Financial planners are for old people, right? Well, not really.

The idea of seeing a financial planner, at any age, can be daunting. In fact, just about anything relating to finance is often placed in the “too hard” basket; something to be looked at another day.

It may seem that seeking financial advice is something you only do when you’re older and actually have money but maybe the best time to start is actually now! According to a 2016 study by the Financial Planning Association of Australia, 67% of Gen Y respondents “dream about the future at least a few times a week”. But what are we doing to make our dreams a reality? Are we putting up too many roadblocks by thinking financial planning is not for us?

I sat down with one of our financial advisers here at The Hopkins Group, to see what he had to say about some of the reasons why Gen Y aren’t seeking financial advice and getting a head start on planning their financial futures. As a member of this generation myself, these are some of the common objections I hear my friends make (and some I’ve even been guilty of thinking myself), so I was interested to hear how an expert could counter these arguments.

I don’t have enough money to invest

Well, one of the most crucial parts of being a financial adviser is to work with clients in terms of their budget and their spending; to make sure you are maximizing what you currently have to work with, helping you develop and cultivate more ways to be able to grow that wealth. This can be the money that’s currently in your super or in your personal account.

The earlier you start, the greater compounding effect you will have with your income. So I certainly think it’s important for young people to seek financial advice even though they may feel like they don’t have that much money.

I don’t know anything about finance

That’s one of the reasons why you see a financial adviser – we’re the specialists in that space! It’s our job to be across all of those things for you and help educate you along the way. That way, you’re also getting an understanding of what it takes to grow your wealth.

I’m too young to be thinking about insurance

I think that’s a thought a lot of young people have – that they’re bullet proof. The reality is that bad things happen, even to young people. I have a friend who died on the basketball court from a heart attack at 37 – he suddenly collapsed and couldn’t be revived. So I certainly think if you have a family and loved ones that it’s something worth considering, because if something happened to you then you’d want your family to be looked after.

I’m just going to leave my super with AusSuper/Hostplus etc…

It pays to be informed about what choices you have available. Industry funds are certainly  a huge proportion of Australian’s use but some of the disadvantages of that are the control you have and knowing where your funds are invested.

If you were to see a financial adviser to have them actively manage your super portfolio, then you’re looking at a bit more return, control and knowledge about what’s happening with your super contributions. It is important to make sure you’re selecting appropriate investments so that you are able to outperform those superfunds from an active management point of view.

It’s too expensive to see a financial adviser

The cost for seeking financial advice varies – it is related to the level of advice you’re after and the time spent providing advice. I normally break up my costing into three separate areas. The first would be a statement of advice fee, which involves the cost of preparing the advice document. The second fee is the implementation fee; when you receive the advice and you’re happy to go ahead for us to implement it on your behalf then there is sometimes a small fee to implement that strategy. The third fee is the ongoing advice fee, which you pay us for managing your portfolio and attending to any changes in your circumstances or in the marketplace and just being available to address any queries or concerns you may have.

Final points

If there is one message I think we can all take away from my chat, it’s that it is never too early to seek financial advice. Think of financial advisers as your personal trainers – except instead of working on your physical health, they’re working to make sure you’re in great financial shape.

Financial advisers like the team at The Hopkins Group are there to help you learn more about your own situation and how you can put strategies in place to achieve your goals and make sure you’re prepared if life throws you curve balls. And the best thing is, the earlier you start, the longer you have to work on your results – hopefully placing you ahead of those who put things off by putting up the objections like those discussed in this blog.

So what are you waiting for? Get started today.

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General Advice Warning: This blog may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. It is important that you consider your own situation before acting on any information contained in this blog.  Please seek personal financial advice prior to acting on this information.

Disclaimer: Shane Light is an Authorised Representative and John Hopkins Financial Services Pty Ltd is a Corporate Representative of WealthSure Financial Services Pty Ltd Level 1 190 Stirling Street PERTH WA 6000 ACN:130 288 578 AFSL: 326450.

Is all your wealth tied up in your family home leading up to retirement?

