘total and permanent disability’ generally means never working again. Government welfare for the rest of your life is not a desirable thought. Total & permanent Disability (TPD) insurance, often taken in conjunction with life insurance, provides a lump sum to finance everyday living with a serious disability and no ability to earn income.
TPD insurance is another financial safety net for when serious health misfortune strikes but the condition doesn’t result in your death. This cover is just as important, if not more important than life insurance because you are alive with a serious long term disability. That means ongoing medical care and rehabilitation costs. Call me to make an appointment to see how this safety net applies to you.
Type of Investments to Suit your Attitude to Risk
When people invest, one of the most common mistakes they make is following the advice or example of friends and family. Investing is not about doing what others do. It is about investing in a way that is appropriate for you. Before you start investing, it pays to understand your own risk profile. Think about what type of investments would keep you awake at night and those that allow you to sleep soundly. Call me to make an appointment and we can help you understand whether you are a conservative investor or a more adventurous growth investor or somewhere in between.
Debit Card vs Credit Card
Using a debit card means that you are spending money you have already saved, whereas using a credit card means that you are borrowing money at very high interest rate to make a purchase. Using a credit card promotes and reinforces a borrowing mentality whereas a debit card reinforces a savings mentality. While you may think that you can manage a credit card and always pay it down to zero each month, it doesn’t take much for things to go wrong (e.g. emergency purchase or unable to work) and you suddenly find yourself struggling with rising personal debt at very high interest. Credit cards can destroy personal finances so make an appointment to have a chat about your circumstances and let us help you get on the right track.
Tax Effective Savings Plan
The Investment Growth Bond is a generic product worthy of mention. While I don’t generally talk much about financial products, there are some features that are not widely known and worth mention. Firstly, I must stress that it is an investment product and as such carries risk. For that reason alone, you should seek advice. Secondly, it can be tax effective for investors and you should seek advice to find out how. In general terms, tax paid by the provider at the company rate, so there can be tax savings for higher income earners and tax credits for lower income earners. It also has an ownership vesting feature which means that a parent can hold the bond on behalf of a child and, when the child reaches an age between 16-25 years ownership can vest to the child with no additional tax consequences.
This type of product is sometimes referred to as an Insurance Bond. Although it contains no insurance, it has the same ‘nomination of beneficiary’ feature as a life policy. This means that on death, the money can pass to a beneficiary without additional tax consequences. Although this type of product shouldn’t be sought without advice, it can be used for long term saving, child education or simply to give your child or grandchild a good head start in adulthood. Call me and make an appointment to see how this product might fit into your personal finance strategy.
Consolidating your Trail of Super
There are many good reasons to gather up your super from previous employers, including lost super, and putting it into one fund. Taking control of your money, ease of management and working with one modest fee structure should be reasons enough to consolidate your super. However, a critical reason overlooked by most people is to preserve your earliest superannuation service date. That is, the date that you first entered the superannuation system. It is important to keep rolling superannuation forward as you change employers to preserve this starting date. Simply put, the earlier your service date, and the longer your total service period, the less tax you will pay on a withdrawal under the age of 60. So by ignoring the trail of super you have left behind with previous employers, you are costing yourself money, not to mention the opportunity cost of not taking control of your super and not taking an active interest in saving for your retirement. Make an appointment to find out how to improve your super.
Did you know that your credit card debt is the difference between your household spending and your affordability to spend? Do you or anyone you know deliberately sit down at their kitchen table and budget to achieve a growing credit card debt? No one does, but I know plenty of people who have used a household budget to get out of a serious financial hole. A household budget is a critical tool used in reversing the bad habit of credit card spending into the good habit of regular saving and prudent investing. Many people tell me that they don’t need to budget because they know what they spend each week. And so they might, but this mindset is a trap! The purpose of a budget is much more than that. Firstly, it is used to create a starting point, being your current situation. Secondly, it can then be used to explore ‘what-if’ scenarios, which go hand-in-hand with doing things differently to form new money habits; and thirdly, it can be used to track your weekly progress towards your new goals. Call me or make an appointment if you want to turn your financial life around.
Advance Health Directive
An advance health directive is a formal way of giving instructions for your future health care via a set of written instructions. It comes into effect only if you are unable to make your own decisions. The best time to make an advance health directive is now, before any urgent health condition arises. However, it is particularly important to make one if you are about to be admitted to hospital or your medical condition is likely to affect your ability to make decisions.
In Queensland, you don’t need to lodge your completed form with any authorities. Keep the original document in a safe place and give a copy to your doctor, a family member or friend, and your attorney (i.e. who holds your enduring power of attorney) for personal matters if you have one. You might also want to carry a card stating that you have made an Advance Health Directive and where it can be found. In Queensland, use the form at the Department of Justice & Attorney-General website. Call me if you would like more information and make an appointment to find out what else you should be doing to safeguard yourself.
Leaving Money to a Child with an Addiction
Bequeathing money and assets to a child with a drug or gambling addiction can quickly turn into a nightmare of financial squander. Leaving a bequest of money and property to an addicted child via a simple Will means that your lifetime of hard work will be delivered directly into their hands and very likely wasted in a short period of time.
