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Mind over matter

Mind over matter

Overloaded with deadlines, information and responsibilities, it’s little wonder that we sometimes end up on autopilot. Mindfulness can help us overcome the struggle and improve our physical, emotional and even our financial wellbeing.

Have you noticed how busy everybody is nowadays?

It doesn’t make for a relaxing life and it isn’t healthy either. Stressed out and short of time, it’s easy to turn to quick fixes. It might be a couple of beers, some chocolate, zoning out on the couch or indulging in a little retail therapy.

Our minds wander to what we’d rather be doing. Sometimes, the last thing we want to do is think about the here and now.

But doing just that can have surprising benefits.

Mindfulness offers us a way to cope with the demands of our overloaded lives. It can reduce our tendency to worry, boost our confidence and help us make better decisions.

Have you been paying attention?

Being mindful involves paying deliberate attention to what we’re experiencing in that very moment, without judging it as good or bad. That includes concentrating on our thoughts, feelings and physical sensations.

When we focus on what’s going on right now, we develop greater awareness. And, just like regular physical exercise transforms the body, consistently practising mindfulness can change the brain.

Studies have found that mindfulness consistently affects the parts of the brain that are associated with self-regulation, learning, complex thought, and resilience.

Mindfulness does not only have a positive effect on health and wellbeing, but also… is likely to improve one’s ability to make high-quality judgments and decisions.

Everywhere from businesses to schools, sports arenas and even prisons, mindfulness is being used to reduce stress, improve performance and develop greater empathy.

In Australia, one of the first organisations to introduce widespread mindfulness training was leading law firm Herbert Smith Freehills. In a profession known for its long hours and high demands, the program has generated meaningful change, including a 45% increase in focus and a 35% reduction in stress among participants.

Get money minded

Applying mindfulness to how we manage and think about our money is useful in a variety of ways.

1. Better decisions:

Being mindful helps at each stage of the decision-making process, from initially framing it, to gathering information, making a conclusion, and finally learning from the experience. In particular, it helps combat the ‘sunk cost trap’, which is the strong bias to persist with a bad decision because of how much has already been invested.

Having the clarity to consider how the available options relate to personal goals and hone in on the most relevant facts, stands people in good stead when faced with major investment or borrowing decisions.

2. Reduced impulsiveness:

Bringing yourself back to the present moment curbs the instinct to act on impulse. That can reduce the tendency to overspend on items don’t really want or need. You can help with sticking to a budget.

3. Lower anxiety:

Personal finances are consistently rated as the number one source of stress, according to the Australian Psychological Society. Mindfulness is a valuable tool to reduce anxiety and feelings of being overwhelmed.

Developing greater awareness can help us make wise choices when faced with major investment or borrowing decisions, and change day-to-day patterns of behaviour that underpin financial wellbeing. And all without tearing our hair out.

Beyond the brain

Mindfulness does more than give us a mental boost. Studies have found it also leads to:

  • Better sleep
  • Improved digestion
  • More physical and mental energy
  • Lower blood pressure
  • Increased immunity, including against the flu

Tips for getting started

Mindfulness is most effective when it’s part of a regular routine. The good news is it doesn’t have to take long or cost money – 10 minutes a day is enough to make a difference, and there are lots of ways to do it for free.

  • Devote your complete attention to doing a single simple activity, like having a coffee. Notice everything about it: the heat of the cup, the aroma, the steam rising, the taste and how it changes, the warmth and energy as you drink, and how it makes you feel.
  • Ask yourself a question and pause for a minute to reflect on what it means to you. It could be ‘What makes me happy?’ or ‘What does this moment require?’.
  • Go for a walk in a park or your neighbourhood and concentrate on your surroundings – the people, nature, the weather and the sounds.
  • Listen to a piece of music – a favourite song, or something new – and concentrate on the different sounds and rhythms.
  • Take one minute when you start or finish something during the day to breathe deeply, identify your feelings, thoughts and physical sensations and let them pass.
  • Try an app – there’s a range of mobile mindfulness training programs you can download. A great place to start is Smiling Mind, a free Australian app with a wide range of short programs for all ages.
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Salary sacrifice into super or tax deductible contributions?

Salary sacrifice into super or tax deductible contributions

It’s a known fact, Australians, on average, are living longer. Retirees commonly spend over twenty years in retirement and the need to accumulate savings while they are still working to fund this retirement period has never been greater.

Using a salary sacrificing strategy where your employer contributes some of your salary into superannuation before tax is deducted has proven to be an effective way for many to accumulate wealth for retirement. For the self-employed, this strategy has been achieved by claiming a tax deduction on super contributions.

What’s changed?

There have been two recent changes to super rules which may impact those salary sacrificing or making tax deductible contributions – one positive and one negative.

Contribution limits reduce

From 1 July 2017, instead of a $30,000 cap on contributions for those under 50 or the higher $35,000 cap for those 50 plus, the concessional contributions cap will be $25,000 for everyone.

Concessional superannuation contributions are contributions made by your employer on your behalf or personal contributions where you claim a tax deduction. The following table provides examples of the types of contributions that will count towards your $25,000 cap.

Salary-sacrifice-#1

If you exceed your concessional contributions cap of $25,000, the excess amount will be taxed at your marginal tax rate, instead of the concessional 15% that applies to most concessional contributions. Plus an additional interest charge will have to be paid to the Australian Taxation Office (ATO). So now is the perfect time to review your current contribution amounts to ensure that you don’t exceed the new limit.

Tax deduction available to more people

The second change that commenced from 1 July 2017 is that anyone eligible to make contributions to super now has the opportunity to claim a tax deduction for that contribution, irrespective of your employment situation. Previously, only the self-employed or those earning little or no income as an employee could make tax deductible contributions.

This is an important change for many workers as they will now have greater flexibility, especially if their employer places restrictions on their ability to salary sacrifice.

Consider these scenarios.

Salary-sacrifice-#2

Case study

Oscar is 45 years of age and earns $110,000 a year designing software. After meeting his ongoing commitments, he has the capacity to invest an additional $14,000 per year for his retirement in 20 years time.

If Oscar was to make tax deductible contributions to superannuation of $14,000 in addition to the SG contributions his employer already makes, he could achieve a tax saving of $3,360 and that’s just in one year as shown in the following table.

Salary-sacrifice-#3

Over a 20 year period, the financial benefit of Oscar making tax deductible contributions to super compared to investing outside the super environment is significant. At age 65, it is estimated that Oscar will have an extra $115,000 to invest for his retirement.

If you would like to know more about these changes and how they will impact you, please talk to us.

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Cash flow can-do

Cash flow can-do

There’s more to managing your cash flow than skimming through your monthly bank statements. New technology is making it easier to track your spending, putting you back in the driver’s seat.

Historically low interest rates combined with the ongoing housing affordability crisis add up to Australians being in more debt than ever before. Whether you’re repaying a mortgage or trying to get a foothold in the property market, managing your cash flow has never been so important.

It affects not only you and your family – it has the potential to affect the whole economy, according to the Governor of the Reserve Bank of Australia, Philip Lowe.

“In terms of resilience, my overall assessment is that the recent increase in household debt relative to our incomes has made the economy less resilient to future shocks,” he told a recent Economic Society of Australia meeting.

Yet according to the latest research by the Australian Securities and Investments Commission, more than one-third of Australians either don’t have a budget, or don’t stick to one.

One third of Australians don't have a budget

Tools to help manage your money

Managing your money begins with knowing where it comes from and, more significantly, where it’s going.

FinTech Australia CEO, Danielle Szetho, says the rise of cashless payments can help us by providing data that gives us valuable insights into our spending behaviour.

“From a consumer’s perspective, this means fintech companies like Moneysoft, Pocketbook, Acorns and MoneyBrilliant can access rich data streams to show customers how they are spending their money, and can help them budget accordingly,” she says.

This new wave of tools provides visual and interactive summaries of account balances and transactions from across multiple institutions. They can automate spending into categories, monitor trends over time, and project your expected future balances.

Make it easier for yourself

Below are five ways to help stay in control of your cash flow.

1. Embrace automation:

It’s increasingly quick and easy to set up automatic payments for bills and credit cards, and automatic transfers for regular savings. That means they’re taken care of every month.

2. Maximise your accounts:

Continued low interest rates mean there’s not much to be gained from money sitting in your transaction account. Using a mortgage offset account, or exploring a high interest savings account with a sweep facility to your daily account, can make the most of what’s on offer.

3. Set specific goals:

Having a tangible goal is a powerful motivator to change your financial behaviour and stick to a budget.

4. Get informed and get active:

Developing financial literacy is a lifelong journey. Keep building your knowledge and you’ll find it easier to make wise decisions. It also pays to take the time to shop around – new customers can often get big savings on anything from internet service to car insurance.

5. Small businesses may be small but their impact on the Australian economy belies their size:

The growth of the small business sector, which employs almost 5 million people, is held back by big businesses and government departments regularly paying their invoices late.

Sixty per cent of small businesses said late payments have increased over the past year while almost one in five report average payment delays of more than 60 days, according to the Australian Small Business and Family Enterprise Ombudsman (ASBFO).

The cash flow impact can be devastating with more than half of small businesses forced to borrow funds or use credit cards due to late payments to their business.

“Businesses are the most likely repeat offenders when it comes to late payments,” according to the ASBFO. “This makes sense since the practice of paying late allows a business to hold on to its money for its own use.”

The Business Council of Australia has proposed a voluntary code that would prompt its members to pay within 30 days. However, the ASBFO has made a range of stronger recommendations including that the government legislate a maximum payment time for business-to-business transactions.

Until then, technology such as new accounting platforms, mobile payment platforms and e-invoicing can provide an effective solution to encourage faster payments.

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Digital dangers: How to protect yourself online

Digital dangers

Take only photos and leave only footprints. It’s been the advice to travellers for decades. But as we navigate the digital landscape, both hold the potential to expose us to risk.

From paying bills to playing games, shopping to socialising, we’re online more than ever before. And this activity can leave a trail leading to our location, our money, our families and our identities.

But a few simple steps can help protect you – and your information – from unwelcome eyes.

Safety begins at home

Start with a strong foundation for your home internet. That means securing your wireless network – if you’re not using a password, there’s nothing to stop somebody accessing data you send or receive. That’s a sobering thought but it’s very easily preventable. A wifi password can also stop opportunists from sharing your internet connection and gobbling up your download limit.

Locking the front door isn’t much help if the back door is left wide open. It’s worth checking the settings on your modem router to make sure that data encryption is turned on, and that you’re not using the default password the device had when you got it.

We all know that it’s important to use antivirus software for our PC, but when it comes to keeping our systems up to date, many of us are slower to act. The recent highly publicised ‘WannaCry’ ransomware attack that affected businesses, governments and individuals worldwide, was largely preventable simply by installing a Microsoft Windows security patch.

Keep it under lock and key

You wouldn’t leave your PIN for your bank account lying on your desk, but are your online password choices compromising your safety?

Using a password that’s easy for other people to guess makes it easy for them to gain unauthorised access to your accounts. And when you use that same password across multiple accounts, the risk of being compromised increases. Add to that our reluctance to change passwords regularly, and it’s just asking for trouble.

Keeping track of the number of online accounts we end up with can be tricky, and with a different password for each account it becomes mind-boggling. This is where password manager tools can make a huge difference.

Password managers are online vaults or stand-alone software that keep all your login details and passwords safe from others, while putting them in easy reach for you. No more having to remember or continually reset your passwords – you just need a single, strong ‘master password’ to access the lot.

It’s worth completing the online security check included in your password manager. This will help you update weak or duplicated passwords with more effective, randomly generated ones, and will also highlight any sites that may have been compromised.

Digital dangers

Double the security

Many sites and applications offer two-factor authentication, which provides another layer of protection to users. This usually involves entering a unique code as well as your password when logging in. The code can be suppliedthrough a mobile app, a security token, or by text message.

While this process does take a little longer, a few seconds are a relatively small price to pay when it comes to keeping personal photos, documents and credit card details safe.

It’s available across social media, email, Apple and Google accounts, document management platforms such as Dropbox, online payment and shopping sites including PayPal, and of course for password managers.

The latest smartphones and tablets also support verification using a fingerprint scanner. This is part of a growing trend to use biometric data for security, making it more effective as well as quicker and easier.

Don’t shout it from the rooftops

Social media is a great way to keep in touch with friends and family and connect with others about our shared interests in everything from football to philosophy. Oversharing can cause more than embarrassment though, if it allows our personal information to fall into the wrong hands.

Take a look at your privacy settings to make sure that you’re only sharing with your nearest and dearest and not the whole world wide web.

That includes avoiding publicly tagging your location, which can enable strangers to see exactly where you are, or showing that your home is currently unoccupied. Likewise, sharing details of fancy new purchases can put you at risk of theft if shared beyond your friends and family.

How much to share online can vary widely from person to person. As a minimum though, steer clear of posting your home address, personal phone number or your full date and place of birth. All of those details can be used to open the door to more information about you and, in the worst case, identity fraud. Even a photo of your airline boarding pass can be used to unlock your loyalty points and credit card details.

A moving target

Our love of smartphones means we can stay connected almost everywhere. Some things are better done in private, though – if you’re doing your banking on the wifi network at your local cafe, you might as well be sharing your account details at the top of your voice.

To stay safer, turn off wifi and bluetooth when you’re out and about, and be careful of the information you enter in public places.

Watch out for shared computers, too – avoid logging into your personal accounts wherever possible, and be careful of using portable USB drives that can pick up viruses or malware. Losing a phone can be a greater cost and a bigger inconvenience than losing a purse or wallet. There are apps that can help locate it, lock it, or wipe its data from afar: Apple has Find My iPhone, while Find My Device is available for Android devices linked to a Google account.

Wolves in sheep’s clothing

Online scams often cloak themselves in the familiarity of brands, businesses, and even government institutions we know and trust. Some of these can look very professional and be highly convincing.

But genuine correspondence normally won’t request that you update your personal details, claim that you’ve won a competition you’ve never heard about, or threaten that you’ve failed to lodge a tax return. Never fall for entering confidential information like your street address, bank details or tax file number on a site you’ve visited directly from an email or a social media link.

Technology can significantly boost your digital security, but for the best risk reduction you also need to think before you click.

For more information, visit https://www.staysmartonline.gov.au/ and https://www.scamwatch.gov.au/

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New digital payments: Convenience or over-spending?

New digital payments

Almost three centuries ago, Benjamin Franklin said “time is money”. Fast forward to today and digital payment technology has turned that advice squarely on its head.

Contactless and mobile payment technology speeds up our ability to spend money but with that convenience often comes temptation. Research suggests that the psychological and emotional impact of handing over cash dissipates when paying with digital formats.

The impact on society is only just beginning to play out, according to the OECD International Network on Financial Education, which is investigating the trend.

“While mobile banking with real-time account updates may help users keep an eye on, and better manage, their money, some technologies have also made it easier to carelessly tap or wave a smartphone/contactless card for quick spending, which can be a problem for those consumers who are struggling with, or vulnerable to, impulse buying,” the organisation wrote in a recent report on digital financial services.

Purchases made with credit already separate the pleasure of consumption from the pain of paying, while quick digital payments – even with our own money – created an even larger divide.

Australians were among the earliest adopters of contactless cards, but few are aware of the way it can also change behaviour.

“While the convenience of going cashless is undeniable, it comes with an inadvertent downside – we tend to value purchases less when using a card than when we pay via the more ‘painful’ methods of cash or cheque,” according to a study led by Professor Avni M. Shah and published in the Journal of Consumer Research.

One experiment, found that consumers who bought identical $2 mugs with cash valued their purchases by an average $3 more than those who paid with a credit or debit card.

But while technology has created some unforeseen problems, it is simultaneously creating a range of new solutions. Fintech apps are now using extensive digital data trails to turn manual budgeting with spreadsheets and receipts into a more accurate and automated process.

However, this may mark just the beginning of a new digital relationship people are forming with money.

The underlying algorithms in apps are becoming better at predicting whether, and by how much, people will overspend monthly based on certain triggers. Common events, such as shopping online or withdrawing money from an ATM, can then act as key moments when people are primed to learn and change their behaviours.

For example, the OECD report cited a start-up called RevolutionCredit, which is serving customers bitesized financial education videos at the point of transaction to improve their credit card use. Even traditional financial institutions are pushing the boundaries, such as British bank Santander. It offers customers a smartphone app that uses artificial intelligence to respond when asked questions like “how much did I spend last week?”

ASIC’s MoneySmart site offers a range of financial information including calculators and apps as well as strategies to tackle debt and build wealth.

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Market update: Spring 2017

Market update Spring 2017

ClearView investment analyst Jessica Schlosser looks at what happened in global markets in the June quarter and considers the outlook for Australian shares.

Global markets felt the impact of political uncertainty in the June quarter. In Europe, the election of French president Emmanuel Macron and the strong performance of Angela Merkel’s Christian Democratic Union in German elections helped ease concerns of a spreading populist antiglobalisation movement.

During the quarter, the MSCI Europe Index rose 7.4 per cent, supported by subsiding political risk, improved corporate earnings and a stronger economic backdrop.

Brazil’s economic recovery also hit a road bump with the country’s long running political corruption scandal embroiling President Temer.

In Asia, North Korea’s nuclear missile program continued to cause tension although it’s not expected to affect equity markets as long as the US and China continue to cooperate on the matter. While the Chinese share market rose 6 per cent in the quarter, China is increasingly conscious of its financial fragility due to the country’s high corporate debt and the government’s links to their corrupt shadow banking system.

In the United States, Congress’ inability to make meaning fiscal changes – demonstrated by its decision to push big infrastructure spending and tax reform out to 2018 – has led to support for the Trump administration declining. While the chance of a US stock market crash is minimal, US equities remained overvalued as at June 30, 2017 and face a potential correction.

Outlook for Australian shares

Fortunately, Australia hasn’t been affected by the global political uncertainty surrounding the Brexit fallout. However, questions about the direction of the Australian economy are emerging. The minor iron ore rally in the second half of the 2016 calendar year helped push the domestic share market higher but iron ore prices have since come down due to growing stockpiles in China. Furthermore, domestic construction activity is beginning to slow.

Weak wage growth continues to be a concern, especially given the increasing cost of essential services like electricity and gas. This, combined with rising interest rates and tighter credit conditions, leaves Australians at risk of a credit and cash flow crunch.

Still, Australia has an extremely resilient economy. It has recorded 103 consecutive quarters without a recession. Australia now holds the record for the longest run of uninterrupted growth in the developed world, according to the Australian Bureau of Statistics.

The economy’s adjustment to the end of the mining boom in 2013 is largely attributable to a weaker Australian dollar which supports exports and tourism, and makes Australia a more attractive destination for foreign students. New South Wales and Victoria have picked up some of the slack by increasing investment in non-mining industries by 10 per cent annually, while immigration has contributed to population growth and consumer demand.

That said, the Australian government and Reserve Bank of Australia appear to be running out of options to boost the economy. They managed to avoid the GFC by introducing various stimulus packages but these packages cost the government dearly and that burden is still evident. Further stimulus in the event of a downturn is unlikely. On top of that, taking the cash rate below 1.5 per cent will have minimal impact, evidenced by the impact in Europe which has had negative rates for some time.

While the Australian economy may be able to stave off a correction with continued immigration and expansion of non-mining industries, there are concerns it may be a case of delaying the inevitable.

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Bridging the gender financial gap

Bridging the gender financial gap

When Aretha Franklin and Annie Lennox belted out the hit song, “Sisters are doing it for themselves”, it was a bold declaration of how far women had come in society, in terms of taking the initiative and fighting for equality.

Thirty years on, however, there are still many areas where women struggle for equality. Financial self-determination is perhaps one of the most significant areas where progress needs to be made.