As unusual as this question seems, it’s not uncommon to sit with clients who would answer “yes”, and they’re usually from one of four specific groups…

• Baby Boomers i.e. generations who haven’t benefited from a lifetime of superannuation guarantee contributions
• Self-employed
• Home-duties
• Divorcees

During the last Federal Budget, the Treasurer floated the idea of allowing specific benefits to those who sold the family home in the lead up to retirement, thereby freeing up some of their wealth. The benefit could afford them a potential $300,000 boost to their superannuation balance – over and above the existing non-concessional contributions limits.

In December 2017, Mr Morrison came good on his word and specific legislation known as the Downsizer Superannuation Contribution legislation was passed. At a time when we already had too much jargon in our industry, we welcomed a new acronym and financial and taxation strategy to deploy – the DSC.

So am I eligible for this benefit?

Eligibility for making a DSC is not affected by a person’s total superannuation balance or whether they are working. It will come into play on 1 July 2018 and will be governed only by the following seven conditions:

1. They must be 65 or older at the time the contribution is made
2. The contribution must be in respect of the proceeds of the sale of a qualifying dwelling in Australia
3. A 10-year ownership condition must be met
4. Any gain or loss on the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part
5. The contribution must be made within 90 days of the disposal of the dwelling, or such longer time as the commissioner allows
6. The person must choose to treat the contribution as a downsizer contribution, and notify their superannuation provider, in the approved form, of this choice at the time the contribution is made
7. The person cannot have had DSCs in relation to an earlier disposal of a main residence

For a property to be classed as a qualified dwelling in Australia, it must have been a fixed structure. Proceeds from the sale of houseboats, caravans, and other forms of mobile homes, even if they were a main residence, do not qualify for a DSC.

The 10-year ownership is quite broad, for example:

• One member of a couple may only be on the title when it was sold
• A property is used for both business and principle place of residence
• Less than 10 year ownership as a result of having had a former family home compulsorily acquired
• A person will be eligible to make a DSC in the following circumstances:
• If the property was owned by one member of a couple for at least 10 years, it does not matter how long a couple were married
• If the spouse who owned the property for longer than 10 years dies, the surviving spouse is eligible to make a DSC, even if they were married for less than 10 years

If you are considering downsizing your family home as part of your retirement strategy, we encourage you to contact our office on 1300 726 082, make an appointment and discuss your personal circumstances with one of our financial advisers.

Legislation is often complex to navigate and if interpreted incorrectly, or if the process is not completed in its entirety, you may end up worse off – something we can help you avoid.

 

An adaptation of the best-selling book series A Song of Ice and Fire by author George R.R. Martin, Game of Thrones is a smash-hit HBO television series. Set in a fantasy medieval world, Game of Thrones tells the story of the Seven Kingdoms and a struggle for power in a changing time where dragons have returned from extinction and the Children of the Forest and White Walkers are no longer fables told by old maids to scare little children. As different as it may seem from the real world we live in today, there are some lessons in economics that we can learn from the Seven Kingdoms that are applicable to our world (sometimes frighteningly so!).

So at the risk of ruining Game of Thrones, here are seven lessons that the series can teach its watchers about economics and finance. Oh and before we start…

Original image source: IMDB. Words added.

Lesson one: Cash is king

The (former) Tyrells of the Highgarden were a rich family, desperately courted by the Lannisters to help with the dire situation in King’s Landing. The Lannisters understood that kingdoms need people, and people need to be fed and clothed – all of which requires money. The people need to know their leaders are going to be able to provide for the economy in order to place trust in their rule.

In the real world, we look over to Donald Trump – a man who has filed for bankruptcy multiple times. These bankruptcies can be seen as strategic; his net worth today is 3.7 billion USD. The fact that he is a successful businessman has awarded him with support from many people (read ‘commonfolks’) who do not necessarily agree with his stance on human rights issues and often cringe when they read his tweets. Their reasoning? He’s smart with his money therefore presumably he’ll be smart with the government budgets. In order to gain popularity, the leader of a nation needs to show how smart they are with their finances.