There is a ‘trust’ solution to this problem but it requires personal advice from a specialist legal practitioner because the structure and the appointment of trustees very much depend on your family circumstances. Call me for a referral to a qualified and experienced legal practitioner. Make an appointment to sit down with me to discuss all of your estate planning needs.
Leaving Money to a Child at Risk of Divorce
Bequeathing money and assets to a child at risk of divorce via a simple Will means that your lifetime of hard work could be counted in the matrimonial assets and be lost in a property settlement to a departing son-in-law or daughter-in-law. Many parents just aren’t prepared to take the risk and want a much more protected solution as part of their estate planning. The solution requires personal advice from a specialist legal practitioner because again the structure and the appointment of trustees very much depend on your family circumstances. Call me for a referral to a qualified and experienced legal practitioner. Make an appointment to sit down with me to discuss all of your estate planning needs.
Insure or Mitigate the Risks in your Business
Your business is an investment like any other. You work hard at it to produce an income and hopefully, it rises in value over time. Ultimately, the success of your business relies on you and those you employ. The loss of key people, including you, can represent a big risk to your business. You only have to consider what it would cost you to be without you, and them. Although there are several layers of protection in your business, including the shareholders agreement, various contracts, documented policies and procedures, it is personal risk insurance that protects and compensates your business against loss or revenue and capital as a result of losing vital people to death, serious illness or long term disability. If you leave this decision far too late, health problems may impair your insurability and premium affordability. Act now while you have good health and call me for advice from a knowledgeable adviser – business owner who knows the risks and challenges you face.
Can your Business Continue if you are Sick or Injured
There is every chance a larger business with competent management and staff can continue without you for a considerable period of time. However, a small to medium business is more likely to rely heavily on your active involvement in the business. So not only should you protect the income generated by your business, you also need to cover the continuing business expenses that you must continue to pay even though you can’t work, otherwise they will bite a big hole in your income protection payments. Because your business is also your source of accumulating wealth for the future, you need to consider protecting the growing equity in your business. For business owners, you are effectively putting a safety net under your retirement. Make an appointment and I will show you how to retire from your business and how to convert your sale-of-business proceeds into superannuation, and how to use personal risk insurance to cover any unexpected and involuntary exit.
How you will Exit your Business
Every business owner wants to be able to retire from their business with fair value for the years of sweat equity, and to exit at the time of their choosing. It is ideal to start planning your exit from the start-up of your business with a well drafted shareholder agreement, and put into place a financial safety net in the event that premature death, serious illness or disability results in your involuntary exit. Owner succession is of great concern to most business operators and it is never too late.
Succession planning involves identifying the timing and funding of your exit, as well as a suitable and willing future owner. That person could be a member of the family, of the management group, the owner of a competitor business or an external purchaser. Personal risk insurance is routinely used as a relatively inexpensive source of succession funding in the event of an involuntary exit caused by premature death, serious illness or disability. Insurance-based funding usually comes as part of a buy-sell package which includes a mandatory sale agreement at a predetermined price. Make an appointment and I will explain in more detail how such an arrangement might work for you and your business.
A Financial Plan for your Family in the event of death
The most basic protection plan you can have is life insurance. The typical Aussie response of, “I’ll be right mate” just doesn’t cut it. In fact, life insurance protection isn’t for you; it’s a financial safety net for your family in the event that you the breadwinner pass from this world prematurely. Not having it means that you leave your family in a financial hole if you pass away prematurely. Having sufficient life insurance makes all the difference to the lives of others in your absence. The proceeds of life insurance policy can be used to pay out your home mortgage, put food on the table, pay bills, educate your children, and maintain a reasonable lifestyle for your family in your absence, at which point they may be left with little or no income. Make an appointment now to put a financial safety net under your family.
Transition to Retirement
Transition to retirement (TTR) is a positive government initiative which allows a person who is over their preservation age but not yet ready to give up work, to draw an income stream from their super, while still working and contributing to super. Your preservation age is an age between 55 and 60 and depends directly on your year of birth. It is the age of first possible access to your super. Between ages 55-60, withdrawals from super are taxable but over age 60 under the current rules, all withdrawals from complying super funds don’t attract tax. When you consider that all employer contributions into super are taxed at a flat rate of 15%, you can see that transition to retirement can be a tax effective strategy if structured correctly, particularly over the age of 60. Make an appointment and I will show you how you can maintain you same income and pay less tax using the TTR strategy.
Withdrawing your Super Tax Effectively
Many people make the mistake of withdrawing a lump sum from their super to take a holiday or pay off their home and find that they lose a lot of it in tax. Under age 60, superannuation withdrawals are taxable. Please come and get advice before taking money out of your super. It will save you a lot of money because knowing the rules means that you take the right amount at the right time without paying unnecessary taxation. Don’t pay more tax than you need to. Make an appointment and I will show you the right way to go about it, and other ways to preserve and grow your super.