The gender pay gap

The matter that perhaps gains the most attention in public discussion is the limitations in employment opportunity and the general discrepancy in incomes between men and women. While there has been progress in many career areas and women now appear in many leadership roles in business, public service, media and sport, the gap still exists.

To quantify the extent of the problem, we can look at a recent report that points out a 16.2% gap in incomes*. This figure has been stubbornly static over the last 20 years or so, indicating a need for more to be done to bridge the divide. Causal factors could be such things as lower paid job types being dominated by women, a lack of acceptance of women in certain career areas and a predominance of women leaving work to raise children.

Whatever the reason, however, we know that this phenomenon restricts women building their own financial independence.

Family ties

Taking time off to care for children is still a role where women largely bear the burden. This naturally means that there is a greater dependence on their partners for financial support and less funding being dedicated to things that build financial independence, such as super and other wealth creation plans.

An interrupted career path and an ongoing need to care for children also makes it more likely that women will seek part time employment, which further limits financial development.

A longer retirement to be funded

One area where women continue to outdo men is in the longevity stakes. Once a male reaches age 65 their life expectancy is an average of 19.5 years. Women on average will exceed this average by nearly three years**. This positive is a double edged sword, given that women may need to fund a longer retirement.

Playing catch-up on super

The Association of Superannuation Funds of Australia have uncovered some sobering statistics on just how far behind most women are when it comes to super accumulation. Their research shows that women between ages 50 to 54 have an average of $84,228 built up in super, while men enjoy a much healthier $146,608. This gap widens in the 55 to 59 age range with $115,046 for women compared to $227,765 for men. It widens again in the 60 to 64 bracket with $138,154 vs $292,510***.

Such a profound shortfall cannot be remedied overnight, but it underscores the need for women to take a proactive role in gradually building their own super resources to create a platform for financial independence in the future.

A financial plan for freedom

Other areas of financial development, such as protecting income and livelihood with adequate insurance, budgeting, investments and an overall financial plan, are all critical to further strengthening this platform. Sisters certainly do need to ‘do it for themselves’ by taking the initiative, educating themselves and forging their own financial path in life.

Your adviser can be a key ally in helping you get there, so take advantage of their expertise in planning your future.

* Workplace Gender Equality Agency: Gender pay gap statistics August 2016

** Australian Bureau of Statistics: Life tables, States, Territories and Australia – 2013-2015

*** The Association of Superannuation Funds of Australia Limited: Superannuation account balances by age and gender December 2015

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Is ethical investing right for you?

Is ethical investing right for you?

The concept of ethical investing is on the rise and is now an important option for many personal investors.

There is a growing awareness in society about the impacts our lifestyle and our consumption have on environmental and social welfare. This concern now extends to personal investment and many investors are keen to explore ethical investing.

What is it?

Ethical investing relates to the scrutiny that a managed fund manager places on the selection of assets, in relation to environmental and social aspects. This has resulted in a new sub-class of managed funds known as ethical funds.

These funds employ a sophisticated review process to screen investments and decide whether they qualify to be included in an ethical fund.

Positive and negative screening

In general, there are two methods applied to ethical investment selection.

  • Positive screening – where the fund manager is proactive in sourcing companies that abide by high ethical standards.
  • Negative screening – which takes a more passive approach based on excluding companies with poor ethical practices.

Beyond these general categories, each fund manager may implement more specific criteria for making selections.

Independent standards

The popularity of the ethical investing movement has led to the formation of an industry body known as the Responsible Investment Association Australasia. This body sets out standards for fund managers to apply in their investment selection process, so that personal investors can have confidence in a fund’s ethical bona fides.

Would an ethical fund suit you?

Despite the layer of extra scrutiny involved, ethical fund performance can generally be comparable to funds without ethical screening, so they can be a worthwhile fund category for many investors to consider.

Your adviser is well equipped to discuss the ethical fund options with you and how they can be incorporated into your portfolio.

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Warm up for winter

Warm up for winter

The colder months are nearly upon us and for many of us this can be a real downer for our mood and our general health.

Rather than just resigning yourself to a season of hibernation, there are some simple things you can do to stay happier and healthier. Why not take the initiative now and give these ideas a try. They could be just what you need to warm up your winter.

Sleeping habits

The temptation to sleep in is much greater on cold mornings, but this can dampen your mood and make you feel more sluggish. Keep your sleep patterns consistent to combat this by aiming for a regular bedtime and around eight hours per night. Avoid late evening sugary snacks and get up early to maximise your daylight hours, which can have a positive effect on mood.

Eat smarter

It’s natural to want to indulge a little more when it’s cold and dark as a way of cheering ourselves up. The usual suspects are simple processed carbs and sugary foods like chocolate, but these can produce a spike in blood sugar followed by a slump in mood.

Plan your snacks ahead to replace these foods with healthier options like nuts and crunchy vegetables, which have much greater health and weight management benefits.

Make some soup

Replace the usual heavy winter fare with some soup instead. The process of making soup in itself is therapeutic, the aromas that fill the home are divine and the health benefits can be positive. Use lots of vegetables, legumes and a good bone broth as a base.

Getaway goodness

Why not cheer yourself and a loved one up by taking the occasional brief getaway to a favourite winter spot. Visit some winery or craft regions, for example, where you can enjoy some indulgence, a bit of retail therapy and finish the day in front of an open fireplace to warm the toes and the heart.

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Is your most valuable asset exposed?

Is your most valuable asset exposed?

Imagine owning an asset that is more valuable than your house, car and other possessions put together. Wouldn’t such an asset be worth insuring?

Remember buying your first car or some other object that excited you? The sense of achievement and the pride of owning something of great value is a feeling that few would forget.

Later on you have the thrill of purchasing your first home, which brings with it a great sense of establishing your own future and providing a foundation for life for you and your family.

Taking on the responsibility of owning major assets like these is usually followed by a strong urge to protect their value by insuring against mishaps, such as loss, fire, storm or other calamitous events. Insurance makes emotional sense through the peace of mind it provides and logical sense through the security it may provide to replace or repair the asset if the worst happens.

But what is your greatest asset?

Physical assets, such as cars, homes and other possessions may amount to substantial value measured in tens or hundreds of thousands of dollars.

However, these may not be your greatest assets. Your greatest asset is arguably the thing that underpins all of your other purchases and assets and, indeed, your very lifestyle. Put simply, your capacity to earn an income.

Consider your lifetime earning potential

To illustrate how your income earning capacity may be your greatest asset, let’s project some simple figures.

Imagine a 20 year old earning $30,000 per year. Even if that person never experienced a pay rise for their entire life, they will have earned $1.35 million by the time they retire at 65.

Scale that up to a 30 year old earning $100,000. With no inflation their lifetime earnings amount to $3.5 million by 65.

There’s a lot at risk

If you had any other asset that was valued at those sorts of figures you would probably not hesitate to insure it, due to the sheer scale of the cost to replace it. The fact that income is not a tangible asset like a house or car, however, means that many people fail to consider it as an asset at all and leave it exposed to risks.

Even though it is not a tangible asset, income is subject to a range of risks that could temporarily or permanently stop it from flowing. An accident could leave you off work for weeks or months, or in some extreme cases could leave you incapacitated permanently. An illness could similarly affect you for an extended period. In the very worst scenario, premature death could occur and leave a dependent family totally exposed to having no income at all.

Income replacement protects your future

To protect against the risks of income loss and the impact it would have on loved ones, an effective solution is to insure one’s income and one’s life. Income protection provides a monthly income stream for temporary or permanent income loss due to illness or accident. Life insurance can provide lump sum cover to replace a lifetime of income. TPD cover can also provide lump sum cover in case you become totally and permanently disabled. Finally, trauma cover can give you lump sum cover if certain serious medical events occur.

Your adviser can tailor a personal insurance package to suit your situation and help secure your family’s future against the loss of a significant asset.

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Market update: Winter 2017

Market update - Winter 2017

Overview

Most share markets experienced strong performance over the March quarter. Investors remain positive about prospects for stronger global economic growth, particularly in the US. Fixed interest markets by contrast have experienced fairly subdued returns. We see the outlook as being balanced between a continued positive economic picture, and the risks of more increases in interest rates in the US. Rising interest rates have, at times in the past, led to some instability in share markets. Accordingly, we continue to believe that maintaining a balanced approach with a diverse mix of investments remains appropriate. That is, some investments that will do well under the positive scenario; and others that will help to mitigate risks should rising interest rates lead to rising volatility.

International shares

President Trump has been well received by the share market in the United States. The market has priced in expectations that tax cuts (now probably delayed until 2018) will boost both the economy and company profits. Emerging markets, which are the share markets in less developed economies, have also experienced very strong performances as fears of trade protectionism have faded.

Australian shares

In Australia, the share market continues to do well. There are warning signs emerging that banks may start to experience a few headwinds, as concerns grow about expensive and overvalued residential property markets. It’s clear that the regulators are signalling to the banks that a more considered and cautious approach to mortgage lending is appropriate in this environment. In time this will probably mean slower lending growth however, the banks have been able to counter this by boosting their profits through raising the interest rates they charge, particularly on investor loans.

Bonds and cash

In Australia, the RBA held rates at 1.5%. In the statement accompanying the decision the central bank took a balanced view towards the outlook. A few concerns were expressed about both the economy and the frothy nature of the residential property market. Balancing this the RBA noted that a stronger global economy was a positive. We think the RBA is on hold for the foreseeable future, and would expect cash rates to be fairly stable in the coming months.

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Time management tips

Time management tips

Feeling stressed about not having enough hours in the day to get things done? Try these tips to get in control.

Plan ahead

Many of us never bother to plan the day ahead and wait until the day is upon us before deciding what they will do. Inevitably ‘stuff’ happens and we end up being reactive, rather than allocating time effectively. Planning the day ahead the night before will allow you to be objective about time use and eliminate time wastage.

Get in control of your social media

The great modern day time guzzlers of Facebook and Twitter can sap our energy and brain space, so allocate specific time for its use. Email can also chew up unnecessary hours, so allocate time to attend to it during the day, rather than making it your first port of call.

“Me time”

Whether it is walking the dog, taking a nap or playing a musical instrument, find out what it is that “refuels” your energy levels and gives you mental breathing space and then make sure you schedule that “me time” as a priority in every day.

Consolidate housekeeping tasks

Busy lifestyles can often mean that tasks such as shopping, cooking and cleaning happen in an ad hoc fashion. Consolidating such activities can reap you hours every week, so why not shop once a week instead of daily, cook meals that can be batched and frozen and set aside a specific time of the week for all the cleaning.

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The financial stages of life

Financial stages of life

While no two people will have identical life experiences, it is possible to follow some general guidelines on how our financial lives will progress through different stages.

Setting out the characteristics of various life stages can be a useful way to help highlight financial issues and priorities. Of course this will vary from person to person, but the general foundation this provides is something we can all build upon.

Early yearnings

During our twenties and into our thirties most of us will experience many firsts, which will all have a profound impact on our financial future and will require a planned response if we are to take full advantage. Our early employment brings with it the chance to establish some sound savings habits that can last a lifetime and can fuel wealth creation.

Finding a life partner brings greater responsibilities and expenses along with increased income and assets. This requires a higher level of financial planning so that life, income protection and disability insurances are put in place to help protect each other’s livelihoods and savings plans are put in place to build toward major goals, such as buying a home or travelling.

Starting a family and buying a home in this phase will also require protection plans to be well established as a priority.

From an investment standpoint, your early years are an opportunity to incorporate growth assets such as shares and property into your wealth creation strategy, given the amount of time you will have to take advantage of their greater long term growth potential (assuming this also fits your personal risk profile).

Middle aged consolidation

Hopefully your income will be increasing, but your expenses may also be burgeoning as children grow, education costs escalate and perhaps the family home is upscaled. This puts an increased emphasis on budgeting so that debts and expenses are kept in check and a longer term savings and investment plan is in place.

Superannuation needs to be given adequate attention too, as your super assets will likely be growing and thus giving you more scope to diversify the way they are invested.

Protection needs during this stage will peak, to cover the growing family expenses and mortgage commitments. Neglecting this important aspect of financial planning could result in financial catastrophe if breadwinners and homemakers are not adequately insured.

Financial life stages

Cresting the hill

Assumedly, the nest will begin to empty, mortgage expenses will reduce and insurance needs will begin to taper. These factors can create an increase in discretionary income and an opportunity to supercharge important investments. This could include loading your superannuation to maximise concessional limits and expanding your property, share and managed fund portfolios, so that dreams of financial independence can start to become reality.

This is also a time when we should be looking at positioning our assets to take full advantage of the tax opportunities that present themselves in the run up to retirement.

Relishing retirement

Stepping into retirement should hopefully be stress-free if you’ve planned carefully. You should ideally enjoy the well-earned fruits of your labour but this requires careful structuring of your portfolio, using a combination of growth and income based investments and income stream plans, as well as planning the liquidity needed for major purchases and lifestyle experiences. At the same time your social security position needs to be considered, so that you can take full advantage of entitlements.

Passing on your estate to beneficiaries needs due consideration too, so that the wealth you have built is preserved in accordance with your wishes and for the maximum benefit of those who will inherit it.

Why advice is so important

Each life stage has its challenges and complexities and this is where some experienced, professional advice can make all the difference. Your financial adviser is ready to guide, coach and support you on every twist and turn, so that you can be confident and secure along every stage of the journey.

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Buying insurance: Mistakes to avoid

Buying insurance: Mistakes to avoid

Taking out cover can be a difficult and confusing experience given the plethora of products available. Here are some tips on how to avoid common traps and pitfalls.

Whether it’s home, car, health or life insurance, ‘one size doesn’t fit all’. Matching your needs to the right type of cover can be a complex business, so it pays to go in with eyes wide open and seek professional advice.

How do you know how much coverage you need?

Before you begin to compare policy benefits and costs, first make a realistic assessment of how much coverage you need. Underestimating cover is a common mistake that leaves many people in a lot of trouble in the unfortunate event of a claim.

In the case of home insurance, underestimating the right amount of cover to replace your belongings or the building may actually mean that you are unable to claim for the full value of any loss. For example, if your home value is $500,000 and you’re only insured for $250,000 (ie 50% of real value), then your insurer can only pay out a maximum of 50% of the amount you potentially need.

Making a proper assessment is particularly vital when it comes to your personal life and disability insurance, since the amounts of cover required can often be a lot higher than you think and the risks of leaving yourself short can have disastrous consequences on the livelihood and financial security of your family. Some may think that a couple of hundred thousand in life cover sounds like a lot, but if there is a $300,000 mortgage, two kids in school and $3,000 in monthly living expenses involved, then $200,000 could be inadequate if the breadwinner can no longer provide income.

Questions to ask before buying a policy?

Do you really know what you are purchasing when you buy insurance? A few simple questions can be very revealing. You should reconsider buying a policy if the answers to these questions do not satisfy you.

  • What are the exact circumstances that will qualify for a claim?
  • What events are specifically excluded from making a claim?
  • What are the specifics on definitions – for example, on an income protection policy, how is “Total Disability” defined?
  • Is renewability guaranteed, or does the insurer have discretion to arbitrarily withdraw cover at any time?
  • What additional benefits are available apart from the main benefit? To use the example of income protection again – are there additional benefits paid for rehabilitation expenses, hospitalisation, specific injuries or waiver of premiums during claim?
  • Are cover increases offered regularly or are benefits indexed to inflation?

Never shop on price alone

As the list above may suggest, the old adage that ‘you get what you pay for’ is especially true when it comes to insurance. A ‘too good to be true’ price may mean there are limitations and exclusions on cover that may only be discovered when you come to claim. There is a big difference between comparing the cost of a policy and its actual value.

A classic example can be found in the area of income protection where policies often known as “sickness and accident” or “personal accident” may have low premiums, but will have no guarantee of renewability if your health or occupation changes. Beware also of a limitation of perhaps two years on benefit payments and severely restrictive claim definitions.

Professional help removes the worry

When it comes to your personal life and disability insurances, enlisting an adviser to help assess your cover requirements and the relative merits and costs of different policies can be an invaluable advantage. The experience and research capability of a financial adviser can take all the worry out of the process and ensure you achieve the dual goals of maximising quality of cover, while minimising costs.

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Life events can impact your super

Life events can impact your super

Superannuation is often a part of our financial planning that is left in the background, but certain life events may mean you need to make some fundamental decisions about it. Here are some key tips on what you may need to consider.

Getting married

Tying the knot can change a lot of things in our finances. Budgeting, saving, spending and buying insurance are all issues that we will tend to reappraise as a couple, but super is often left out of calculations. Issues such as the amount of insurance cover you both have in super and beneficiary nominations are critical to avoid surprises later on.

While it is not possible to combine your super funds, it is important that you discuss and coordinate your investment strategies and consider your retirement goals as a couple. This ensures you are on the same page in terms of your expectations of retirement lifestyle and can fund it appropriately.

Having children

If one partner eventually decides to leave work to raise children then this may cause a significant interruption to your super accumulation that should be dealt with. Extra expenses and less income may mean you need to cut back on contributions for a while, but you should plan how this shortfall will be made up by boosting contributions in future years when circumstances allow.

You should also take advantage of any government assistance available on your super, such as the spouse contribution scheme. If your spouse is earning very little or nothing at all, then you may qualify for a rebate of up to $540 p.a. on any contributions you make to their super.

Talk to your adviser for further information.

Redundancy

Redundancy is something that many people will unfortunately deal with in an increasingly economically rational world. How you plan your spending and make decisions, regarding employment will likely be top of mind when this occurs, but super should not be left out of the decision making process.

Payments made to you on redundancy can be quite complex to deal with and can have serious taxation consequences. There may be opportunities in relation to using part of your redundancy payment to make super contributions and there may also be issues to deal with in relation to any insurance cover you had in your employer’s super fund.

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Protecting the value of a homemaker

Protecting the value of a homemaker

When it comes to personal insurances and protecting the family unit financially, most of the focus is usually on the value of the breadwinner. A deeper analysis, however, shows that a homemaker’s contribution is sometimes undervalued and consequently left underinsured.

A significant proportion of families still choose to have one partner remain as a full time homemaker. While they may not be generating income, it is important to recognise their value when planning financial security strategies.

Defining the homemaker’s role is the first step

To understand just how valuable a homemaker is in practical, emotional and financial terms, just think of the all the functions that they perform.

Children tend to be a major focus for many homemakers, whether it is driving them to school and other activities, helping with homework, or providing a listening ear and a source of guidance and encouragement.

Beyond the children, the homemaker often fulfils many practical functions in running the home, such as shopping, cleaning, washing, gardening and home maintenance. There is also the need to provide food for the family.

Managing the household budget is also often left to the homemaker and this requires time and attention to ensure bills are paid, banking is done and spending is kept in check.

What if they are not around to do it all?

It is relatively simple to calculate the financial worth of a breadwinner, based on their income earning potential. The impact of a losing homemaker, however, is not quite as easy to quantify in dollars and cents.

The reality is that a homemaker also faces risks of misfortune. Illness may strike at any time, a car accident or fall could cause injury and there is also the possibility of premature death. If such an event occurs then the family could be left with very real and significant challenges in trying to replace what the homemaker was doing.

What would the family do to adjust?

There are different options for how the family can cope with the loss of a homemaker’s contribution. One scenario is for the breadwinner to leave work or work part-time so that they can take on the homemaker’s role. This may be the most desirable option if there are young children involved. Another approach may be to employ hired help, such as a housekeeper.

A combination of both these options may also work, perhaps with the help of family and friends.

Whatever choice is made, it may cost a significant amount of money, either in foregone income or in hiring help, to replace the homemaker.

What can be done?

While homemakers are not eligible to take out income protection, there are other protection options that have the potential to offer substantial financial security.