Lesson two: Defence comes at a cost

Be it the battle of the five kings, or the struggle for power between Daenerys and Cersei (the “Mad Queens”), the balance sways to the side with the greatest number in their infantry. It matters how many men are fighting for their leaders. Whether the Knights of the Vale are involved, the Dothraki, the army of the unsullied, or even the ginormous dragons, wars are won by the strongest armies; and the various kings and queens make it known to the others that they are not against using their power in numbers to win the coveted Iron Throne.

Much like Westeros, the real world can be a volatile place to live. Every year, a big portion of many national budgets is allocated to military defence (armies, air forces, navies and other defence forces). The Australian Federal Budget in 2017 included a $34.2m allocation for the military security required for the 2018 Gold Coast Commonwealth Games. This might seem exorbitant when you consider other social issues like the rise of homelessness in Australia, but defence is an important mechanism in the face of rising terror activities. Furthermore, as North Korea tries to place itself on the map as a formidable force with nuclear weaponry, defence spending seems wise.

Lesson three: Insurance is protection

As the aforementioned Tyrells were destroyed by the Lannisters, their gold and food were taken by the victors as spoils of war. Then down came Daenerys and her dragon Drogon – burning the loot carts and destroying the Lannister army in what seems like mere seconds.

The lesson here is easy; you need to have proper insurance in place, just in case your enemy comes down on you with their fire-breathing baby! Okay, maybe that’s a little extreme – but in today’s uncertain world, it’s absolutely imperative to have proper insurance in place. Whether it’s life insurance or income protection, it pays to plan for the worst no matter how old you are. It may be ominous to put it in those terms, but it’s better to be prepared than get caught off guard and unprotected. Fact: 100% of all people will die at some point in their life, and it’s unlikely you’ll be coming back as a White Walker.

Lesson four: Banks are powerful in their own right

The Iron Bank of Braavos is a powerful bank operating from Essos and has significant influence over the major houses of the Seven Kingdoms. We saw how the Iron Bank intimidated the likes of Tywin Lannister, and how having them on your side makes you seemingly invincible.

After the Global Financial Crisis (GFC), we’ve seen governments crack down on the major banks to become more transparent in their reporting, and most banks have introduced checks and balances to ensure their internal controls are followed to the absolute letter. Despite shaky confidence in the world’s major banks, Australia’s four major banks still have a great impact on our economy and are able to exert significant influence over major government projects.

Lesson five: Industry is essential

Now that the power hungry royals in the Seven Kingdom are all slowly becoming aware of the threat from the White Walkers, it is easy to see that they will require mass production of armoury and weapons if they have any chance of surviving. Blacksmiths are the unsung heroes of this show.

While the real world is not gearing up for a war against an army of the dead, our industries are moving towards mass production in order to gain economies of scale and survive in the shaky aftermath of the GFC. Ours is a world of cash flow problems, unstable stock markets and increased competition caused by new technologies opening up channels of distribution and marketing. While socialists might argue that mass production is nurturing consumerism, it is simply a case of feeding demand with supply. Our world might not need dragon glass, but industry is essential for growth.

Lesson six: Violence slows growth

Wild fire destroyed the great citadel of King’s Landing, taking with it the lives of thousands of people and inexorably destroying the city’s infrastructure. There is a part in season seven of the show (where Ed Sheeran reminded us all that Game of Thrones is only a work of fiction) where we are told of the horrors faced by the people of King’s Landing after this attack.

This reality is not too dissimilar from the war ridden areas of our world – like Syria, Afghanistan and Iraq – where the fight against terrorism is persisting alongside the struggle to establish a semblance of governance and industry. When you’re greeted with a battleground every day, it’s hard to funnel energy into anything else beside the war effort. Growth is slowed, halted, and sometimes even reversed.

Lesson seven: We’re all in this together

The common enemy of the kings and queens of the Seven Kingdoms is the army of the dead lead by the Night King. Eventually the protagonists of the series will need to put aside their differences and embrace unity in order to defeat this evil.

Similarly, the countries of the world cannot exist independently; we all need each other to fill the gaps of the trade deficits, to import the items our country is short of, and to export the things we have in ample supply.

For example, studies show Japan’s population is largely aging, and ultimately they will have more jobs available than they have workers, which suggests that Japan will require skilled immigration to fill in the gaps. While the world struggles with political and instability and will never truly be able to agree on things, we have to come together and help humanity in order to progress the human race.

While the show has undoubtedly taught us a lot, it is important to realise the limitations. Personalised lessons in economics and finance are best obtained by speaking to the experts. When it comes to your personal situation, there is nothing like speaking with a financial planner. Whether you want to learn about planning for the future, exploring different investments, or protecting your assets through insurance or estate planning, we’re here to help.

Be the ruler of your own kingdom and contact us today.

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Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

Did you catch the Budget this year?

No? That’s okay – we watched it for you!

Now that the dust has settled, we’ve collated the key points from the night and dissected what exactly they mean for you.

Whether you’re a member of Gen Y, are a little older in the wealth building stage of your career, or are about to retire/are a recent retiree, we have broken the jargon down into clear, digestible insight bursts.

Discover insights relevant to your life stage in breakdown below.

Gen Y

Do you feel like a winner, or do you feel like a loser? As a Gen Y, you may feel a little of both. The Government’s attempt to address housing affordability will give first home buyers the option to save for their first home within their super account (a potential win). However they also lowered the HELP debt repayment threshold, meaning you’ll have to start paying your uni fees sooner (a potential loss).

But these are just two key take aways from the night – what else did the budget have in store for Gen Y?

What should you do?

• Watch our video
• Download our fact sheet
• Book in to our next Bubbles, Beers and Budgeting workshop

Wealth Builders

This year’s Budget? A little quieter than normal. That’s the concensus regarding major announcements in this year’s Budget; but that doesn’t mean there’s nothing to report.

In our video wrap up Head of Advice Shane Light, and Managing Director and Senior Financial Planner Michael Williams highlight the main updates and what they mean for you, as Wealth Builders. Alongside this video, we’ve also compiled a fact sheet summarising the relevant updates.

What should you do?

• Watch our video
• Download our fact sheet

Pre/Retirees

Ready to downsize? You may be happy with what the Government has proposed. However, you might not be that happy as they have also announced reduced resedential property deductions for investors. But not all is lost! Download our fact sheet to learn more or book in to our economic briefing on Wednesday 24 May that has been specifically tailored with the Pre/Retiree in mind.

What should you do?

• Download our fact sheet
• Register for our Economic Briefing

 

 

A lot to take in? We’re here for you! If you have any questions regarding the Federal Budget announcement or would like to discuss your specific circumstance in more detail, please do not hesitate to contact us or give us a call on 1300 726 082 and ask to speak a financial planner today.

 

 

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

You are a thief!

You are a thief for potentially wanting to assist yourself and your family in their future comfort.

You are a tax cheat for taking actions which assist in providing housing for many other Australians.

You are a wealthy bludger living on the misgivings of first home buyers.

Apparently taking the risk and responsibility to provide for yourself in retirement is thievery.

For strongly supporting the development and construction industries and the economy generally by doing what you do, you should be ashamed!

Well… at least that’s what the shock jocks would have you believe.

Traditionally shock jocks are most often associated with commercial radio stations. Sometimes, they’re associated with other private media outlets which have been seen to be less than balanced – a status sometimes deserved.

However, you would hope that similar shock jocks do not exist in the tax payer owned media outlets (ABC, SBS, plus, plus). These outlets are meant to be represented by those supposedly politically balanced and reasonable individuals, right?

Surely these government paid presenters are individuals with fair mindedness and intellectual superiority (definitely you’d think this while listening to them, that many believe this of themselves)?

However, so often they and the other club members of their organisations shove their black or white, often politically left opinions at their employers, the Australian citizens. And in this way, we find ourselves with tax-payer funded shock jocks.

Whilst Jon Faine (among others) is obviously very intelligent, educated, experienced, often caring and sometimes respectful to his interviewees, I do not believe that he represents you, the genuine long term property investor for what you are (or hope to be).

It is sickening and disheartening for many in your position to have it inferred that you are any and/or all of these things. A thief, a bludger, a cheat.

Frankly, I am disgusted with the way certain politicians and certain sections of the media represent individuals that reasonably and genuinely claim tax deductions for purchasing appropriate long term negatively geared property investments.