Trauma insurance can offer a cash lump sum payment that is available on diagnosis of a range of specified major health conditions. Depending on the policy this may include heart attack, stroke and cancer. These funds could be used to allow the breadwinner to reduce working hours, leave work altogether or to pay out debts.

Life insurance may provide lump sum cover in the case of premature death or terminal illness, as defined in the relevant policy and the sum insured can be as much as is needed to give the surviving partner the freedom to make their own choices about how children will be cared for and how the home will be managed.

Total and permanent disability (TPD) insurance can be added to the life cover to provide a similar lump sum of cash in certain specified circumstances if the homemaker suffers an injury or illness that prevents them from ever being able to carry out their role.

If you want to properly quantify and insure the value of the homemaker in your situation, your adviser is ready to help.

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Never too old to learn

Never too old to learn

Many people who reach middle age will often discover a hunger for a new challenge in their career direction, but is it too late to take the plunge?

In days gone by, having the same job for life was quite commonplace. Not so today. Career flexibility and job hopping are the new norm for those who are starting out on their working life. But that doesn’t mean that those who are not so young are excluded.

Potentially, there is nothing stopping you from revitalising your skills and knowledge in a new area and making the switch to a new career. Mature aged students often have the advantage of a broader world view, a clearer sense of purpose and a more stable lifestyle and these can be big pluses when it comes to excelling in a new field of study.

Universities and TAFE colleges are now quite attuned to the needs and aspirations of mature age students and many will offer the flexibility you need to fit study around your existing work and family commitments, such as online study options, weekend or summer intensive programs and evening classes.

They also offer support services to help mature age students make the transition back into the classroom.

Of course it is not just the career changers who can benefit from rekindling their learning abilities. If you are simply looking for a new challenge and some mental stimulation, embarking on a course on a topic that interests you may be the solution.

You only live once, so if you have the urge for a new direction, consider giving mature age study a try.

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The window of opportunity looms

The window of opportunity looms

A range of superannuation changes are proposed to commence from 1 July 2017. While at the time of writing they are yet to be passed into law and may still change, you may want to discuss concerns on these issues with your adviser.

Non-concessional (after tax) contributions

Under current rules, an annual cap of $180,000 (or up to $540,000 for those under 65) applies to non-concessional contributions, such as personal super contributions made from after-tax income and your own savings.

From 1 July 2017, this may reduce to $100,000 per year, with the ability to bring forward future year contributions still available for those under 65. Non- concessional contributions will not be allowed if your total superannuation balance exceeds $1.6million.

Any excess non-concessional contributions over these limits will need to be refunded or harsh penalty tax rates of up to 47% plus Medicare Levy may apply.

Concessional (before-tax) contributions

For concessional contributions, (such as Super Guarantee contributions, tax deductible contributions and pre-tax salary sacrifice contributions), the contributions cap will reduce to $25,000 per year for everyone from 1 July 2017. There will no longer be a higher cap for those 50 and over. Commencing from 1 July 2018, if your superannuation balance is less than $500,000, you will have the ability to carry forward any unused concessional contribution cap over a rolling five year period.

Currently, if you earn over $300,000 per year (total income plus non-excessive concessional contributions), you are required to pay a tax of 30% on concessional contributions. This income threshold will reduce to $250,000 from 1 July 2017 resulting in more high income earners being required to pay the 30% rate.

Restrictions lifted on who can claim super tax deduction

From 1 July 2017, there will be no employment restriction placed on who can claim a tax deduction for personal superannuation contributions, (so this opportunity is no longer restricted to the self- employed).

$1.6 million limit on transferring superannuation to a retirement income account

From 1 July 2017, a cap of $1.6 million will be placed on the amount of superannuation that you can transfer to a superannuation income stream (e.g. account based pension) where there is no tax on the earnings. The balance of your superannuation will be required to remain in an accumulation account where earnings are taxed at a maximum rate of 15% or must be withdrawn.

If you already own a superannuation pension with a balance greater than $1.6 million, you will be required to transfer the excess amount back to superannuation or withdraw the funds by 1 July 2017.

Transition to retirement pension changes

A Transition to Retirement (TTR) pension can be commenced with preserved superannuation funds once you reach preservation age even if you are still working. From 1 July 2017, the current tax exemption on earnings generated within a TTR pension will be removed. Instead, the tax rate on earnings will be 15%.

The tax treatment of income payments received from a TTR pension will not change (e.g. tax free income for those 60 and over).

Income threshold increases for spouse contributions

The tax offset for contributions to superannuation on behalf of your spouse earning less than $13,800 p.a. is proposed to increase to $40,000. The maximum tax offset of $540 per year will be available where the spouse’s income is less than $37,000 p.a.

Super tax offset available for low income earners

A Low Income Superannuation Tax Offset will apply from 1 July 2017 which will replace the existing Low Income Superannuation Contribution. This tax offset (up to a maximum of $500), will be used to reduce the contributions tax on concessional contributions and is available if your adjusted taxable income is less than $37,000.

Additional death benefit payment abolished

From 1 July 2017, the additional payment that is sometimes available when a death benefit lump sum is received (known as the anti-detriment payment), will be abolished.

Members of Defined Benefit Schemes

The Government has announced that they will also make changes for members of defined benefit schemes and constitutionally protected funds to ensure that the new super reforms broadly apply to these groups as well.

Work test to still apply for those 65 to 74

There was a proposal to abolish the work test that currently applies to those between 65 and 74, which required them to be gainfully employed for at least 40 hours in a 30 day period to make personal contributions to superannuation. This proposal has now been withdrawn.

Your adviser is ready to answer any queries you may have on any of these issues.

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Refresh your financial goals

Refresh your financial goals

A financial plan should never be a ‘set and forget’ exercise, but rather a dynamic and flexible tool that adapts to your changing circumstances and goals. The start of a new year is a great opportunity to refresh your goals, so here are some tips to get you inspired.

Revisit your bucket list

Start by re-examining what it is that motivates you and what dreams and wishes you have for the future? This could include travel goals, leisure pursuits, family activities, lifestyle assets or retirement income. These things are what drives your financial plan, so it is important to re-appraise them regularly.

Make each goal concrete

The next step is to make sure you are clear on the dollar amounts, timeframes and priority of each objective. Setting these parameters ensures that the things you desire are tangible goals and not just idle wishes.

Your adviser can really add value to this process, so it may help to get them involved to help you articulate each goal and offer objective counsel on structuring the financial aspects to reach them.

Reviewing the context of your plan

It is important that the financial context of your plan is also reviewed to make sure you are maximising opportunities and taking into account external issues. This could include factors such as:

  • how you are managing debts;
  • your monthly budgeting;
  • how well you are savings;
  • maximising tax saving opportunities, such as salary sacrificing;
  • legislative changes; and
  • reviewing your insurance risk exposure.

Meshing the plan together

Your financial plan is unique to you, so you want to ensure it grows and develops along with your evolving perspectives and aspirations and remains a true reflection of your personality.

Your financial planner is ready to work alongside you in this process. Think of them as a financial coach that helps you ‘read the game’, point out opportunities and ensure that you play to your strengths.

Their experience and know-how can make a critical difference to the effectiveness of your plan and that can translate into a major difference in final outcomes.

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Market update: Summer 2016

Market update: Summer 2016

Cash

Cash rates have stabilised at low levels. The RBA has lowered overall cash rates in order to support the post mining boom adjustment of the Australian economy. The RBA has cut the target cash rate twice this year by 0.25%, in May and then in August, bringing it to a new historical low of 1.5%. The RBA then left the rate unchanged at its September and October meetings. The market is expecting the RBA to continue to sit pat over the coming months with another cut possible later in 2017.

Bonds

Bonds did well in the first half of this year as investors fretted about a slowing Chinese economy overwhelming the tepid recoveries in Europe and the US; and dragging the world into recession. With the help of Chinese fiscal and monetary stimulus these fears receded and the demand for safe haven assets like government bonds lessened.

Meanwhile the US economy continued to move towards full employment, causing increased speculation that the US central bank would begin to raise interest rates. These two factors saw very low bond yields around the world creep up slightly recently and the bond rally flatten out over recent months. However, returns over a longer time periods still look very respectable for a defensive asset class.

Australian equities

Chinese stimulus has led to a lift in construction activity and a resulting increased demand for commodities like iron ore. This has helped the mining company heavy Australian share market to outdo international shares over the 12 months to the end of September.

International shares

The rebound in commodity markets has driven an appreciation of the Australian dollar this year. This has meant currency hedged international shares investors have done better than unhedged. Infrastructure and property stocks experienced a mild correction over the September quarter. With central banks around the world pushing bond yields to extreme lows investors have sought out alternatives.

Defensive high dividend stocks like infrastructure and property are prime examples of these “bond proxies”. With some of the heat coming out of the bond rally over the September quarter, the bond proxies also gave up some ground. Emerging markets were the best performing asset class over the September quarter, with compelling valuations attracting interest.

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The missing link in financial planning

The missing link in financial planning

Creating an investment portfolio with the potential to build some genuine financial independence can be a stimulating journey, but your personal insurance must be part of your strategy.

The idea of creating financial independence and a comfortable lifestyle through a successful investment portfolio is a compelling one. The missing link in many financial plans, however, is a contingency strategy that will help you protect the lifestyle you have now and the financial freedom you are trying to build for the future. Most importantly, a solid risk strategy is essential for helping to protect the welfare of those closest to you.

The self-completing financial plan

When you start creating a financial plan the fundamental first step is to be clear about your goals. The lifestyle you want to enjoy, the places you want to go and the things you want to own. These goals are what gives your plan direction and motivates you to take the steps to get there.

The fundamental purpose of a risk protection strategy is to make sure that your plan is instantly self-completing if the income that feeds your financial plan is suddenly cut off. In other words, if your ability to fund your investment strategy is taken away by a temporary or permanent illness or injury, then you still have the independent resources to fund your goals using a combination of the right types of personal insurances.

Setting up your risk contingency strategy

In the same way that you set up an investment strategy by defining financial goals and quantifying the money you need to achieve them, your insurance planning also needs to be based goals for the lifestyle you want for you and your family if the worst happens. The home you want to live in, the lifestyle items you want to own, the ongoing income you want to ensure a comfortable life and the experiences you want your family to enjoy.

Once the dollar amounts are identified you can then create an insurance strategy that may include a combination of:

  • life cover that will pay a lump sum on premature death or terminal illness
  • total and permanent disability cover that will pay a lump sum if an injury or illness permanently prevents you from working again
  • trauma insurance that pays a lump sum upon diagnosis of a range of major medical conditions, and
  • income protection that pays an ongoing monthly income for short or long term periods of illness or injury.

Integrating into your financial plan

When setting up a financial plan and deciding on what savings allocations you will be making toward your financial growth, for a lot of people it simply makes good sense to have a proportion of that amount diverted toward funding your insurance strategy. The investment and insurance components will go hand in hand to create an integrated plan that helps ensure your goals are achieved.

Your adviser has the skills and research capabilities to assess your insurance needs and recommend the most effective and economical options to put your plan into practice.

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Life insurance and mental health

Life insurance and mental health

Thanks to concerted public campaigns, the awareness of mental health in our society has increased greatly in the last decade or so. This change is also being reflected in the way life insurers are dealing with the assessment of applicants who have a history of mental health issues.

The personal and financial cost of mental illness in our community is staggering, but fortunately it is now receiving the recognition it deserves. The statistics paint a sobering picture:

  • on average, 1 in 5 women and 1 in 8 men will experience some level of depression*
  • an estimated 45 per cent of people will experience a mental health condition in their lifetime*

Greater awareness and acceptance also means that sufferers are more likely to seek treatment for their condition and the stigma surrounding mental health is gradually dissipating.

Changes in the insurance industry

The positive developments in mental health awareness over the last decade or so have also extended to the way mental illness is treated in the life insurance industry. In days gone by, anyone disclosing a mental health condition on their personal statement was given a wide berth by insurers. The difficulties in assessing and quantifying the risks meant that insurers generally opted to play it safe and decline cover.

These days, there is a much more open attitude toward mental illness and insurers are seeking to underwrite mental illness in the same way as they would for other health conditions. Rather than taking a blanket approach of declining cover based on a history of mental health issues, there is a willingness to treat each case on its merits and insurers are now far more likely to offer cover at standard rates.

Balancing responsibilities

Insurers have a responsibility to both their policyholders and shareholders to ensure that they are careful in what risks they take on. This is essential for the viability of their business. Having said that, it is equally important that they honour the Disability Discrimination Act, which compels them to assess risk without prejudice. This means that if they do decline to take on risk it must be justified by a reasonable and relevant assessment of all information and based on statistical and actuarial data.

Insurers will, therefore, take several factors into consideration, including the seriousness of a person’s mental health condition, its impact on their lifestyle, the success of any treatment, management strategies and any ongoing symptoms. The terms offered by different insurers may still vary depending on each company’s premium rates, product features and underwriting philosophy, but acceptance at standard rates is now quite common. If standard rates cannot be offered, then cover may still be available with increased premiums or with certain medical conditions excluded from cover.

Full disclosure helps ensures reliable cover

The law requires an applicant to disclose all the information that may affect their application for life insurance. It is essential that this is done to avoid issues down the track with claims. If the applicant has complied with full disclosure and the insurer decides to accept the application, the insurer is then bound to honour the insurance regardless of any change in health that may subsequently occur.

Growing mental health awareness

The change in attitude within the insurance industry is one part of the continuing effort to give mental health the attention that it deserves. Thanks to the advocacy of organisations such as Beyond Blue and Mental Health Australia, attitudes and perceptions on mental health are changing for the better. Mental Health Week, which runs from 8th to 15th October this year, also plays a major role in raising the profile of mental health, promoting awareness and equipping people with helpful assistance. For more information visit the National Mental Health Commission.

 

 

* Australian Bureau of Statistics. (2008). National Survey of Mental Health and Wellbeing: Summary of Results, 2007.

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Market update: Spring 2016

Market update - Spring 2016

Cash

Cash rates keep falling in Australia, with another interest rate cut in May. It seems likely that this will not be the last rate cut with the RBA widely expected to cut again possibly in August.

Bonds

Fixed interest markets recorded strong returns for the year. The economic environment remains supportive of bonds, with modest levels of economic growth and low inflation. Fixed interest yields around the world are very low, in some cases negative, and it would seem likely that future returns will be more muted.

Australian shares

Australian shares end the financial year fairly flat but certainly experienced some volatility over the prior 12 months. A strong rally in the last quarter helped Australian shares recover after the falls experienced in the first few months of the year.

For the full year market returns have been fairly flat.

Valuations in the share market are not overly demanding, but the economy and share market face some headwinds from a slowdown in the Chinese economy, Australia’s largest trading partner.

International shares

International shares end the financial fairly flat but certainly experienced some volatility over the prior 12 months. A strong rally in the last quarter helped international shares recover up after the falls experienced in the first few months of the year. The US share market was one of the better performers,

European and some Asian share markets experienced negative returns. Emerging markets struggled but look very attractively valued.

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Raising stroke awareness

Raising stroke awareness

Stroke and other cerebrovascular diseases account for 1 in 18 deaths in males and 1 in 12 deaths in females, making it one of the most significant diseases in Australia*.

In 2013 there were 51,000 strokes causing about a $5 billion loss to the economy, $3 billion in lost productivity and $1 billion in lost wages**. Almost 440,000 Australians now live with the effects of stroke and this number is predicted to rise rapidly***.

What is it and what causes it?

Stroke occurs as a result of an interruption of blood supply to the brain, due to a blocked or burst artery. The lack of oxygen to the brain causes brain cells to die, which can affect the function of various parts of the body.

High blood pressure is the most important known risk factor for stroke and this can be addressed by improving diet, regular exercise and keeping weight under control.

Be aware of the signs

The signs that someone is having a stroke are neatly summed up in the acronym; F.A.S.T.

  • Facial drooping – usually on one side.
  • Arm weakness – an inability to raise the arms fully
  • Speech difficulties – slurring
  • Time – if stroke is suspected call emergency services or go to the hospital immediately.

Some additional symptoms can also occur in women, including loss of consciousness, weakness, shortness of breath, disorientation, nausea and even hiccups. These symptoms are often not recognised as being caused by stroke, which may delay treatment and increase the damage done.

Stroke week raises awareness

National Stroke Week runs from 12 – 18 September to raise awareness and encourage preventative action. The theme “Speed Saves” underlines the importance of swift action. For more information, visit the Stroke Foundation’s site at www.strokefoundation.com.au.

 

* Australian Bureau of Statistics: Causes of Death, Australia, 2014

** Deloitte Access Economics 2013, The economic impact of stroke in Australia.

*** Deloitte Access Economics 2014, Impact of stroke across Australia.

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Boost retirement income

Boost retirement income

How can you access extra cash in retirement beyond your super and pension?

Once we finally cease work and earned income stops, most of us will be reliant on our super and investments to fund our retirement income, with some help from a full or partial age pension. But what if we have an unexpected need or opportunity arise and need some extra cash beyond our budget? It could be for a new car, a special holiday, medical emergency or just spoiling the grandchildren.

Accessing home equity

If you are over 60, one possibility for obtaining a cash boost is to access the equity you may have in your home via a reverse mortgage. This financial instrument allows you to borrow money using the equity in your home or investment property as security. There are no income requirements to qualify, although lenders must still take a responsible approach and assess the borrower’s situation before offering the loan.

Interest is payable just like a normal mortgage, although repayments are optional and can be left to compound until you eventually decide to sell, at which time the loan and interest must then be repaid.

Proceeds of the loan can be taken as a lump sum, a regular income stream, or a line of credit, depending on what suits your purposes.

While reverse mortgages have some attractions, they do represent a significant long term commitment and you need to consider the impact may have on your family relationships and stress levels. There may also be impacts on your pension entitlements to be considered.

Pension loans scheme

If you only have a relatively small need for extra income, another option may be to apply for the Pension Loan Scheme. These are offered via the Department of Human Services and the Department of Veterans’ Affairs and offer an economical way to top up your age or veteran’s pension. The interest rate is generally significantly lower than commercial equity release loans.

Proceed with caution

Before entering into any arrangements like this, it is wise to seek advice from your adviser to help assess if it is right for you and to ensure that you are fully aware of the risks and responsibilities involved.

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A focus on men’s health

A focus on men's health

Men’s Health Week runs from June 13 to 19 and offers a unique opportunity for communities across Australia to put a renewed focus on male health issues and positive actions that men and boys can take to better their health.

Health issues specific to men

Australian men are more likely to get sick from serious health problems than women. This is due to a range of factors, including a tendency for men to be more reluctant to get simple health checks and to ask for help.

This imbalance can be seen in the male to female ratio of causes of death*:

  • Heart disease: 119 to 100
  • Lung cancer: 150 to 100
  • Colon and rectum cancer: 124 to 100
  • Diabetes: 108 to 100
  • Suicide: 300 to 100

It’s about wellness, not just illness

Prevention is always better than a cure, so it is vital that men take steps to better their health. Making radical changes to lifestyle can be difficult, due to the business of life, but making incremental changes is achievable and can have genuine positive impacts.

So what are the key actions to take?

Be physically active

Simple activities that fit easily into your schedule, such as a brisk daily walk, mowing the lawn and biking are a great way to make a start. Try to work up to 30 minutes a day of moderate physical activity for most days of the week.

Eat a healthy diet

Increase the proportion of fruits, vegetables and whole grains in your diet, use fat-free or low-fat dairy and include lean meats, poultry, fish, beans, eggs, and nuts. Lower your salt, sugar and alcohol intake too.

Stay at a healthy weight

The equation is simple; balance the calories you take in with the calories you burn. As you age, eat fewer calories and increase your physical activity. Small consistent changes will prevent gradual weight gain over time.