Shooting at you as a selfish greedy person for doing what you can to provide for your, or perhaps your family’s, future is unjust. It certainly suits many politicians and media people to do so, but you should not accept this as punishment for being an informed investor.

It is a disgrace not to applaud you.

It is political convenience and shock jock rhetoric to appeal to the many. It is engaging the ‘tall poppy syndrome’. It is a scandal.

It’s time for you to speak up and let the vilification stop.

Negative gearing is not a single sided conversation.

Regards,
John.

P.S The above is about you, but there is not enough room to discuss some of the ridiculous assumptions these politicians and shock jocks make about these matters, especially in regard to solving housing shortages, both rental and owner occupied, the impact on construction and development industries, and how to enable individuals to genuinely balance their long term investment strategies from the all too unpredictable stock markets, economies and happenings around the world.

Many of them don’t care; they just want you to listen to them, buy their papers and sell PR headlines or to be politically convenient.

 

Warren Buffett is to the investment world what Coco Chanel is to fashion – absolute royalty. The American business magnate, investor and philanthropist has earned a reputation for himself as one of the most successful investors in the world, and as of March 2017, is the second wealthiest person in the United States with a total net worth of $78.7 billion*.

Most investors who have the ambition to be the next Warren Buffett usually make the most obvious mistake on their path to expected fortune…they fail to consult the learnings of Warren Buffett himself!

So how did he become the most highly regarded investor in modern times? Well, you may be surprised to learn that he did not make the bulk of his money by actually being a great investor himself. Yes, he obviously built a portion of his wealth in this way, however his great fortune was created by leveraging his own expertise. Initially, Buffett attracted a modest pool of investors and then once he had proven himself to be good at his business, the pool of investors grew larger.

His secret was and is simple . . .

“The investor of today does not profit from yesterday’s growth” – Warren Buffett.

Make the right investments

One of the trademarks of Buffett’s investment career that has stood the test of time is to buy undervalued assets. This is especially true when purchasing real estate where his philosophy is to buy real estate based on income generation and not appreciation, and he continues to follow these principles to this day.

When it comes to the share market, Buffett has avoided the flashing lights and ringing bells of investing in high risk start-ups and dodgy stock tips that a lot of us have fallen victim to over the years. Instead, he uses two very simple rules that guide him when making investment decisions:

1. The first rule is to not lose money
2. The second rule is to not forget the first rule!

Now you may think that these rules are a ‘no brainer’ but it is amazing how many investors fail to follow such simple advice. Buffet’s investment fundamentals are sound and based in common sense i.e. invest into companies that:

• have a business that he understands with favourable long term economics
• are defined as having a long term competitive advantage in a stable industry
• have able and trustworthy management, and
• can be purchased at a sensible price.

Don’t be afraid to track the index

Those of you that are small investors may be asking ‘”how on Earth do I adopt the principles of Warren Buffett when I obviously do not have his level of start-up capital?”

The best piece of advice that he can offer to smaller investors is to put your money into index tracking funds as they can provide you with broad diversification at a low cost and will eliminate the risk of stock picking experts that may not be invested in correlation to the performance of the market.

Educate yourself

How do we become smart with money? Luck can only get you so far and the old saying “the better I become, the luckier I get” is especially true when investing. Buffett’s father insisted that his son pursue a good education and once this was achieved, it has been the foundation for his success in investment markets today.

Be frugal

Buffett uses his money extremely wisely and believes that a lot of people today waste money. Instead of using his own money, he takes full advantage of leveraging into real estate and share markets by using other people’s money at affordable interest rates.

Be patient

The following Buffett quotes hammer in his philosophy when it comes to investment time frames for shareholdings:

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”

“When we own portions of outstanding businesses with outstanding management, our favourite holding period is forever.”

“Time is the friend of the wonderful company, the enemy of the mediocre.”

Can you see the consistent theme in these statements? Investing is a long term strategy and, unless you’re one of those extremely lucky lotto winners, there is no ‘get rich quick’ scheme to lead you to great wealth.

Becoming Buffett

For all those budding Warren Buffetts heading out to make your fortune, just remember that it is essential to be well informed, patient, cautious but, above all, realistic with your expectations and you will be well on your way to financial success.

If you would like to discuss any of the points raised in this article, or would like to speak with someone about your own investment goals, please call our office on 1300 726 082 and ask to speak with a financial adviser.

 

*Source: Wikipedia

Image: The Huffington Post

 

 

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

Gen Y has the world at its feet – but can it afford to make the most of the opportunities thrown its way?

 

In the age of avocado on toast and double shot soy lattes, it’s easy to get caught up in the now and ignore tomorrow. Gen Y’s pay is eaten up by rent, Myki, Netflix, phone plan, brunches and gym – it’s swallowed up by life, leaving nothing for the future.

But we’re here to help you (or your friends and family); to break down the steps to achieving the kind of freedom we all dream of as we navigate study, travel, work, relationships and . . . well, life!

Bubbles, Beer and Budgeting is kicking off for season 2017 and we’re looking for our next group of Gen Y/Millennials to hit with some #finspiration

Join us for a beer or a bubbles and get a grip on your financial future!

The workshops will cover:

• Financial basics of budgeting and cashflow management
• Different types of investments at a grassroots level
• Tools to help you achieve your savings goals
• Saving for your first home

All this at a cool venue, surrounded by like-minded movers and shakers in their 20s and 30s who want to make a go of their life.

Stay in touch on our Facebook page

Workshop Details

You can choose from one of three dates; the content will be the same with different topics scheduled for later in the year.

• Thursday 20 April
• Tuesday 2 May
• Wednesday 7 June

Time: 6pm – 8pm

Where: Henry and the Fox, 525 Little Collins Street, Melbourne, VIC 3000

Price: $10, includes bubbles, beers, nibbles and take home workbook

 

Click here to book now!

Credit cards can be a very valuable tool if they are used correctly and responsibly – but used wrongly, you can find yourself in a whole spot of bother. The majority of bad credit card debt comes from irresponsible spending and a lack of discipline when using borrowed credit. In this blog post, I will discuss some of the pros and cons of including a credit card in your financial toolkit.

The Good

Security

No need to walk around with a wallet full of cash and worrying about somebody pick pocketing you and taking your hard earned dollars these days. Thankfully, with our modern society, we can walk into any store and pull out our card and tap and go. Not only can we use a credit card in store, but we are also able to use it in a secure manner when purchasing online. Most banks will cop the burden of fraudulent transaction on your credit card but if you use a regular debit card linked to your savings account, more often than not you’ll have to wear the cost yourself.

Travel insurance

Some cards offer the perks of travel insurance when you pay for your holiday using your card. One less thing to worry about – or have to pay for! This can come in very handy if you’re planning a few weeks in Bali, sitting by the pool, enjoying a few rays and a Bintang . . . and your hotel room gets broken in to or you drop your DSLR camera in the pool. Policies do differ so always be sure to read the terms and conditions to make sure you are taking full advantage of this feature.

Rewards points

Ahh one of my favourite things: being rewarded for spending money. Most credit cards come with a rewards points system which can be used to your advantage if you play the game right. Points can be used to pay annual fees on credit cards, purchase flights, fuel and even gifts for your other half (or yourself which is my preferred option). Just note that you actually have to spend a lot of money to actually earn a decent amount of points; although the way I look at it is that you were going to spend the money anyway so why not get a bit extra for your dollar?

Credit ratings

If you are a young buck stepping out into the big wide world of independence, then a credit card is a great way to show banks that you are good with money and are able to meet financial commitments. You just have to make sure you make all your repayments and keep it under control! If you have a strong history of responsibly managing your credit card, the banks will look favourably upon you when you’re applying for a loan for a new car or house in the future. A good credit rating will open a lot of doors for you.

Budgeting

One handy – yet often overlooked – benefit of a credit card is the ability to use it in your budget planning. But how? you ask. Every transaction that you make from paying bills to buying a coffee can be paid for by your credit card, and in doing so, creating a bit of an audit trail. If you use cash, you don’t have that recorded history of your spending. Come the end of the month, when you look back through your credit card transaction statement, you can see exactly where your money is going (hello pub lunches) and see where you need to cut back on your spending to enable you to save that little bit extra money.