More details on Men’s Health Week can be found at www.menshealthweek.org.au

* The Australian Bureau of Statistics Leading Causes of Death by Gender (2012)

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Getting to the heart of the matter

Getting to the heart of the matter

The Heart Foundation has just completed its annual Heart Week event. It’s an opportunity to shine a light on the prevalence of heart disease in the community and what can be done to reduce the risks and achieve a more successful recovery.

Part of the Heart Foundation’s mission is to educate the public and health professionals on what can be done to prevent heart disease and rehabilitate those who suffer from it. As an insurer that is interested in improved health outcomes we want to support this goal by sharing some insights that may helpful to you.

Just how big are the risks?

Cardiovascular disease (CVD) is a major cause of death in Australia, with 43,603 deaths attributed to CVD in Australia in 2013. That’s 30% of all deaths, with one Australian every 12 minutes. It is estimated over 350,000 Australians have had a heart attack at some time in their lives.*

It’s not just men who are affected

While more focus may be given to men when discussing heart disease it is also an issue for women. It may come as a surprise to know that heart disease is the number one killer of Australian women and is four times more likely to be a cause of death than breast cancer.**

The good news is that a lot of these deaths are largely preventable and there is much that we can do to reduce our risks.

What are the causes?

The major risk factors include high blood pressure, high cholesterol, excess weight and obesity, physical inactivity, low fruit and vegetable intake, alcohol and smoking.

Nine in ten adult Australians have at least one risk factor for CVD and one in four have three or more risk factors.

What can you do about it?

Many of these risk factors relate to lifestyle, which means that it is possible to influence your risk of heart disease by adjusting to a healthier lifestyle. This includes:

  • Eating a higher proportion of vegetables, whole grains, fruit, nuts, legumes and fish
  • Making good fat choices, such as olive oil
  • Choosing reduced full fat dairy products and eating less salt
  • Regular physical activity, such as 2.5 to 5 hours of physical activity of moderate intensity per week
  • Do muscle strengthening activities on at least 2 days each week
  • Sit less and walk more.

Be aware of symptoms

Although chest pain or discomfort are common symptoms of a heart attack, this is not universal and the symptoms may present in other areas of the body.

This includes pain, pressure, heaviness or tightness in areas such as the jaw, back, shoulder, neck and arms. The symptoms for men and women can vary and research has found that women are less likely to experience chest pain.

The critical message if you think you may be suffering heart problems is to act early. For more information on warning signs and what to do visit heartfoundation.org.au.

Protect yourself financially

One encouraging feature regarding heart disease is that survival chances are improving. In 2009, 63% of people were surviving heart attack, compared with a 45% survival rate in 1994.***

Many of those who survive go on to recover and have a normal life expectancy. While physical recovery is good news, surviving a heart attack may cause problems financially. A good recovery may depend on adjusting lifestyle, reducing working hours or lowering the stress of debt and expenses. All of these factors may require significant amounts of cash to make them possible.

This is where trauma cover can be so valuable. It can pay a lump sum benefit upon diagnosis that can allow you to make such lifestyle changes. If you want to know more, talk to your adviser about how trauma insurance can help you.

* http://heartfoundation.org.au/about-us/what-we-do/heart-disease-in-australia

** http://www.heartfoundation.org.au/your-heart/womenheart-disease/Pages/default.aspx

*** Australian Institute of Health and Welfare: Trends in Cardiovascular Disease 2012.

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The window of opportunity looms

The window of opportunity looms

It seems like Christmas was only yesterday, but believe it or not, the end of financial year is just around the corner. That means it’s time to look out for opportunities to save on tax and boost your wealth accumulation plans.

There is no better time than the end of financial year to make a review of your financial situation to see what openings you can take advantage of to further your financial goals.

The stakes are high and time is tight, so we have summarised the key opportunities here to get you inspired to take action now.

With lots of noise coming from Canberra about superannuation concessions being under the microscope, it makes it doubly important to make sure you maximise all the benefits while you can.

Both sides of politics are walking a political tightrope in their quest to balance the budget without killing off incentives for individuals to self-fund their retirement. With an election on the horizon, who knows where the chips will fall on super concessions in the next couple of years.

Top up while you can

One area that has already seen changes in the last few years is that of contribution caps. These caps relate to maximum annual limits on any before tax contributions you make in a given year, (such as salary sacrifice arrangements or tax deductible contributions). Going above these limits may incur tax penalties.

The good news is that for this financial year the caps will remain as they were last year:

  • $30,000 if you are under 50 and
  • $35,000 if you turn 50 during this tax year or if you are older.

If your contributions this financial year have not reached the caps, then you now have the opportunity to top up and receive the concessional tax benefit on those contributions. The recent rumblings surrounding super tax treatment and the proposals announced in the Federal Budget means there is no certainty on what these caps will be in the future, so it may be wise to speak to your Matrix financial adviser now if you want to take advantage while you can.

Spouse contributions can trim your tax

Another tax saving possibility is the spouse contribution scheme. If your spouse is not employed or has part-time work with an income of less than $13,800, then you can make contributions to their super on their behalf and claim a tax offset.

A maximum offset of $540 is available if the spouse income is $10,800 or less and you make an after-tax contribution of at least $3000 to their super. The tax offset is progressively reduced until the spouse earns $13,800 or more in a year.

Co-contribution incentive still applies

Another incentive that is still valid this tax year is the government co-contribution scheme. This scheme gives you the chance to have the government chip in up to $500 to your super if your income is less than $35,454 and you make voluntary after tax contributions to your super.

The rate of co-contribution is 50 cents for every dollar you contribute. If you earn more than $35,454 the rate of co-contribution reduces on a sliding scale until it cuts out completely at $50,454.

Your adviser is ready to show you how you can make the most of your entitlements and grow your retirement independence, so talk to them now if any of these opportunities are of interest.

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Budget super changes

Budget super changes

The 2016/17 Federal Budget contained some major superannuation changes. Some highlights are below, but bear in mind these proposals still need to be passed into legislation.

Contribution cap changes

From 7.30pm (AEST) on 3 May 2016, a lifetime non-concessional cap of $500,000 will replace the current annual caps. This cap includes all non-concessional contributions made since 1 July 2007 and any excess contributions will need to be refunded or a penalty tax of up to 49% may apply.

If you have already contributed more than $500,000 of non-concessional contributions between 1 July 2007 and budget night, no excess will apply however any future contributions from budget night may exceed the cap.

Concessional contributions caps have also been reduced to $25,000 per year for all ages from 1 July 2017. If your superannuation balance is less than $500,000, you can carry forward any unused cap amounts over a rolling five year period. A 30% tax on concessional contributions will now apply to those on $250,000 p.a. income.

$1.6million cap on super pensions

From 1 July 2017, a cap of $1.6 million will be placed on the amount of superannuation that you can transfer to a superannuation pension. Any balance in excess of this must remain in an accumulation account where earnings are taxed at a maximum of 15%. Those who already exceed this cap will be required to transfer the excess amount back to superannuation by 1 July 2017.

Other highlights include:

  • Abolition of the work test for those up to age 75 who want to make super contributions.
  • The tax exemption on TTR pension earnings will be removed from 1 July 2017 – earnings to be taxed at 15%.
  • From 1 July 2017, there will be no employment restriction placed on who can claim a tax deduction for personal superannuation contributions.
  • The $540 p.a. tax offset on spouse contributions has been opened up with proposed increases to the threshold to $37,000 and the age limit to 75 starting 1 July 2017.
  • From 1 July 2017 a low income concessional contribution tax offset of up to $500 is available if your adjusted taxable income is less than $37,000.

Your adviser can provide more details on how these changes may affect you.

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Market update: Winter 2016

Market update: Winter 2016

Cash

The RBA has had interest rates on hold for an extended period and the recent appreciation of the Australian dollar will put some pressure on the RBA to further cut interest rates. The fall in our currency from around $1.10 US dollars to down in the sixty cents range helps our exporters and aids the post mining boom rebalancing of the economy to other sectors like manufacturing.

The recent rebound in the Australian dollar towards 80 US cents has hurt our exporters. If the RBA was to lower interest rates, parking cash in Australian dollars becomes relatively less attractive for foreigners and the reduced demand can cause it to move downwards.

Australian bonds

The fear of January drove investors to flee equities and seek out safe havens like Australian Government Bonds. This meant Australian bonds did well over January and into February. The turning of sentiment into March has seen some of this mini rally in bonds come off and the asset class had a small negative return over the month. However, bond investors have still seen a solid positive return over the year to date.

International bonds

International bonds have had a stellar first quarter this year. The heightened volatility in markets has reminded investors of the importance of bonds as effective portfolio diversifiers. High quality government bonds will tend to appreciate in price when stocks are falling.

Later in the quarter, central banks provided some impetus for bonds to rally. The European Central Bank and Bank of Japan made additional commitments to their bond buying programs. The US Federal Reserve indicated that there would be less interest rate rises this year than previously predicted. Prices of bonds move in the opposite direction to yields. Consequently, bond investors enjoyed a capital gain as yields ground ever lower.

Australian equities

Australian shares bounced back hard in March. Those sectors that had been punished the most in January benefited the most in the subsequent whipsaw rally. For example, the S&P/ASX Metals and Mining sub index lost 10% in January then put on 11% in February and 7% in March to end the quarter up a net 6%. More defensive sectors, such as healthcare, didn’t do as well. The Healthcare sub index ended the quarter in the red, losing 2%.

International shares

Those markets and sectors beaten up the most in January and the first half of February have rallied the hardest. For example, Chinese companies listed in Hong Kong fell 15% in January alone. In March they rallied 14%. The Australian dollar has appreciated over the quarter and so currency hedged international shares have outperformed unhedged.

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Enjoy the benefits of volunteering

Enjoy the benefits of volunteering

Retirement is a time to put your feet up and enjoy life, but many people will still have a desire to keep their minds and talents engaged. Volunteering is a great way to do this.

A multitude of options

The opportunities to use your time, talents and labour can be found in a vast variety of situations and organisations. As a starting point, consider the many institutions in your local area, such as schools, community centres, charitable organisations, aged care institutions, hospitals and churches. They all need willing helpers to apply their hands, hearts and minds to help make a real difference. Beyond these places, you can combine the benefits of volunteering with your desire for travel through many overseas opportunities.

A win-win situation

It is not just a sense of altruism that attracts people to volunteering. Many discover a genuine sense of purpose and an opportunity to be mentally and physically engaged. In many ways it is an ideal way for retirees to redirect their energies and focus, after a lifetime of employment has suddenly come to an end. It provides an outlet for social connection and a chance to broaden your focus outside of your own personal world.

Something for everyone

To find a volunteering need that best meets your abilities and interests, the best place to start is to consider what talents, skills and experience you have built up over your years of work or raising a family. It is also important to consider the types of causes or needs that you feel personally drawn to. Once you have considered what you have to offer you can then seek out possibilities that may suit you.

A great starting point to locate thousands of opportunities is the Volunteering Australia website www.govolunteer.com.au. This site provides a search facility based on location, causes, types and events, so that you can easily match a position to your profile.

Why not make volunteering an integral part of your retirement planning and discover how it can open your horizons to a more fulfilling lifestyle.

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Women and superannuation: Tips for success

Women and superannuation - Tips for success

When it comes to super savings, women in Australia are likely to have significantly less than men. The average Australian woman retires with around half the balance of the average man. This is because women (still!) earn less than men for equivalent jobs and they’re more likely to have a career break to raise children.

Combine this with a longer life expectancy and women are less likely to have enough for a comfortable retirement. Very few women think their super will be enough for retirement, and unfortunately many women don’t know how much they’ll need for a comfortable retirement or are leaving this issue to their partners.

Superannuation is one of the most important and efficient investments you can make. It is concessionally taxed, has flexibility with insurance and can provide added incentives when you contribute money.

Acknowledging that wages for women are still generally less than those of men and that women are more likely to take time away from paid employment to raise their families, growing superannuation can seem almost impossible.

However, none of the above will matter as retirement draws nearer. So, regardless of age or circumstances, women need to understand superannuation and start contributing as soon as possible.

Here are some tips that may help the process:

1. Have one superannuation fund

Many women have worked for a number of different employers and can end up with relatively small amounts in a number of superannuation funds. Multiple super accounts usually equals multiple fees. Consolidating your superannuation into one account will make it easier for you to track your retirement savings.

2. Find any lost superannuation

If you have changed jobs a few times, or had short term work contracts, you may have super accounts that you have forgotten or didn’t know about. You may have moved house and lost track of your superannuation. To search for lost super visit www.unclaimedsuper.com.au or call the tax office on 13 10 20.

3. Use salary sacrifice into superannuation

If you are currently working, you could talk to your employer about sacrificing some of your pre-tax income into super. Salary sacrifice can have tax advantages as you may reduce the amount of income tax you pay. This is not for everyone so you should seek financial advice as to whether this would be beneficial to you.

4. Make additional contributions

If you have some spare cash, you may want to make after tax contributions to superannuation. Many of the superannuation funds have the option to set up a regular direct debit, BPay or electronic funds transfer. Making additional contributions may give you access to the government co-contribution.

5. Government co-contribution

You may be eligible for a free boost to your superannuation. If you earn less than a specified amount and make a voluntary after-tax contribution to superannuation, the government could contribute up to $500 each financial year to your super account. This is a great incentive and could give your superannuation a real boost. Of course, these figures may change with Government policy.  To ensure you understand the conditions, seek financial advice.

6. Super splitting

You may be able to share part of the super contributions you or your partner make each financial year. Most funds now have super splitting available.

7. Tax deductions

Are you self-employed? That is, do you earn less than 10% of your income from an employer? If so, you may be eligible to claim a tax deduction for any voluntary super contributions you make. Be careful as contribution limits do apply.

8. Check your insurance

You may be surprised to find that you have Death and Total and Permanent Disability insurance through your superannuation fund. Some superannuation policies also offer Income Protection insurance. This is often a cost-effective way to structure your insurances. Insurance is a vital part of your financial security and you should make sure you have enough cover to protect you and your family. Again, this is not relevant for everyone so you should seek financial advice as to whether this would be beneficial to you.

9. Choose your super fund

Many of us do not make an active investment selection for our superannuation entitlements. Most people do have choice and you should make sure you are comfortable with how your retirement savings are invested. Do your research or seek advice.

10. Seek advice

There is a common theme. Research your fund and make informed choices when it comes to superannuation as this can make a real difference come retirement time. The internet has many great websites if you would like to do your own research.

Why not schedule a meeting with your financial adviser now?

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Demystifying the aged care maze

Demystifying the aged care maze

The rules and costs involved in the aged care system can seem a daunting prospect to deal with, so if you are negotiating the system now or are planning ahead for the future this summary may be a good starting point.

How does someone access an aged care facility?

Once a person’s health is such that they may have trouble living independently or have difficulty with everyday tasks, they can request an assessment by a local Aged Care Assessment Team (ACAT, or ACAS in Victoria). This determines whether they can access an aged care facility or other aged care services.

An interview is conducted by a member of the ACAT team (usually a nurse, social worker or other health care professional), who may also ask to speak to the person’s doctor.

Selecting an aged care facility

Once a person qualifies for entry to an aged care facility it is then up to the person and their family to visit and select an aged care home that suits them. This may require inspecting various facilities and asking questions about the care and services offered and their cost structure. You can visit myagedcare.gov.au to search for possible aged care homes in your vicinity. This site also provides details to enable comparison of costs and services.

Once you have narrowed down the options it is advisable to make an application for entry at more than one facility, as availability can sometimes be an issue. Once a home offers a position, the person is given a Resident Agreement covering things like services, fees, rights and responsibilities. It is vital that the person understands this document and gets professional advice on any issues of concern before they sign.

What does it cost?

The costs of residential aged care are substantial, but government subsidies ensure that access is available to all. The amount you need to contribute toward the cost of care will depend on your financial situation and is assessed via an income and assets test. These costs can include:

An accommodation payment: This is for your accommodation in the home. Each aged care facility is required to publish its accommodation charge and this amount may be fully or partly subsidised, depending on your means testing. You can choose to pay your accommodation costs by a lump-sum, rental-type payments, or a combination of both. Lump-sum payments are refundable once the person leaves or passes on.

A basic daily fee: This covers living costs such as meals, power and laundry.

A means-tested care fee: This is an additional contribution towards the cost of care that some people may be required to pay, depending on the assessment of income and assets. Annual and lifetime caps apply to limit the amount of the means-tested care fee you will need to pay.

Optional extra fees: Some homes will offer additional optional services for an additional cost.

The importance of obtaining good advice

A financial adviser has the experience and knowledge to help guide you and your family members at a time when emotions may be running high and confusion may interfere with good decision making.

Good advice can help address critical questions, such as:

  • How to best fund the accommodation cost
  • What to do with the family home to achieve the best financial outcome
  • How to best preserve social security benefits
  • How to structure investments to optimise your means test situation and properly provide for ongoing income
  • What to do to ensure the person’s estate is protected for the benefit of beneficiaries

Even if the need for aged care is not imminent, it makes good sense to consider the issues in advance in order to relieve stress when the time comes to take action.

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One guarantee you should always insist on

One guarantee you should always insist on

These days the word ‘guarantee’ is often flaunted about frivolously. It’s a mandatory inclusion on T.V. informercials and ‘guaranteed or your money back’ is pervasive on the products we see on our supermarket shelves. When the product in question is a mass produced consumer item, a guarantee is hardly a huge risk for the marketer. In the case of personal insurance, however, it takes on a whole new level of significance.

The two most important words in personal insurance

The diversity in personal insurance products has exploded in the last two or three decades. There are a host of products out there with a bewildering array of added benefits, optional extras, special discounts and increasingly generous definitions. All of that diversity, however, makes very little difference if the policy you are looking at does not contain two critical words; guaranteed renewable.

In essence, when the words guaranteed renewable are included on a life, income protection or disability insurance policy, it means that the insurer is making a binding commitment of enormous proportions. When you consider that the consequence may end up leading to the payment of hundreds of thousands of dollars in lump sum benefits or thousands of dollars a month in income replacement benefits, it is not something that either the insurer or the customer should take lightly.

What does it actually mean?

When a policy includes the words ‘guaranteed renewability’, it effectively means that the insurer is bound to keep the insurance cover in place until the customer chooses to stop it or until the policy expiry (for example, at a pre-determined age), whichever comes first.

If the customer has a change of employment, deterioration in health or takes up a high risk recreational activity after the policy is put in place, it has no effect on the cover. The insurer cannot alter the terms of the insurance cover or cancel the policy as a result of such changes in circumstances. The cover is locked in until the customer chooses otherwise. The only obligation on the customer’s part is that they keep premium payments up to date.

A commitment not taken lightly

Some people may perceive that obtaining life or disability insurance involves an excessive amount of disclosure, with questions about personal health and habits, details of family history and even the need for doctor’s reports or medicals. While this may seem inconvenient at the time, it is important to look at the need for such information in the context of the responsibility and commitment the insurer is taking on.

If they are going to offer cover with a guarantee that they must keep it in place no matter what, then it sheds some new light on why they need to have a full suite of information to assess and underwrite the cover at the outset. Insurers only have one opportunity to get their decision right before they take on an obligation of such magnitude.

Some moderate inconvenience when purchasing life and disability insurance is a small price to pay for the immense security and peace of mind that a comprehensive personal insurance plan can give. Customers who have seen their family’s livelihood and lifestyle preserved through the cash cushion of lump sum or income benefits from their personal insurance would no doubt consider the application and assessment process to be a very small sacrifice indeed.

Don’t be caught with substandard cover

The importance of making sure your personal insurance is guaranteed renewable cannot be overstated. No matter what ‘bells and whistles’ a policy may have, they cannot make up for the fundamental need to have cover that has the inbuilt foundation of guaranteed renewability.

If you have any doubts or concerns about your insurance plans in this regard, then don’t hesitate to contact your financial adviser to review your situation.

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Life changing checkpoints

Life changing checkpoints

While no two people will ever have exactly the same life experience, there are key events in life that can have a profound effect on our priorities and financial situation and our financial success depends on planning proactively around them.

Finding our feet in the early years

Our twenties and thirties are a succession of milestone events, such as starting a career, a family, a home and a mortgage. The decisions you make in these formative years have a major impact on your future financial success and security, so it is critical to make well informed and thoughtful decisions about good savings habits, well controlled use of debt, developing a strategy to grow your net worth, taking advantage of superannuation opportunities and the protection of lifestyle through personal insurance.

Building on an established base

As you move to middle age your income may well be increasing, your family expenses and you may need to upgrade the size of your home and expand your mortgage. Your personal insurance must be continually reviewed to reflect the burgeoning financial responsibility and your investments and super need to gain increasing sophistication and diversity to ensure you are maximising wealth accumulation.

Making the most of new opportunities

As we move deeper into middle age there will come a point where expenses and income will peak and start to taper off. Children leaving home and a mortgage being paid off present golden opportunities to accelerate your wealth creation. Setting yourself up for retirement takes over as your financial priority, including the maximising of tax benefits and taking advantage of transition to retirement strategies.

Retiring in style

Once you finally take the plunge into retirement your focus once again changes toward the selection of investments and income stream plans that will provide a worry-free lifestyle and maximise social security.

Advice is critical

Your financial adviser can provide you with objective and informed guidance to help you manage all of the financial decisions you need to make throughout your life. It pays to have qualified, professional advice on your side every step of the way.

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Keeping your brain healthy

Keeping your brain healthy

Taking care of our brain health can make a difference in how well it functions well into old age and can help combat degenerative brain disorders that are increasingly prevalent. Here are a few pointers to help you take action now.

Keeping physically fit

Generally speaking, any exercise which is good for your heart is going to benefit your brain too. Aerobic exercises are ideal and also help fight high blood pressure, diabetes and high cholesterol.

A simple exercise program that gets your heart rate increased on a daily basis is all you need. Walking, cycling, swimming and group exercise classes are ideas that we can all incorporate easily into our lifestyle.

Sleep is vital to maintaining memory and clarity, so make sure you get a regular 8  hours every night. Anxiety, depression or other mental health concerns will also impact brain health, so seek professional help to manage such conditions.

You are what you eat

Diet can also play an important role in your brain health. A balanced overall diet aimed at controlling weight, blood pressure and cholesterol is the basis to start from. It is also important to include foods that are high in antioxidants and folate. Some key foods include leafy greens, berries, red grapes oily fish, legumes and cereals.

Excessive drugs and stimulants are negatives, so limit the intake of things like alcohol and caffeine.

Exercise for the mind can help

Our brains naturally begin deteriorating from around the age of forty and unused parts of the brain will tend to stop working. Fortunately, in the same way that we strengthen our bodies through exercising, flexing your mental muscle can help limit deterioration.

Recent research has indicated that memory and problem solving puzzles and activities can have a positive effect on keeping our faculties in tune. By challenging the brain it can create new pathways and effectively regain mental functions that have suffered attrition.

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Part-time work in retirement

Part-time work in retirement

Retirement is a goal we all look forward to, but many of us like the idea of continuing to work part-time in retirement as a way of keeping stimulated and socially connected, as well as supplementing income. If you choose to do this, however, it is important to be aware that it may impact on your age pension entitlements.

Be aware of the limits

Fortunately, the government does allow some level of income to be earned without impact on the Centrelink or the Department of Veterans’ Affairs pension. A single person is permitted to earn up to $162 a fortnight, while couples can earn $288 a fortnight.

Once income exceeds these amounts there is a sliding scale of reduction in the pension. Every dollar earned in excess of the threshold will result in a reduction of fifty cents off the pension for singles and twenty five cents for couples.

Extra benefits from the Work Bonus

As an added incentive, the government has also implemented the Work Bonus Scheme to benefit those who are earning income as employees, (the scheme is not available to self-employed). The scheme allows you to earn an extra $250 per fortnight, over and above the earning limits described above, without it being assessed under the the pension income test. That equates to a substantial total of $6,500 per year.

An important feature of the Work Bonus Scheme is the way it caters for those who may only be working occasionally. The scheme allows you to accrue the $250 per fortnight limit during the times you are not working and then lets you apply the accrued allowance during periods when you are working.

Hypothetically, you could have no employment for the first nine months of the year and then work part-time for the final three months of the year and still gain full benefit from the scheme by being allowed to apply the full annual limit of $6,500 all within those last three months.

Remember, Centrelink and the Department of Veterans’ Affairs will also look at the value of your assets when calculating how much pension you receive.

Planning retirement income

If you want to know more, talk to your adviser, who can help you coordinate your income mix to ensure you maximise your entitlements.

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Make sure your super passes into the right hands

Make sure your super passes into the right hands

Your super can potentially be your biggest asset, so it is vital to make sure it benefits the right people if you were to pass on prematurely. While the objective is simple, achieving that objective may be more involved than you think.

Your super can amount to hundreds of thousands of dollars and in most cases is only rivalled by the family home as your largest single asset. While it is primarily intended to provide income in your retirement, it takes on a very different role if you were to die prematurely. Your beneficiaries, such as your spouse and children, may rely on accrued benefits and any insurance payments in your super to fund their ongoing livelihood and financial security.

This means that arrangements you make for your super to be passed on efficiently and accurately are essential, but such arrangements can come unstuck if they are not planned carefully.

Is a ‘nomination of beneficiary’ on your super enough?

You may be aware that you are able to make a directive to your super fund known as a ‘nomination of beneficiary’, which allows you to specify who should receive your super balance if you pass on. This allows the super balance to be allocated directly to the nominated beneficiaries without having to be processed through your estate.

While on the surface this may seem like a reasonable and efficient way to deal with this issue, nominating a beneficiary may not turn out the way you want, if your beneficiary’s circumstances change in the future.

For example, once the money has been paid to a child, your super fund has no further control over it and it simply forms part of that child’s assets. If that child is married at the time of receiving the super monies and then down the track has a divorce, the super you have left to them may be split along with other assets as part of the divorce settlement. Would you be happy for an estranged son or daughter in law to benefit from your super?

Concerns over mismanagement

Another potential outcome of passing on your super via a nomination of beneficiary is the risk of the funds being mismanaged or spent frivolously or contrary to what you intended. For example, one of your children may come under the influence of friends or a spouse who has undesirable motives. The money may be wasted on unnecessary spending or poorly invested, resulting in your intended beneficiary not being looked after as you would have hoped.

A trust arrangement may be the answer

Rather than relying on a nomination of beneficiary approach to bequeathing your super, a more practical solution may be to set up a trust into which your super is paid upon death. You can set rules and conditions within the trust that govern how funds are distributed and what they can be used for.

A trust can effectively limit any risks of funds being misused and protect them from acrimonious divorce settlements. It can even shield the inheritance you pass on from any bankruptcy proceedings if one of your beneficiaries has a business failure after your death.

A trust simply allows you to maximise control over your estate when you are not there to do it yourself.

Professional advice is essential

Setting up a trust can, of course, be quite a complex process and requires skilled attention to ensure it is personalised to your requirements and legally robust enough to fulfil its intentions. This makes it essential to engage professional legal assistance. Apart from the initial set up, there will also be ongoing taxation matters to deal with to keep the trust compliant. While all of this may incur cost, it can be a small price to pay for the peace of mind that it can provide.

If you would like to investigate further, we are happy to discuss how this may work for your situation and to refer you to the proper legal assistance to get things organised, so feel free to contact us anytime.

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Market update: Summer 2015

Market update: Summer 2015

Cash

There have been a series of small increases in some lending rates for housing, as banks seek to bolster their capital following recent changes in capital requirements. This is good for the banks, the additional capital makes them more secure, but it is being paid for by consumers. The Reserve Bank of Australia (RBA) remains on hold with official cash rates remaining steady at a historical low of 2.0%. The question of whether the RBA will cut rates further remains open. With no sign of inflation picking up, and early indications that housing prices are softening, there is scope for further rate cuts.

Bonds

Australian bonds are likely to be caught between two competing forces, the slowing Australian economy should be positive for bonds; while the prospect for rate rises in the US could see bonds under pressure. How this balancing act plays out remains to be seen. Our best guess at this stage is that the former is the preeminent influence and that bonds appreciate modestly in price as the local economy slows.

Australian equities

The Australian share market sold off again in September, following on from the falls in August. Subsequently, October saw some recovery.

The resources sector continues to be out of favour even though the two big miners BHP and RIO hold world class assets and are the lowest cost producers of iron ore in the world. The banks and healthcare companies are clearly the market favourites. We have some concern that the amount of leverage inherent in the banks may pose some problems should a slowdown in China and the local economy lead to bad debts rising, and house prices falling. Healthcare companies look attractive in terms of industry dynamics, but are expensive relative to their own history.

International equities

The quarter ending September was not a good one for shares. It was also not a good one for the Australian dollar, but the depreciating currency provided some buffer from share price falls for currency unhedged investors in international shares.

As with the Australian share market, international markets rebounded in October. Emerging markets continue to look attractive from a valuation perspective, while US shares seem somewhat overvalued.

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Fighting melanoma in the sunburnt country

Fighting melanoma in the sunburnt country

As Australians, we take a lot of pride in the fact that we lead the world in many arenas, such as sport, science, business and the arts. Unfortunately we also lead the world in another area that is not so desirable. As the nation with the highest incidence of melanoma, it’s high time we turned the tide.

It can start as a seemingly innocuous spot on the skin, but can quickly develop into one of the most aggressive and potentially deadly diseases. Melanoma affects more Australians per capita than any other country in the world. In fact there are 30 cases diagnosed every day* and in 2009 there were 48,364 Australians living with the disease**.

Melanoma is projected to make up a massive 10.2% of all cancer diagnoses in Australia for 2015** and to underscore its seriousness, an expected 1,160 males and 515 females will die from it in 2015**.

Why is it so prevalent here?

The sunny climate is certainly a starting point, but genetic and lifestyle factors compound the risks considerably. The simple fact is that Melanoma risk increases with exposure to UV radiation. That means excessive exposure to the sun that causes sunburn, will impact on your chances of contracting it – particularly if the exposure is while you are young.

The high proportion of people with fair skin, freckles, light eye colour and light or red hair also affects the high incidence rate. A first degree relative who has had melanoma will also increase your risk of contracting it.

Easy ways to reduce the risks

Despite the increased awareness of the risk factors, almost 14% of adults, 24% of teenagers and 8% of children are sunburnt on an average summer weekend***. This highlights the need to follow the well-known prevention routine; slip on a shirt, slop on some sunscreen and slap on a hat. This is still the best primary defence and has now been supplemented with further advice to ‘seek some shade’ and ‘slide on some sunglasses’.

Early diagnosis makes a big difference

Even the most sun-safe person still needs to be aware of the early warning signs of a melanoma. Checking yourself regularly for the appearance of a new spot, or a change in an existing freckle or mole is the start, but you also need to be checked professionally on a regular basis too, either by your GP, a Skin Cancer Clinic or a Dermatologist.

An excellent reference for self-checking can be found in the ‘Preventing Melanoma‘ section of the Melanoma Institute of Australia website.

Good news on treatment and survival

A five stage rating system is used to define the extent and development of the cancer and treatment options vary depending on the stage the cancer has reached. This may be limited to surgery and excision if it is detected in early stage, but may also include radiotherapy, chemotherapy and drug treatments if it is more advanced.

It’s a relief to know that of those suffering skin cancers in Australia, 90% have a chance of surviving for 5 years** and complete cure is possible, but success relies heavily on early detection and hence the need for regular check-ups.

Being prepared to fight the disease

Having the financial resources to obtain the best treatment and to adjust your lifestyle and work situation is an important part of facing diseases such as melanoma. A well-planned personal risk management strategy should include insurance protection that pays you a lump sum benefit for specific trauma conditions, such as Early Stage Melanoma.

Trauma insurance is an ideal way to help fight the financial impacts of cancer because it pays a lump sum benefit, which you can use to pay off debts, supplement your income protection, fund a sabbatical, or any other purpose you choose.

Your adviser can help you to plan your risk protection strategy to give you the financial means to help you focus on getting better.

 

 

melanoma.org.au/understanding-melanoma/

** canceraustralia.gov.au/affected-cancer/cancer-types/melanoma-skin/melanoma-skin-statistics

*** cancer.org.au/about-cancer/types-of-cancer/skin-cancer.html

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Follow these five health essentials

Follow these five health essentials

The gimmicks and fads bombarding us on the web and in the media can become overwhelming, so here is an attempt to get back to basics with five essentials that keep it simple.

Get moving

Our bodies need to simply get in motion to stay healthy. This is especially important if you work in a sedentary job or spend a lot of your recreation time in front of a screen. Make time each day for at least 30 minutes of exercise that gets your heart rate up and muscles engaged. A brisk walk, a stretching routine or some basic floor exercises are things we can all do for fun and for free.

Go to sleep

Sleep is often an underrated factor in mental and physical wellbeing. Aim for a good 8 hours if you want your body to properly recharge. It can help relieve stress, boost creativity and even aid learning ability. Aim for a regular bedtime and limit pre-bedtime exercise, eating and screen time, so that your body can wind down.

Drink up

We naturally lose 2.5 to 3 litres of water every day so it makes sense to put it back. Fluids are essential for many functions including blood flow, waste disposal, joint function and digestion.

Get some rays

Catching some daily sun is important for Vitamin D production, which aids calcium absorption and may even influence other health factors such as blood pressure and our mental disposition. Of course you should always take precautions against the sun’s harmful effects, but avoiding it completely means you may be missing out on important benefits.

Eat well

Rather than looking for wonder diets and super foods, focus on the basics of a healthy diet. Seek a wide variety of food groups, with a predominance of whole grains, high fibre cereals and vegetables, coupled with moderate amount of lean proteins, dairy and fruit.

Form some healthy habits around these five essentials and reap the benefits of better health.

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How to choose a retirement village

How to choose a retirement village

Australia has over 2,200 retirement villages which cater for over 5.7% of the over 65 population. The idea of hassle-free living in a community setting is appealing to many, but how do you go about selecting the village that is right for you?

Retirement villages provide the attraction of combining an independent living space with shared facilities and services. They generally provide a feeling of security, increased opportunity for social contact and access to a variety of lifestyle activities.

If you or someone you care about is considering making the move to a retirement village, there are a range of issues to examine and compare in order to make a sound choice of village to meet your needs. Here are some of the more important ones to keep in mind.

Are you prepared for the change?

If you have been in your current home for some time, making the move can be quite an upheaval. That makes it imperative to give some thorough consideration of how your life will change in a new location. Will access to family and friends be more limited? Will you be able to readily source medical, health and recreation facilities and services that you want and need? How handy is the prospective village to shops and public transport?

Quality of life within the village

You need to be satisfied about the quality of the village’s property, amenities and service. This begins with the physical aspects of the buildings and how conducive the village set up is to a worry free lifestyle. Is there sufficient privacy for your unit/villa? Are common areas well-appointed and appealing? How well kept are the gardens and traffic areas? Are there noise issues coming from main roads or public places, such as clubs and shopping centres?

You also need to look deeper into the ‘vibe’ of the village. A good barometer for this is the happiness and friendliness of the people who live and work there. Talk to staff and other villagers and see how welcome they make you feel. Don’t be afraid to ask direct questions about the best and worst characteristics of living there.

Your quality of life is also impacted by how accommodating the village is to the people and activities that are important to you. Does the village have rules on pets? Does it have adequate provisions for entertaining family and friends who visit? Are there a variety of facilities, such as a library, bar, café, dining room, sporting facilities and social programs?

Understand the financial commitments

It is vital that you get a firm grasp of the financial aspects of living in the village. This should include gaining a complete picture of not just the upfront costs, but the ongoing maintenance fees, upkeep costs that the resident is responsible for and exit fees and capital gain sharing arrangements if you ever decide to leave. Don’t take anything for granted and be upfront in asking for documentation that can be scrutinised by financial and legal professionals. It is unlikely that you will be able to fully understand all the contractual and financial intricacies, so employ some professional assistance to make sure that there are no surprises down the track.

What about the future?

While you may well expect to spend a considerable time residing in the village, eventually there may be health or ageing issues that require a change in living situation. Check what the village offers in terms of medical or emergency support and how it caters for added services, such as cooking, cleaning and laundry. Such services may make a big difference in how practical it is to ‘age in place’. If movement to higher care accommodation becomes necessary, does the village have transition arrangements and what are the costs involved?

We are here to help

If you are considering the possibility of a retirement village, it’s a good idea to consult your adviser to assist with the financial aspects and to help refer you to the appropriate professional.

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Get savvy to save on life cover

Get savvy to save on life insurance

While most people recognise the value of life insurance, no one likes to pay more than absolutely necessary for cover. Fortunately there are ways that you may be able to reduce net costs without compromising on security.

The possibility of a sudden death or disability striking your family is a financial risk that is too great to ignore. Statistics tell us that:

  • In a ten year period, one in five families will be impacted by the death of a parent, a serious accident or illness that renders a parent unable to work*
  • Overall deaths in Australia between ages of 25 and 64 amount to 25,124**
  • On Australia’s roads alone there were 1,156 deaths in 2014***

Simply hoping that “it won’t happen to me” is not really a valid option, when your family’s comfort and security is at stake, but for some there is the challenge to fit the cost of insurance into their budget. The good news is that there may be ways to reduce net cost, using strategies that creatively take advantage of legitimate tax saving opportunities.

How Steve and Georgia lowered the net cost of their life cover

Steve and Georgia and their two young children were a single income family, with Steve earning around $100,000 as a sales manager, while Georgia chose to stay at home to care for the two children.

Conscious of wanting to ensure future security, they arranged their life and disability cover with the help of their adviser. During their discussions the adviser also explained how careful arrangement of their cover ownership could reduce the net cost of cover.

Their cover package included life, TPD, income protection and trauma cover. The adviser suggested that by moving the ownership of the life and TPD components under Steve’s superannuation fund they could achieve substantial tax savings. The trauma cover and income protection cover would remain under personal ownership.

How the Life and TPD tax saving was achieved

The tax savings were achieved by Steve arranging with his employer to salary sacrifice the $1,800 life and TPD insurance premium. This simply involves diverting $1,800 of his pre-tax income into his super, thereby avoiding income tax on that amount. With a 39% marginal tax rate, (including Medicare levy), this resulted in a tax saving of $702.

Without this strategy the $1,800 premium would need to be paid from after-tax income, which at Steve’s tax rate would require $2,950 of gross income – a difference of $1,150.

To achieve further savings, they were also able to increase the amount of salary sacrifice into Steve’s super to then transfer into a super account in Georgia’s name to cover her life and TPD premium as well. Such savings could occur every year and could enable the money saved to go toward their lifestyle or perhaps be diverted into their wealth accumulation plans.

Get savvy on life insurance - savings table

The value of seeking advice

This is just one example of how an adviser can help to increase the efficiency of your financial plan to help you achieve your goals and advance your financial security and growth. While this particular strategy may not be suitable for everyone, it does illustrate how clever use of the available rules can garner substantial savings.

* The Lifewise / NATSEM Underinsurance Report 2010

** Source: ABS, Deaths, Australia, 2013

*** Road Deaths Australia 2014 Statistical Summary, Bureau of Infrastructure, Transport and Regional Economics

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Don’t gamble on financial advice

Don't gamble on financial advice

In an age of information overload and pervasive social media it seems everyone has an opinion they want to share. Being able to discriminate between what is useful and what is fanciful is increasingly important – especially when it comes to financial issues.

A little knowledge can be a dangerous thing

Ever had the temptation to jump on the web whenever you get an unusual pain to try to ‘self-diagnose’ what it might be? Or perhaps you have noticed a new wonder diet on your social media news feed that just happens to contradict the diet you read about last week. A little knowledge can be a dangerous thing and when it comes to the internet a lot of discretion needs to be applied to the relentless clamour of opinion and advice from sometimes dubious sources.

Of course having the ability to access information and do research at the touch of a button can be extremely useful. The internet has empowered us through the democratisation of information, but while the benefits are undeniable, there is also a danger of ill-informed opinions and vested  commercial interests being mistaken for well-considered and independent advice. This is particularly important to recognise when it comes to something as critical as your financial wellbeing.

Be careful who you listen to

The internet is not the only place where you may find questionable financial advice. Many of us have friends or family who feel compelled to give their heartfelt opinions on investment ideas. We open the newspaper and we are assaulted with exaggerated commentary about markets being a “blood bath” or in “free fall”. Then there is the hysterical reporting on the property market.

The bottom line is that advice on critical areas of our lives should always be taken from professionals. If you have an illness you see a doctor. If you have a legal problem you talk to a lawyer. For your financial future it is always best to use a professional planner who can give you advice that is independent, well researched, takes into account your priorities and goals and provides a sober long-term view of what is right for your situation.

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Market update: Spring 2015

Market update - Spring 2015

Cash

The Reserve Bank of Australia (RBA) cut the official interest rate over the past quarter to a historical low of 2.0%. If economic and financial conditions deteriorate in the coming months the RBA may make further cuts to stimulate economic growth, although market expectations are that rates will remain unchanged for sometime.

Australian and international bonds

Australian and international bond yields have risen in recent months primarily due to the market unrealistically pushing yields down to levels that did not adequately reflect the risks. The rising yields have resulted in bond values falling, as bond yields and price move in opposite directions.

Australian equities

The Australian share market has had a good run and now seems to be taking a breather. With expectations that economic growth will remain fairly subdued into 2016, it is unlikely that company earning growth will be strong for sometime. Therefore whilst the recent falls in the market have made valuations more attractive, investors will continue to need to be selective.

International equities

In recent weeks, developed equity markets have become more volatile in response to the Greek debt crisis and valuations in some markets that already appeared stretched (particularly in the US market). However we remain confident that opportunities remain, particularly in non-US markets including Europe and Japan, where valuations are not as extended.

Furthermore for Australian investors the prospect of further depreciation in the Australian dollar means unhedged international equities are likely to continue to see a boost to returns.

Emerging markets

In the past few weeks, we have witness a dramatic fall in one class of shares in the Chinese share market. This class of shares is largely open to, and traded by, Chinese retail investors, and therefore has little direct impact on Australian investors. We continue to find selective opportunities exist in these markets, especially given valuations remain cheap when compared to share markets in the developed world.

Infrastructure

Listed infrastructure has followed many equity markets down in recent months but has delivered solid returns over the past year. The fundamentals of this sector-solid predictable companies with cash generative business models make it a preferred investment option for those investors with a longer term investment horizon.

Listed property

This sector has been one of the strongest performers over the last year. In more recent months performance has slipped a little. The sector remains underpinned by solid asset backing.

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Reverse parenting: When is the right time?

Reverse parenting: When is the right time?

There are often signs that an ageing parent is having challenges with day-to-day life. Sometimes, through pride and because they don’t want to be a burden, they will try to minimise these issues.

Most people want to stay in their own homes for as long as possible. They may want control over what type of help will be put in place or be concerned that they will be pressured to move into a care facility. It’s best to talk with your parents long before the signs start to show, so that they are part of the decision process rather than on the outer.

Some of the signs that your parent may need help include;

  • Problems walking and frequent falls
  • Poor judgment or forgetfulness, such as leaving the stove on, or leaving the house unlocked
  • Disinterest in personal grooming and infrequent bathing
  • Difficulty preparing meals, lack of interest in food
  • Mishandling finances, bills left unpaid
  • Problems managing medications and scripts
  • Difficulty getting to social events
  • Increased confusion or memory loss
  • They seem lonely or sad

You will need time to do research

When making your choice of living arrangements, it’s important to know what services are provided and which are not. Assisted living facilities generally provide private living quarters and 24-hour staffing to help residents with basic services such as administering medications and meals. They do not provide skilled nursing services; however, nursing homes do.

The cost of power bills, food and social activities may also not be included on some accommodation options. You need time to find the service most suited to your parents’ needs.

Finally, the issue of cost needs to be addressed. While this is the last thing you want to be worried about, the reality is you need to know how your choice will affect you and your parents financially.

Our financial advisers can provide comprehensive cash flow analysis based on possible accommodation fees, living costs, tax implications and the financial treatment of the family home. You will quickly know what you can afford and, importantly, the impact on your financial situation after the move into aged care.

If you think it’s time to consider these options, please talk to us.

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Hobbies can help you heal

Hobbies can help you heal

Coping with life’s stresses can often benefit from keeping the mind active and creative and many people are now finding that taking up a hobby can be therapeutic.

In days gone by pursuits such as sewing and woodwork were more of a necessity than a pastime, but did they make people happier? These days computers and TV’s take up our leisure time and offer a lot less in terms of healthy mental activity.

Engaging in a hobby can therefore help restore some balance.

Does it make a difference?

A study quoted in the Journal of the American Medical Association looked at a group of 30 women who regularly engaged in sewing. By testing key indicators, such as blood pressure, heart rate and skin temperature before and after various leisure activities, it turns out that sewing produced distinct improvements. This contrasted with more negative stress responses when they switched to other activities, such as playing cards or video games.

It seems that hobbies can produce a relaxation response that brings a sense of mental and physical wellbeing. Employing the creative side of our minds and concentrating on a skilled task can refocus our thoughts into the present, rather than dwelling on past events and experiences that cause us anxiety.

A welcome break from a hectic lifestyle

Hobbies are sometimes typecast as being a waste of valuable time or an indulgent obsession. Perhaps it is time to take a fresh look at how they can refresh the mind and the spirit – especially when we are re-adjusting to life after a personal loss or unexpected change of circumstances.

The challenge is to make the time and space that can be allocated specifically toward a hobby as a valuable and restorative practice. Perhaps a positive first step is to take a course or join a club to gain motivation and meet like-minded people. Making the effort may well be the catalyst to greater fulfilment and enjoyment of life.

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Ensuring financial freedom if major disability strikes

Ensuring financial freedom if major disability strikes

Believe it or not, premature death may not be the worst that can happen to your family financially. A permanent medical condition that stops you from ever earning income again can result in even greater financial challenges. Fortunately, there is an answer.

Most people have at least a rough idea of the financial impact that the death of a breadwinner may cause. Mortgage, living expenses and education costs have to be provided for. Similarly, many are conscious of the need to replace income if they take extended time off work due to an operation or an unexpected illness.

But what if something more permanent happens? Something that prevents you from ever earning income again, but leaves you with a relatively normal life expectancy.

Such a condition may actually cause even greater financial burdens than death, because of the additional expenses related to the sickness or injury that are on top of the debt and income needs that you need to provide for.

Injuries such as paraplegia or a major head trauma, or sicknesses such as cancer or depression, can result in permanent disability and permanent income loss and can incur surprisingly high additional costs for treatment and adapting of your lifestyle and living situation.

Let’s take a closer look at what this might entail and what you can do about it.

Getting the basics taken care of

The first priority is to relieve yourself of the financial worry of a mortgage and other debts and provide an ongoing income to cover basic living costs that you and your family need for at least a reasonably comfortable lifestyle.

Medical treatment

Many medical conditions require a range of ongoing tests to be carried out well into the future. Operations may be required and medications can also be a significant extra cost. Then there may a desire to pursue alternative therapies or more advanced treatment options in other countries, which are beyond the scope of health insurance alone.

Adapting your home to your needs

Your lifestyle may benefit from renovations and specialised provisions around the home to make life more comfortable and convenient. This can include ramps, bathroom and kitchen customisation and door widening – all of which can incur substantial costs.

Gear and gadgets

Specialised gear, such as wheelchairs, lifting machinery, exercise equipment and automation of doors and appliances, can make life a whole lot more liveable for certain medical conditions. There may also be an opportunity for medical equipment to be brought into the home, instead of relying on external services and institutions.

Rehabilitation expenses

Physiotherapy, occupational therapy and other specialised assistance for rehabilitation can be an ongoing and necessary aspect of living with disability and can improve quality of life.

In-home assistance

You may wish to (or need to) employ in-home nursing care and other domestic help around the home to relieve stress on family.

Transport costs

Specialised transport may be needed to ensure you have as much freedom of movement as you want.

The best way to fund these costs

The staggering costs that these factors can incur are generally not covered by health insurance or Medicare and cannot be funded out of your income protection. Life insurance is designed to pay in the event of death or terminal illness, so it is of no use if your life expectancy is still relatively normal and advancements in modern medicine are improving survival rates all the time.

The best solution to funding these costs is with purpose built insurance that pays a lump sum benefit, which you are free to spend as you please. That is exactly what total and permanent disability insurance is. It gives you the freedom and independence to make the most of life, no matter what the circumstances.

Plan your risk protection professionally

Your adviser can show you how a comprehensive total and permanent disability plan can fit into your risk protection strategy in the most economical way, so don’t hesitate to discuss your concerns.

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The hidden dangers of an unplanned estate

The hidden dangers of an unplanned estate

While most of us are aware of the importance of making a Will, there are other estate issues that may not be so obvious and can have dramatic consequences on family security. It’s not just for the wealthy – all families need to plan for financial, legal, medical and child care decision making to ensure their wishes are carried out accurately.

Estate planning may sound a little intimidating or irrelevant, but this umbrella term covers a range of essential financial and legal arrangements that any individual can and should make for the proper care of what they own and the people they love. It is integral to your future planning if you want future situations handled with minimal impact on family and in alignment to your wishes.

Your will is a starting point

Even with modest assets and property, there can be severe delays, disputes and upheaval if you were to suddenly pass away without a Will. A Will clearly specifies what you want to happen and who you want to benefit if you are no longer around. The absence of a Will leaves your family in the hands of an appointed administrator who may make decisions that are not consistent with your wishes and may result in unnecessary delays and costs in estate distribution.

Once in place, it is essential that it is reviewed periodically to make sure it adapts to your changing circumstances.

How will medical decisions be made?

The reality of medical and health issues impairing decision making is a critical issue to deal with in an estate plan. A sudden accident can leave your family with massive decisions to make about treatment, accommodation and assets, so it is essential that they have some formal reference point to avoid undue stress.

It is not just the elderly who need to plan for this situation. Serious and chronic medical conditions can occur at any age and can dramatically and permanently affect your ability to manage your own health decisions or financial affairs.

Fortunately, there are ways to cope with this eventuality and relieve stress on your loved ones. An Enduring Power of Attorney gives a legal basis for passing your decision making authority to someone you trust if you are unable to make decisions for yourself on legal and financial matters.

Enduring Guardianship can also delegate your authority to someone you trust for making critical decisions on issues such as medical treatment and nursing home care, if you are not able to yourself. These tools are there for your benefit and to help you ensure your wishes are carried out effectively and responsibly to your satisfaction.

Providing for the care of children

No one would ever knowingly compromise the welfare of their children, but we can unwittingly leave things up in the air if we don’t make formal plans to set out our wishes. An Enduring Guardianship lets you specify who you want to care for your children if you suddenly die or suffer a medical event that prevents you from providing care for them.

It is a simple step to take, but can make a huge difference to their future and the peace of mind that comes from knowing your children will be well looked after is well worth it.

Failing to attend to this valuable provision for their future may leave them exposed to the judgements of external authorities and may leave your family with the prospect of applying to a government tribunal in order to allocate guardianship responsibilities.

Ask for help to secure the future

Your adviser can be a valuable facilitator on these issues. They can refer and consult with other professionals to make sure your situation is well managed and your beneficiaries are left with security.

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How to decide where to invest

How do you decide where to invest?

There are a number of things to consider when you are deciding where to invest – whether it be property, shares, cash or something else.

Troy explains the basics including goals, diversification, asset classes, cash flow and capital growth.

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Market update: Winter 2015

Market Update Winter 2015

Cash

Following the Reserve Bank of Australia (RBA) decision to cut the official interest rate to 2.25% in February, they did so again in May to a record low of 2%. Financial markets, however, are expecting additional rate cuts in the coming months. The only question appears to be how far the RBA will cut further in this cycle, given the current rate is at a historical low.

Australian and international bonds

Australian bonds delivered strong returns in the past 3 months. With interest rates currently at very low levels, it would seem likely that future returns to this sector will be lower. A weak Australian economy would be the best environment for further gains in bonds. A strong US recovery by contrast would probably see bonds struggle.

Australian equities

The Australian equity market performed strongly in January and February this year as interest rates were cut. However the market has drifted throughout March and closed a little lower by the end of the month. With Australian corporate earnings and profitability remaining subdued, valuations are becoming less attractive.

International equities

Developed equity markets performed strongly early in the year supported by US economic strength, lower oil prices and continued central bank stimulus. However, the recent rise in prices has resulted in a further ratcheting up of already stretched valuations, especially in the US. We therefore believe that greater opportunities exist in non US developed markets particularly in Europe and Japan.

Furthermore, for Australian investors the prospect of further depreciation in the Australian dollar means unhedged international equities are likely to continue to see a boost to returns.

Emerging markets

Overall the valuations in emerging market (EM) equities look cheap when compared to share markets in the developed world. Emerging markets can no longer be treated as a monolithic block in our view. There are good reasons why some EMs appear cheap, with some economies facing significant challenges. Others, in contrast, appear to offer some good opportunities.

Infrastructure

Listed infrastructure did well over the quarter and has outperformed the broader market over the full year. Investors have sought out these solid predictable companies with cash generative business models.

Listed property

Property topped the performance tables for the quarter, and indeed for the year. The primary driver of this remains the global
search for yield. How much further this can carry the sector, however, is becoming increasingly questionable. The yield-driven demand for the sector may yet carry prices higher but a repeat of this year’s spectacular returns looks unlikely.

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Why is goal setting so important?

Why is goal setting so important?

Goal setting helps motivate us to make decisions and take action to achieve the things we want out of life, including financial independence.

Watch Troy explain why goal setting is so important.

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End of financial year tips

End of financial year tips

Tax time is upon us once more and as our thoughts turn to getting our paperwork in order, it makes a lot of sense to review some of your other financial affairs for the year ahead too. Here’s a quick checklist to get you started.

Refresh your goals

Goals are what drives any financial plan, so it is important to review them annually. Consider short term goals, such as holidays, as well as longer term aspirations, such as retirement. Make them as specific as possible to stimulate action.

Your financial blueprint

The success of any venture requires a plan and your financial wellbeing is no exception. Speak to your adviser if you feel there are gaps in your planning or circumstances change. Planning is the real “secret” to wealth creation and financial security.

Get a grip on credit

Loans and credit cards can undermine your plans and your motivation, so make this coming financial year the one where you take back the initiative. It can’t always be fixed overnight and there is no need to set unrealistic targets, but big inroads can be made if you get organised, target debts with higher interest first, consolidate where possible and follow a deliberate monthly strategy to get back in control.

Super season

Are you maximising your super opportunities? The self-employed should be looking to maximise tax deductions before 30 June and employees should consider the tax benefits of salary sacrificing into super if not already doing so.

Personal insurance tax savings

Your life, disability and income protection insurance plans may hold tax opportunities too, such as pre-paying annual premiums on income protection before June 30 or moving some insurances into your super.

Plan for your tax refund

It’s easy to look at your tax refund as a chance to spoil yourself, but why not plan ahead now to direct it toward your financial goals instead?

Use tax time as a catalyst for improving your financial health and talk to your adviser about how they can help.

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6 steps for setting and achieving goals

6 steps for setting and achieving goals

Goal setting is a really important part of achieving the things in life you want to achieve.

It may seem like a simple thing to do, and there are many different techniques out there.

Today, I thought I’d share my method. It’s simple, fast and helps me focus on the things that are most important.

1. Clear my mind

I start by clearing my mind of all the other things that might be going on at the moment.

You could do that by exercising, going for a walk, meditating, or simply just closing the door and committing to focus on the task at hand.

2. Brainstorm

I then get all those things I want to achieve out of my head and on to paper. I write like a mad man and don’t do much filtering at this point.

I challenge myself to get to 100 goals, to help me think big and broad.

3. Categorise

For each of the goals, I then put a letter next to each to help me categorise them:

  • [P] for personal
  • [L] for lifestyle
  • [F] for financial
  • [B] for business (you might use [C] for “career”)
  • [T] for toys

4. Decide the top three

Then, from each of the categories, I decide my top three. That means choosing my top three personal goals, my top three lifestyle goals, my top three financial goals, and so on.

5. Get specific

For each goal, I then start to flesh out all the details:

  • Get super specific e.g. Rather than “renovate house”, I will break it down into something like, “upgrade outdoor entertaining area with new timber furniture”
  • Put a timeframe around each goal e.g. by 1 September 2015
  • Decide on a dollar value for each goal (if applicable) e.g. $3,000
  • Get clear about why the goal is important e.g. so we can enjoy long lunches with our family and friends, outdoors over summer

6. Work out the “how”

This is where I start delving into exactly how I’m going to achieve each goal.

I often find I need to work backwards a little.

For example, say you have a goal to renovate your kitchen, and you’ll need $20,000 to do that. You could reduce your spending, increase your savings or increase your income (or all three).

You might decide that to achieve that savings amount, as well as other career goals, doing some additional study might be a way to secure a higher paying role e.g. increase your salary from $60,000 to $80,000. And that extra study and increased income, will ultimately help get that new kitchen.

I also have a one year planner, that breaks down the action steps for each of my top three goals for the next three months, each week and each day.

Taking action and making progress every day is pretty powerful. But it can be both motivating and sometimes pretty frustrating. Let’s face it; it’s pretty hard to achieve everything you want, all of the time.

However those daily and weekly actions do have an impact. And you will find that hitting those medium term goals, is likely to happen if you’re consistent with your regular actions. Sometimes things may take a bit longer than you planned, but you’ll get there in the end.

Have you downloaded your free goal setting worksheet?

Take the first step towards achieving your dreams and get your free Goals Journal.
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It’s not about what you earn

It's not about what you earn

I’ve had many people say to me, they think they can’t go to see a financial adviser because they don’t have $100,000 or more to invest.

My opinion is that you have to start somewhere.

We have clients who earn a lot, and we have clients who earn only a little. And what we often find is that it is the clients who earn less, that do a whole lot better.

“It’s not about what you earn. It’s what you do with what you earn, that matters.”

If you have a disciplined approach to money and a smart structure around how you manage your cash flow, what you earn doesn’t matter so much.

If you’re earning $500,000 a year, but spending $600,000, then you clearly aren’t going to be moving forward in terms of achieving your financial goals and accumulating wealth.

That’s why, right from the outset, it is vital to understand your spending habits – what’s coming in (gross income) and what’s going out (spending).

Beyond that simple rule of thumb, to spend less than what you earn, there are other things to consider that will have an impact on your wealth, regardless of your income:

  1. legally minimising your tax
  2. reducing your debt sooner so you pay less interest
  3. maintaining a comfortable lifestyle

We call those three things – tax, debt, and lifestyle – the “three way struggle”.

And that’s where what you do with what you earn, is important.

It starts with the basics of ensuring you live within your means. Then, you can create leverage through managing your cash flow more effectively.

Part of this simple strategy is to increase your level of net income, by legally reducing the level of tax you pay.

Your net expenditure is also important, because if you can widen the gap between what you spend and what you earn, then you create a surplus (big or small).

Then, you can use those extra funds to reduce your debt and accumulate assets (which can also produce additional passive income).

For example, if you’re paying $12,000 tax per year, and you can legally reduce that to $10,000 tax per year, then you can invest or pay down debt (maybe both) with the $2,000 difference.

While the numbers may seem small, when you repeat that over many years, it can make a big impact on reaching your financial goals.

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Gramping gets families together

Gramping gets families together

The pace of modern life is making it increasingly difficult for all generations within families to get together to enjoy each other’s company. One idea that many families are finding as the answer to this issue is to go ‘gramping’.

Gramping simply involves having the three generations in a family going off to a camping location where they can rekindle family relationships and enjoy each other’s company in a relaxed and fun environment. It can also be a great way to reduce or share the cost of a holiday if the budget is tight.

Benefits for all generations

Camping holidays have the intrinsic attraction of getting back to nature that appeals to all ages. Many parents are seeing it as a novel way of getting their children back into meaningful contact with elder members of the family. It’s perhaps the shared experience of camping that helps to fuel interaction and a simple desire to have fun together: – whether it is cooking and chatting around an open fire, pitching in together to share camp chores or enjoying an all-in game of cricket or volleyball.

Kids love the adventurous aspect of it, while their parents can enjoy the benefit of having some extra child-minding around. For grandparents, it’s a chance to strengthen connections with both generations, which may have been hindered by the distraction and isolation of technology and the busyness of the workaday world.

An easy, low-cost holiday option

Apart from the social benefits, gramping offers the advantage of being generally a lower cost holiday compared to staying in hotels or resorts. Amusement is based on family games and the attractions of the natural environment, rather than pricey theme parks or other tourist attractions. The novelty of camp cooking makes meals cheaper too.

Many holiday parks offer comfortable cabins for those less inclined to sleep in a tent, so gramping is still an option for family members who are not so mobile. It’s a great way for extended families to reconnect.

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The health and wealth connection

The health and wealth connection

Sport and fitness has always been a big part of my life. Whether it’s training for triathlons, competing in road cycling races, or just having a hit of tennis with the kids, it’s something that I contribute consistent effort to.

Over the years, I’ve noticed some similarities between staying healthy and living a wealthy (whatever that means to you) life.

Expertise

I do a lot of my own cycling training, but when there is a bigger goal I’m focused on I get a coach involved. He helps me develop a more disciplined regime, gives me a daily training schedule, and determines the results he expects me to achieve each week.

Having an expert, who can look at things through a different set of eyes, and set out a plan and structure for me, allows me to just put my head down and do the work only I can do – the hours in the saddle. I don’t have to think about it. I just have to do it.

It is the same with creating a financial plan. When you have someone more experienced than you, help put together a plan with clear outcomes, and create some structure around the process, all you have to focus on is playing your part in making it happen.

Organisation

I got frustrated this week because my office was messy. I’m normally a very organised person, so it was interfering with my ability to focus. So I took some time, threw away a bunch of paperwork I didn’t need and instantly felt more in control and able to concentrate on more important things.

With my training, if I don’t have training times planned and organised around my family and work, it’s much harder to make happen. A little bit of planning goes a long way.

With my finances, everything’s organised too. There are systems in place and all the paperwork’s in one spot, so it doesn’t distract me. Instead, it empowers me and helps me make smarter decisions.

Momentum

When you start hitting goals with your health – weight loss, a distance run or a personal best – you start to pick up momentum. When you achieve things it gives you confidence and pushes you a little bit further the next day.

When you start to hit financial goals – a savings target, a debt paid off, or an investment made – you also build momentum and motivation. And that helps move you towards reaching the next target.

Of course, when you lose momentum, it can sometimes be hard to pick back up again. And that’s where a coach, for health or wealth, can help get you back on track.

Accountability

With my cycling, I have both a team I’m part of and an individual coach, and they both help me achieve my goals. I find having accountability to someone that respects me, won’t be negative towards what I’m trying to achieve, and truly supports my goals, is essential to my success.

For your wealth, your team might be your spouse and family, or it might also be your financial planner.

The key is to find someone to help keep you accountable, and you’ll find sticking to your plan gets a whole lot easier.

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Adapt your super to respond to changes

Adapt your super strategy to respond to changes

The evolution of the superannuation and social security systems continues to take twists and turns that can throw up challenges for your retirement planning, but can also present opportunities to boost your retirement savings position.

Some recent changes, in particular, are worth noting, while some existing opportunities may also be well worth revisiting, so that you can take full advantage of the tax savings available. Topping up your super may well be a worthwhile option for you.

Changes to the Superannuation Guarantee regime

Last year, the Superannuation Guarantee rate increased to 9.5%, which is a welcome addition toward the retirement nest egg of many employees. The government, however, has decided to slow the further progress of SG contributions and the next projected increase in the rate has been postponed until 2021.

What does this mean for your situation if you are an employee?

SG contributions form an important basis for retirement savings, but it is unlikely that they will be enough on their own to fund the kind of retirement lifestyle that you desire. The delay in SG increases makes it even more vital to re-think how much you are contributing voluntarily so that you are not caught short at retirement.

Change to age pension qualification age

Future age pension eligibility has also been tightened up and may require a revision of your planning – especially if you have a desire to retire early.

The previous government’s intention was for age pension eligibility to be lifted to age 67 by 2023, but recent announcements indicate that the eligibility age will now be lifted to 70 by the year 2035.

Those born prior to July 1952 will dodge this bullet, but once this proposal becomes legislation, 70 will become the new age pension age for anyone born after 1965.

Can you benefit from a lift in contribution caps?

Those who are seeking to top up their super may benefit from an upward change recently made to the concessional limits for before-tax contributions for the 2014/15 financial year. You can now make a concessional contribution of:

  • up to $30,000 a year if you are under 50, or
  • $35,000 if you turn 50 during this tax year or if you are older.

The change applies to a range of contribution types, including super guarantee contributions, contributions made via salary sacrifice and other contributions on which you are eligible to claim a tax deduction or reduce your taxable income.

Don’t forget existing incentives?

Of course there are a range of other incentives that can boost your retirement nest egg with help from the government. These longstanding inducements are there for the taking, so it is important to check what you may be eligible for. For those earning less than $49,488 a year, the government will chip in an extra tax free super contribution of up to $500 as an incentive for you to make your own after-tax contribution to your super.

Another incentive is available to those who have a non-working or low-income spouse. By simply making a contribution on their behalf, you may qualify for an 18% tax offset on contributions of up to $3,000. That’s a potential tax benefit of up to $540. Even if they earn up to $13,800 they may still qualify for some level of support from this tax offset.

Of course there are the usual tax concessions open to those who make voluntary contributions. For the self-employed, they can take advantage of deductibility on personal contributions, while employees can gain a tax benefit from making salary sacrifice contributions by arrangement with their employers.

Talk to your adviser if you have concern over whether your retirement savings are sufficient to fund your retirement lifestyle, or if you want to top up your super to maximise the benefit of the incentives that may be available to you.

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Ask Troy: What do you want to know?

Ask Troy: What do you want to know?

We want to hear from you.

What questions do you want answered? What topics do you want to learn about?

We want to help you, your family and friends.

Please send an email to reception@collinsfinancialgroup.com.au to let us know. Want to be anonymous? Why not leave a sneaky voicemail when our office is closed – 1300 850 531.

Go on. Ask away!

And we’ll do our best to answer your questions.

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What is trauma insurance and why should I have it?

What is trauma insurance and why should I have it?

A serious illness can make it difficult or impossible for you to continue to work. If something were to go wrong and you weren’t able to work for an extended period of time, you would probably need to find a way to support yourself and your family financially. Trauma cover can provide a financial safety net for such events.

Trauma insurance is a type of life insurance that pays a lump-sum payment in the event that you are diagnosed with a specified illness including things like cancer, heart attack, stroke etc. Trauma insurance is designed to give you money when you need it most to cover things like:

  • Any private medical costs above your health insurance
  • An income stream if you stop working (This can be provided for through income protection but generally only up to 75% of your income)
  • The ongoing cost of any therapy and special transport costs
  • Adjustments to housing and lifestyle changes
  • Debt repayments

It is the most expensive life insurance product, however it is also the one that is most claimed upon!  If you were to suffer from cancer and were to be off work for a couple of years due to treatment your life insurance would not pay out and your TPD insurance would not pay out because you will return to work one day. However, your trauma insurance would give you that lump sum payment to ease the financial pressures of not working.

Collins Financial Group can assist with personal life insurance to protect your income in the event of death, injury or illness.  To find out whether you have appropriate and accurate cover, why not schedule a meeting with Troy now?

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Planning around life’s key milestones

Planning around life's key milestones

Life’s journey can sometimes be a roller coaster and all of us will have a unique variety of experiences, but there are some key events that will happen to most of us and these can be important markers for planning our financial security.

Life is punctuated with events that can involve changes in lifestyle, relationships, opportunities and commitments. These are often celebrated occasions that bring positive changes, but they also have profound implications for our financial situation that need to be accounted for in our insurance planning.

Let’s take a closer look at what some of these key events are and how your financial plan may need to respond.

Tying the knot

Transitioning from single life to being a couple is one of the most dramatic lifestyle shifts we could ever make. The freedom and independence of the single life is now transformed into a dependent union, where you share your living space, your time and your finances.

You now have responsibilities to each other that may need protecting with insurance cover, so that there are no financial problems if something untoward were to happen to either of you. This may involve some life insurance and TPD insurance, as well as arranging for you both to have income protection if you are both working.

A place to call home

Not long after marriage (and sometimes before it), you will likely join the many who take on the major commitment of putting down some roots in your own patch of real estate. There is a lot of appeal in the sense of achievement this can bring, but it also flags a major financial commitment that you are not likely to want to give up in a hurry.

Life insurance is therefore a major consideration when you make such a major life change, with the objective of enabling either partner being able to pay out the full mortgage amount, if the worst was to happen. Income protection supplemented with trauma insurance may also need to be reviewed to cover any increase in monthly outgoings and to avoid having to give up this major asset if sickness or accident occurs.

The patter of little feet

No other life event carries with it the same level of responsibility as the birth of a child. In one instant, you are both taking on the mantles of provider and protector for a new and very dependent life. A future of nurturing, providing and caring is now mapped out ahead of you for many years.

The massive responsibility that this new addition brings, makes it essential to review cover so that funds are available to create an ongoing income stream if one partner were to suddenly be taken out of the picture, thereby allowing the surviving partner to focus on raising the child without the worry of needing to work.

This applies to both partners, regardless of whether they are working or in a stay at home situation. Extra funds may also need to be included in insurance planning to cover large one off costs like education or vehicle replacement. Each new child that comes along will of course increase the level of cover needed.

You’ve got the job

Career mobility is a much greater issue than it was in days gone by. Several job changes over your lifetime are now the norm and each change may represent a step up in responsibility and an increase in income. This normally also results in an increase in expenditure and an improvement in lifestyle.

This may well leave you in a situation where there is a dangerous disparity between your income and your income protection cover, so it is vital to take the opportunity to review cover in order to maintain your financial independence if sickness or accident puts a temporary or permanent stop on your income earning ability.

If you have had a major life event recently, talk to your adviser about keeping your cover up to date.

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The hardest but most important thing to do, is stick to the plan

The hardest but most important thing to do is stick to the plan

There’s a saying that I really like. It goes:

“It’s not about what you earn, it’s what you do with what you earn, that matters.”

The truth is that you don’t need to be a high-income earner to be in control of and growing your money. Regardless of how much you earn, if you have a plan and stick to it, you can be pretty confident you’ll see some success.

Let me tell you about a couple I have known for many years, and what they did to take control, that ultimately gave them the choice of whether they wanted to continue to work, or not.

I met this couple about 15 years ago. They were referred to me by a client who encouraged them to come and talk to me. They were both successful professionals and had a great lifestyle. But they weren’t really making any headway on paying down their mortgage or investing for the future.

So we sat down and created a plan.

We created a system for managing their cash flow that included a planned amount to spend, that didn’t force them to live any less than what they had done previously.

We also created some automated flows of money to direct their funds to where it needed to go to help build their wealth for the longer term. This included paying down their mortgage, contributing to their super and investing in shares.

The couple still did things like go on regular holidays, but they were conservative about other purchases like cars and material items. They wanted a good lifestyle and to donate to charities. And they even did renovations on their home.

Every six months they would come to see us and we would review their progress and tweak the plan.

They were amazingly disciplined and followed the system we had put in place. Some years it was a challenge and there were a few bumps in the road, but they would get back on track and do what they needed to do.

“If you deviate from the plan, the likelihood of succeeding is low.” – Troy Collins

They went through the GFC and still kept to the plan. In fact they paid off their mortgage in the middle of the GFC!

About five years out from his planned retirement at age 60, one of the couple didn’t think he could go on for another five years of work. So we sat down, adjusted the plan and he was able to retire in two years instead of five.

Because they stuck to their plan and had built their wealth over a number of years, they were able to make some choices about work, right when they really needed to.

They are both now retired and living very comfortably. Their discipline around their cash flow management and investing has allowed them to now live off passive income.

Accountability to a third party (us) was a big factor in their success. It encouraged and supported their discipline and there was a feeling of shared responsibility.

Ultimately, they made the choice to stop drifting and take action. They took control and have reaped the benefits.

 

Where are you at with your plan? Are you drifting or sticking to it?

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Don’t be afraid of market volatility

Don't be afraid of market volatility

Investing in shares or property can feel a bit nerve-racking sometimes. Especially when you can see valuations change on a daily basis, like with the stock market.

In this video, I give you a few things to consider when markets get volatile.

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What’s the difference between personal exertion income and passive income?

What's the difference between personal exertion income and passive income?

Knowing the difference between personal exertion income (e.g. your salary) and passive income (e.g. investment returns) is vital to achieving financial independence. Once you obtain a sufficient level of passive income for your needs, you will have far more choices available to you – such as whether you want to continue to work or not.

And that’s a pretty good choice to have.

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Design your ideal retirement

Design your ideal retirement

To drive your financial plan for retirement it is vital to firstly do some specific planning about your retirement lifestyle.

The best way to do this is to put financial issues aside for a moment and just focus on lifestyle goals. Start by brainstorming with your spouse on things such as activities, hobbies, socialising and travel.

Then, there are other issues that need to be considered too, such as family connections and whether you want to spend more time with children or grandchildren.

Residence and location is another major factor to be thought through. Will you want to downsize or move to a more recreationally oriented suburb or town? Perhaps you want to live closer to family too. The types of amenities you will want to enjoy are also important, such as clubs, sporting facilities, transport services and health facilities.

Envision a future to drive your finances

It’s only when you have projected your lifestyle desires and choices that you can start to consider the practicalities of how you can structure your finances. Of course there is the daily cost of living to be funded, as well as access to money for discretionary or lifestyle spending.

Then there are also the one off expenses, such as overseas travel, to be considered.

Planning a budget and the timing of ‘big ticket’ items will then feed into how you structure your investments and income streams. Potential age pension entitlements need to be factored into the mix too.

Don’t leave it until it’s too late

The benefit of doing this process in advance is that you can model how well your superannuation and other investments are faring, in relation to how much you will need.

Every person’s situation is different and the complexities of superannuation, investment, debt reduction, social security and taxation makes it important to enlist expert assistance to help manage the situation and map out the future.

Talk to your adviser about how they can help you design your ideal retirement.

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6 ways to help achieve your goals

6 ways to help achieve your goals

If you’re serious about achieving your goals, it’s not just a matter of dreaming big, writing it down and taking the right actions. You also need to know whether what you’re doing every day, is getting you closer to or further from the end game.

Here are six ways that will help give you a better chance of getting there.

1. Remind yourself every day

Each day, take the time to look at your goals. (You have written them down, haven’t you?) It will help remind you of what you are trying to achieve, and get your sub-conscious working for you.

It doesn’t need to take much time. It may just be a few minutes reading through them, or a quick glance at your dream chart.

2. Take a deeper look every week or month

Depending on your goals and how high a priority they are, you’ll need to take a closer look at them each week or month.

Maybe every Sunday you check how well you did with your exercise goal for the week. Or if you’re focused on a savings goal, you might check your savings account balance once a month.

3. Set benchmarks (and monitor them)

When you take a deeper look at your progress, you’ll need to track how you’re going against something. It’s hard to know if you’re progressing otherwise.

So decide upon a benchmark you can measure and monitor.

Say you decide you need to save $100,000 for a 20% home deposit, and you want to achieve that in 4 years. You’ll need to figure out how much you need to save each week or month so you can action and monitor it.

At $25,000 / year, that’s about $2,000 / month or $500 / week. Split that between you and your partner and you know $250 needs to go into your savings account every single week. Make it easy to track and measure your progress.

4. Plan your day to help you get there

It might seem obvious, but if you don’t set up systems and habits to help you achieve your goals, you probably won’t achieve them.

Know where you need to focus on a day to day basis.
– Troy Collins

One of my goals is to get a podium finish in a cycling race in April. Not only have I set my training goals, but I have made sure there is scheduled time in my day (early mornings) to go for training rides, improve my race fitness and make sure I eat the kind of food my body needs.

Don’t assume things will just happen. Plan for them and make them happen.

5. Keep on learning

Making sure you stay inspired and up to date on the latest information can also help you reach your goals…and in some cases, faster.

I read cycling magazines and blogs to make sure I know the latest training techniques. And last year I had a cycling coach who helped with that knowledge and those skills too.

Just remember not to use your time spent learning as a way to procrastinate on taking action.

6. Don’t do it alone

Having the support of others can be a great motivator to help keep you on track. If you find people that you respect, to share your goals and progress with, you might find it makes a whole lot of difference.

I share my goals with my wife, Marilo and the kids. We sit down every Sunday and make sure we all know what everyone else is focused on for the week to come, and plan around those goals.

It might be a particularly heavy week for study or exams. And sometimes there’s a competition coming up that requires a few more hours in the saddle or time spent on the tennis court.

As a family we come together and support each other achieving what’s important to each of us.

 

What strategies do you use to help reach your goals? 

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Living insurance for real lifestyle choices

Living insurance for real lifestyle choices

Personal insurances such as life and total and permanent disability are usually associated with protecting us from those worst case scenarios, such as the death of a loved one. Improvements in survival rates from major illness, are now prompting many to consider the need for ‘living insurance’ offered by trauma cover.

Advances in modern medicine and a greater awareness of healthy lifestyles have seen an ongoing improvement in survival rates from ‘modern day’ illnesses, such as heart disease, cancer and stroke:

  • Of the new cancer diagnoses in the period 2006–10, the chances of surviving for at least 5 years was a surprising 65% for males and 67% for females*.
  • In 2009 63% of people who had a heart attack survived, compared with a 45% survival rate in 1994**.
  • The death rate due to stroke in 1987 was 73.5 per 100,000, but by 2009 the rate more than halved to 32.8 per 100,0002.

Many people who have survived such conditions will go on to lead a normal healthy life with lifestyle adjustments.

What would you want to do after surviving a major illness?

While survival rates are encouraging, it also underlines the need for a greater focus in our financial planning for what life will be like on the other side of a major health scare. If it happened to you, how would you want to change your lifestyle and how could you afford to do it?

Trauma insurance is tailor-made for this situation. Unlike any other form of personal insurance, it pays a lump sum cash amount upon diagnosis of heart attack, stroke, cancer and a host of other major medical conditions. You are free to use it for any purpose you choose, to help recover from the condition and to make major adjustments to your lifestyle.

A lump sum cash benefit to use as you choose

For some, trauma insurance will allow the funding of specialised medical treatment that is beyond the scope of their health insurance and which they otherwise could not afford. For others, it will give them the power to de-stress their lives by paying out major debts, such as a mortgage.

Then, there are those who want to use the funds to change their work situation, such as a move to part time employment, so they can enjoy increased leisure time.

Still others may want to use their cash lump sum to pay for an extended vacation for themselves and their families.

It truly is ‘living insurance’ that can help you transform your life and turn a negative situation into a positive one.

Trauma insurance in action

Geoff is a 45 year old sales manager who is married with 2 children and a mortgage of $150,000. Geoff owned life insurance and income protection, but after a needs analysis his adviser also helped him implement trauma cover of $300,000.

A year later, Geoff was diagnosed with bowel cancer. After surgery followed by a five month period of treatment and recuperation, he was given the all clear and was declared fit to return to work. His income protection paid him 75% of his monthly income during this time, but ceased once he was given the OK to return to work.

With his trauma cover, however, Geoff was also able to:

  • Pay out the $150,000 mortgage
  • Use $75,000 to fund an extra six months leave without pay from his job
  • Take his family on a $25,000 overseas vacation
  • Invest the remaining $50,000 to provide some ongoing ‘lifestyle income’ to enjoy with his family.

Enjoy the best of life, whatever the circumstances

Trauma cover is real lifestyle insurance that lets you control your future with confidence and independence if a major condition strikes.

Talk to your adviser if you want to explore what it can do for you.

 

* Australian Institute of Health and Welfare Website: www.aihw.gov.au/cancer/cancer-in-australia

** Australian Institute of Health and Welfare: Trends in Cardiovascular Disease 2012

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Grey nomads enjoy freedom

Grey nomads enjoy freedom

It’s a growing phenomenon with appeal to those who want to enjoy an active independent retirement. The grey nomads are packing up and heading out on self-contained sojourns to all corners of the country.

With the responsibilities of a family and mortgage no longer keeping them pinned down, those who have planned their finances well are discovering they now have the time and money to escape with a caravan or motorhome and explore the country at their leisure.

Perhaps the attraction lies in the potential of discovering unexpected sights and experiences, knowing that you are free to stop and stay as long as you like. Add to that the appeal of meeting like-minded folk who are sharing the same lifestyle and it is not hard to understand why so many are choosing to spend their retirement this way.

A little planning goes a long way

Of course, it isn’t just a matter of heading off on the spur of the moment. Some wise planning is needed to ensure that your adventure delivers maximum enjoyment.

Discuss with your partner what you both expect from the trip and how you will handle living together at such close quarters. It can be quite intense if you are used to your own space, but on the plus side, it can be a great way to rediscover the joys of your relationship and share new experiences together. Just ensure you also allow time and space for individual pastimes, such as reading, golfing, fishing, bushwalking or photography.

Test the water before diving in

It’s a good idea to perhaps try a shorter trip in a hired motorhome or caravan to iron out any unexpected issues, before you take the plunge into a longer term investment in vehicles and equipment.

Planning your route and researching some key destinations is essential, but it’s equally important to build in flexibility so you can stay longer if a particular location takes your fancy.

Sound appealing? Where would you travel to?

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The power of regular investing

The power of regular investing

Investment markets fluctuate from hour to hour, day to day, month to month and year to year. Sometimes they perform well, the value increases and money is earned. And other times value decreases, often over shorter periods of time, and money is lost.

With all that volatility, one of the things you need to consider when investing is how to smooth out those ups and downs and lower your risk, over the longer term.

Timing the market is a challenging (if not impossible) way to do it. Trying to decide when the market has reached a low, so that you can buy a stock at an attractive price is hard.

In fact it’s a strategy that many believe is nothing more than a bit of an educated hunch. No one can pick the bottom of the market perfectly every time. If you get it wrong, there can be a lot to lose. It’s a gamble.

“It’s a mug’s game to try to pick the right stock at the right time.”
– Troy Collins

Time in the market is more important. As long as you have time available to you, in terms of your investment time horizon, a safer and more secure strategy is to invest a pre-determined amount on a regular basis, regardless of the price.

That means you buy when the market is low, when it is moderate and when it is high.

It’s called dollar cost averaging.

 

The power of regular investing - graph

As markets fluctuate over the short term, by investing on a monthly basis, you’ll end up buying during both the ups and the downs. But over the long term, that rollercoaster averages out.

Say, for example, you have a lump sum of $30,000 to invest. You could invest it all now, or even a significant portion, say $20,000 now. If you time the market (i.e. take an educated guess) correctly, you can make good gains. But it you get it wrong, the losses can be large and could take years to recover from.

Alternatively, if you invest $1,000 / month over the next few years, you are the able to ride out both the highs and lows of the market. Yes, you could miss out on some opportunities, but if you’re after a low-risk strategy, it may be a better option.

Another important part to this strategy is that it creates a system for investment. Once the investment strategy is in place (e.g. equities, property, global, and local) the system just works every single month and you don’t need to think about it.

Then you can focus on managing your cash flow – both from your investment returns and from your remuneration. This is actually the area that can make or break you.

Ultimately, it is the combination of the discipline of regular investing, the growth and income of your portfolio and the discipline of managing cash flow at the backend, that is what gets real results.

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Should I repay my mortgage or should I invest?

Should I repay my mortgage or should I invest?

A common question we get asked at Collins Financial Group, is “Should I repay my mortgage or should I invest”.

The short answer is, “it depends”. But there are a few things to consider before you decide the best option for you. Troy will explain more in this short video.

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Break free from your personal debt drag

Break free from your personal debt drag

In our modern society it seems that it is all too easy to take on debt as a way of getting what we want sooner. When used properly, debt can be a valuable tool for lifestyle and financial planning, but if you feel it is getting out of control here are some tips to help get you back on track.

Plan your budget

Becoming debt free starts with better budgeting. Track your spending to better understand where your money is going and how much you can reasonably redirect toward attacking your debt.

If you are currently only paying the minimum off your debts, you are probably only paying off the interest and not making any headway. By budgeting for regular higher repayments you can start making some real inroads.

Get smart on interest rates

Make sure you are prioritising higher interest, non-tax deductible debts to be paid first, so that you are getting maximum value from your repayment dollars. Once higher rate debts are cleared, you can then focus on lower rate debts.

An even smarter step is to look at consolidating all your higher interest debts into one lower interest debt, such as a low interest rate credit card or a personal loan. That way you will be paying less interest and more of the principal.

Make the most of 0% offers

The fierce competition in the credit card market has resulted in many lenders offering much lower interest rates and sometimes zero rates on balance transfers. While these offers can be worth taking advantage of, avoid getting caught out by making sure you know how long the reduced rate offer applies and what the rate will revert to once the offer period expires.

If you take up such offers, don’t ruin the benefits by using the new card for new spending – it will normally attract a much higher rate than the balance transfer. Pay off the initial transfer first and if you want to eliminate the temptation, don’t be afraid to cut up your card up and throw it away!

Don’t fight the battle alone

If you’re having difficulties repaying your debt, don’t hesitate to speak to your lender. If you’re open and honest with them you will probably find they are willing to review your repayments and look at other solutions to help you manage your debt. You can also speak to your adviser about the best debt reduction strategy to suit your situation.

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Who’s the chief of your family’s finances?

Who's the chief of your family's finances?

I’ve been married to my beautiful wife Marilo for over 20 years. As my childhood sweetheart, we got married young. We started with nothing, and over the years have built a successful business, had three children, built a house, moved several times, and lived a life that’s not uncommon for most Gen Xer’s.

But it hasn’t just happened. We’ve set goals. We’ve worked hard. We’ve made tough decisions – some have worked out and others haven’t. That’s life.

We have, and continue to take an active role in building and nurturing our relationship, our family, our health and our finances. Sometimes, it’s not easy.

But we’ve found that taking on specific roles in our relationship has been really helpful. We know where our strengths and interests are, and we’ve tried to put them to good use.

Let’s look at the financial aspect of our relationship, which, let’s face it, can be a challenging aspect for many couples.

Because of my skills and interests, I take on the role of Chief Financial Officer (CFO). Not just in our business, but in our relationship and family’s finances.

Now being our family’s CFO might sound a bit silly, but I treat that role in our relationship with just as much care and planning as I treat that role in our business.

Why?

Our family and the money we earn, spend and save is a lot like a business. We produce income, we pay tax and we have expenses. We take some risks to get ahead, like borrowing to buy a home and invest, and we always have to be conscious of our cash flow.

As the “directors” of our family, Marilo and I make big decisions together and we get help from experts when we need it. And while I might guide the financial strategy (I am a financial planner after all), she always knows what’s going on and is comfortable with it.

We track and know how we are going on a monthly basis – a bit like a business does with Profit and Loss statements and Cash Flow reports.

There are emotional decisions and there are practical decisions to think about. But we always talk about the things that have a big impact, before we do anything.

And every six months or so, we revisit our family financial plan and review how things are tracking. We discuss what’s working and what’s not. Whether our goals have or haven’t changed, and we refine, improve and enhance the process and strategy so we get closer to the outcomes we’re trying to achieve.

In fact, it’s a lot like what we do here at Collins Financial Group, for both our clients and our business. We act as the expert CFO for our clients’ family finances, helping them work towards achieving goals for themselves and their own families.

So tell me, how seriously do you take your family’s finances? Do you run things like a well-oiled machine and bring in experts when you need to? Or are you more like the business that’s up to its eyeballs in debt and struggling to pay the staff each week?

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Put your money on autopilot: How to structure your bank accounts

Put your money on autopilot - How to structure your bank accounts

Putting in place a sound financial plan is more than just crunching the numbers and looking at different scenarios to help you achieve your financial and lifestyle goals.

One of the most important things you can do is put in place simple processes so you need to think less about your money day to day.

Automating how you manage your money each week, or more specifically, the flow of your money, can help you gain control and minimise the amount of money decisions you need to make each day. Because let’s face it, when we’re busy, stressed, tired, working and raising kids, there’s only so much our minds can handle before the bad decisions start to kick in.

It’s a bit like living a healthy lifestyle. You can set some guidelines for yourself, like only having fruit and nuts for snacks, or limiting take-out to once a fortnight. You can put the basics on autopilot, like getting a weekly fresh produce delivery. And all of a sudden, living healthy becomes much, much easier.

It’s not about restricting yourself, but about setting up systems that make it easy to stick to the plan.

The same thing applies to your money.

So let’s take a look at how someone with a transaction account, mortgage and offset account, might set up an automatic flow of money.

Income

Your wages are paid straight into your mortgage offset account. That helps reduce the interest payments on your home loan.

If you are investing, any dividends or investment income you receive are paid into either the offset account or reinvested. Which strategy is best depends on how investment markets are performing.

For example, if your mortgage repayments are at 5% interest, but the share market is paying 10% returns, then it may be better to invest. However when interest rates rise, it might be time to focus on paying down the mortgage.

Of course, that’s a simple explanation, so make sure you seek advice to make sure all your needs are taken into account when trying to determine the best path for you.

Bills (non-discretionary expenses)

Non-negotiable expenses, such as your mortgage repayments (including interest), car registration, electricity, and water are paid directly from your offset account.

Interest payments from any investment loans, such as a margin loan, are also drawn from the mortgage offset account.

Lifestyle spending (discretionary expenses)

Each week, an agreed amount is automatically transferred from your mortgage offset account into a “working account”. A working account is simply a basic transaction account.

The money in this account is used to pay for your discretionary expenses. These include things like food, clothes, entertainment and dining out. They’re things that typically involve an emotional decision. It’s also one of the areas people often have the most trouble (and temptation) with.

Think of this money as “safe to spend” money. If you don’t spend any more than what’s in your working account, you’re on the right track.

Credit

If you’re tempted by credit cards, we suggest switching to a Visa debit card attached to your working account. That means you can still purchase things online, but you are drawing from your own money, rather than credit.

And if you don’t have a mortgage, just substitute the mortgage offset account, with a high interest bearing cash account.

Remember, it’s all about strategy, actions and structure. All we want you to do is take care of the income and lifestyle spending. The plan, the structure and the systems will do the rest.

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Falling oil prices and the impact on global growth

Falling oil prices and the impact on global growth

There has been significant media attention in recent weeks following a dramatic fall in oil prices. The impact of this fall depends primarily on whether the fall has been due to increasing supply or falling demand.

On this question our research partner, BCA, argues that increasing supply factors; technological advances in shale production and increased supply in some of the OPEC countries has been the primary factor.

Whilst increased supply can have both positive and negative impacts on global growth, the net impact is that it increases global spending. That is, oil consumers tend to react quickly to falling prices by spending more on non-energy goods and services.

The International Monetary Fund (IMF) estimates that the level of global real GDP would rise by 0.5% to 1.3% over a two-year period in response to a supply-induced 20% decline in oil prices, depending on the extent to which lower oil prices boost consumer and business confidence.

So on balance, as long as the lower prices can be sustained, there is likely to be a positive impact on global growth. However we stress that falling oil prices is only one influence on growth and other factors, including central bank action, also play a significant role.

As a result we have not altered our overall view of global growth at this time and thus our model portfolios have not been changed to reflect these developments.

The following chart and diagram illustrate the impact of the falling oil price on both regions and businesses.

Falling oil prices graph

* Information in this article has been drawn from The Bank Credit Analyst, December 2014

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Coping with life’s challenges

Coping with life's challenges

Life may sometimes present us with challenges that test our ability to cope. These challenges may impact our identity or self worth but they can be overcome.

Issues such as relationship upheavals, retirement, children moving into adulthood or leaving the home will emerge now and then to test us. More sudden events may also occur, such as the loss of a spouse or family member, a major illness, or unemployment.

Whatever the cause, there is no denying how difficult it can be to adjust your life and try to move on. It is not always something you can plan for and in most cases, you can’t directly control the circumstances or predict exactly how you will react.

So how will you cope?

Some will naturally cope better than others, but some find themselves in a struggle with anxiety or depression, even if they have previously had a well-adjusted and independent personality. In many cases, coping with such challenges will mean opening yourself up to professional  help and placing reliance on friends and family for support. There are also ways that you can help yourself to push through toward recovery.

One critical issue to address is the loss of self-esteem or sense of purpose. Combating this, may mean adjusting self-expectations and setting smaller goals to rebuild confidence. Even setting simple goals around mundane everyday tasks will help to generate momentum.

Life after trauma

If a major personal loss is the cause of your situation, then seeking new interests, hobbies or connections become vital stimuli to recovery. Try doing a new activity that you have never considered before, such as classes on cooking or fitness, or join an interest-based club such as bushwalking. Volunteering is also a useful way to stay active as well as reinforce your sense of worth and value. Such activities can lead to new relationships as well as fresh unexpected directions in life.

Ask for help

Never be afraid of asking for professional help if things become overwhelming. A willing ear and practical help can be found at:

www.beyondblue.org.au

www.lifeline.org.au

www.blackdoginstitute.org.au

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Small changes can make a big difference

Small changes can make a big difference

I recently heard a story about a man who had a piano that he hadn’t used in a long time.

He sat down to play a song, and after hitting a few keys found it was completely out of tune.

So he called on a piano tuner, who came by his house. The piano tuner made some adjustments here and there, and the piano started to sound like it could once again play a beautiful tune.

When he’d finished, the piano tuner told the gentleman that he would need to come back two or three more times, before it was just right.

“The strings will stretch with use. And as they stretch, the sound will change. They’ll need some readjusting until we get it just right.”

It made me think how similar that is to how we live our lives and how we strive to achieve our goals. We have to continually adjust what we do as the bad habits creep in; to ensure we get closer to our own version of perfect…our goals.

It’s the same for me too. As a business owner, I sometimes fall into bad habits. I attend seminars and sessions with high calibre coaches, because it acts as a constant reminder to me, as to what I should be doing, and helps me take action. Sometimes, it’s about going back to basics.

It’s important to continue to grow; to continue to make small changes. Whether it’s for your health, your career, your finances, or your relationships.

Just like the piano tuner, we have to continually readjust. Over time, small changes can make a big difference.

What small changes are you working on at the moment? And what’s the big difference you hope they’ll make?

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What happens when you start overspending?

What happens when you start overspending?

At Collins Financial Group, one of the things we do when creating a financial plan, is work with you and your partner to determine what is reasonable and appropriate for you, in terms of spending.

Many people hate the idea of a budget, and for most people, strict budgets don’t work.

We believe it’s important to find the right balance between spending on things that are important to you, and ensuring there’s enough money being directed to the places that will help you build wealth, and ultimately achieve your goals.

We like to think of it as cash flow management, rather than a budget.

Small amounts of overspending have a big impact

I was recently talking to a couple, Jenny and Steve*, who are in their early 50s. They earn good incomes, but regularly overspend.

They want to retire in 10 years, but they consistently overspend each week. Each time they do, no matter how small, it takes them a little further away from their retirement goal.

We call lifestyle expenditure “discretionary” spending. It’s the spending that includes things like clothes and dining out.

This is where the challenges were happening.

“If they continue to go down the path they are going down, their retirement at 60 isn’t going to happen” – Troy Collins

To get them back on track, I spoke to them about needing to focus on their longer-term goal – retirement.

Were they a little uncomfortable with the conversation to start with? Yes.

But it was worth it to help them refocus their minds and habits, and get them back on track.

Now many people will just tell you to cut back. However we take a different approach.

We look closely at the weekly spending amount allocated, and the amount that is being spent. We also look at it in the context of the whole financial plan.

In Steve and Jenny’s case, we decided that the figure allocated for them was no longer realistic for their current needs. That was why they were overspending.

So rather than continue to deviate from the plan, spend on credit cards and draw from their loan, we increased the spending budget. Yes, increased!

Of course we also ensured that by doing so, Steve and Jenny were still on track to meet their retirement goals.

In this case, it was a pretty simple adjustment. But if the numbers are a little tighter, it can mean that a little more spending now, may push retirement out a few years. Some people are happy to make that compromise.

Others, however, prefer to rein in their spending, because the retirement goal (and getting there as fast as possible) is more important to them.

Different people want different things. What’s important to each person is different, and what his or her goals are, is different. Understanding the implications of the choices we make, is important.

Now your main goal may not be retirement at the moment. But think about how your cash flow management is impacting on reaching your goals.

Maybe it’s time to adjust your plan.

 

* Names have been changed

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What is share market volatility?

What is share market volatility?

With share market volatility a daily part of news headlines, it’s only natural to be concerned about how the fluctuations might be affecting the value of your investments. It can also be tempting to move your money into less risky investments.

Everyone has heard of the term “market volatility” but what is it exactly?

Market volatility is the term given to the investment market when prices go up and down – this can sometimes be sudden and unexpected. The cause of volatility is anything that could potentially affect company earnings.

The Global Financial Crisis in 2008 is a perfect (albeit extreme) example but it highlights how volatile share prices can be.

When it comes to dealing with the volatility, it is important not to get distracted by short term movements in financial markets – even the good ones.  Instead, it is best to stick to your long term strategy based on your circumstances, risk tolerance, goals and recommendations from your adviser.

In most cases, the longer you stay invested, the more likely it is that you will ride out the highs and lows of market volatility.

Investment markets can and do change overnight. They are affected by other markets, the publication of annual and bi-annual results; political and economic changes around the world – and rumours! But that doesn’t mean you have to change with them.

Here is some information to help you stay focused on what’s important.

Stay calm

Do not rush any investment decision.

Diversify your investments

It’s notoriously difficult to predict what’s going to be the best performing asset class in any given year. Diversifying investments across asset classes allows you to benefit from each year’s best performing asset classes. It can also help you smooth out the volatility of your returns.

Spend time in the market

One of the most powerful features of long-term investing is the ability to benefit from compound returns. By staying invested, as opposed to regularly entering and exiting the market, your investments have more time to grow and earn returns.

Monitor and review your investment strategy

Like most things in life, it’s a good idea to regularly review your financial plan to make sure it is still right for your current financial situation.

Seek professional financial advice

We can help ensure your strategy meets your needs, and even help you update it as your circumstances change. With a clearly defined strategy and goals, you can have the confidence you need to withstand market fluctuations.

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