Interest free periods

In my eyes, this is where the magic happens. Most credit cards come with an interest free period which typically can vary from 15 to 60 days. Instead of using the money sitting in your savings account (or better still, an offset account linked to a home loan) you can use the dollars on the credit card which will cost you nothing if paid back on the due date. This will allow you to earn interest (or avoid paying more interest if you have an offset account) as your money will be sitting in an account you own until the bill due date, and you will be spending the bank’s money in the meantime.

The Bad

Don’t get greedy

It’s easy to get carried away with spending money you don’t have, but you really need to be conscious of your limits and know to spend within your own boundaries. Banks will often send you invitations to increase your credit card limit and before you know it, you could be the proud – yet stretched – owner of a credit card with a $50,000 limit. But do you really need a card with that much freedom; that much potential to dig yourself into some serious debt? If you can’t afford to make ongoing repayments on large sums, you should go back to the old-school ways and save for big ticket items. This way, you’ll be earning interest on your savings rather than accruing interest on your credit card. Resist the urge to click on the ‘apply now’ button when you receive these credit increase emails and stand your ground!

The Ugly

Look after future you

You really need to consider the impact of your actions today on your financial freedom in the future. If a credit card is used irresponsibly, it can lead to a lot of financial distress for the cardholder. Perhaps the most devastating result of using a credit card irresponsibly is the effect it may have on your credit rating and subsequent ability to apply for a loan. As a young, single party goer, it might be socially acceptable to have a few credit card debts and some baggage from your world travels, but what happens when you go to buy a house with your partner in a few years and your borrowing capacity is affected by your less than impressive credit rating?

All the fees

Make sure you make your repayments by the due date each month! In a perfect world, you should pay off the entire amount each month but at the very least, you need to meet the minimum repayment. Keep in mind, if you only ever pay the minimum, you’ll never really make tracks on your debt – it’s kind of like treading water in the ocean, but not getting any closer to the shore. The banks make their money by charging massive amounts of interest on the money borrowed if you cannot repay it on time. This can be more than 20% so it is extremely important to have your card paid off in full by the due date so you are not charged any interest on the outstanding balance, nor any late fees.

Tips and Tricks

Sure, in travelling the world and eating at the best restaurants, you might collect some awesome Facebook memories, but you’ll also collect some hefty ongoing financial commitments. Wouldn’t you rather redirect those funds to a savings plan or holiday deposit instead?

Here are some final tips to help you get a grip on your credit card behaviours:

• Before pulling out your credit card, ask yourself “Do I want or need this?” If you want it – rather than need it – then it is not a necessity and can be put back on the shelf.
• Lower your credit limit to an amount that you know you will be able to comfortably pay back within the month. This will also reduce the risk of over spending and hopefully avoiding any financial distress in the future.
• Don’t fall into the trap of having multiple credit cards as you only need one at most. This will allow you to more easily track your spending and stay on top of it.

Credit cards can be a very useful tool and even help you save money, but you need to use them wisely. If you find yourself in trouble and unable to stay on top of your debts, then a financial planner can assist in creating an appropriate overall financial strategy to help you recover from bad debt.

To take that first step, send us an email or call The Hopkins Group on 1800 726 082 and ask to speak to a financial adviser who will be more than willing to help you break the cycle of bad debt and put you on the path to financial security.

 

Disclaimer: Shane Light is an Authorised Representative and John Hopkins Financial Services Pty Ltd is a Corporate Representative of WealthSure Financial Services Pty Ltd Level 1 190 Stirling Street PERTH WA 6000 ACN:130 288 578 AFSL: 326450.

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

Sometimes it pays to work smarter, not harder, and find opportunities to save money in a proactive – yet subtle – manner. 

Salary sacrificing is one strategy that can be adopted to help in your long term savings plan. It might seem like a small and insignificant change, but in the grand scheme of things, it can really pack some punch.

In this blog post, we break down the dos and don’ts of salary sacrificing to help broaden your understanding of one more tool you can add to your financial wellbeing toolkit.

For the purposes of this blog post and planning for your long term financial security, we’re going to focus on salary packaging for super.

What is salary sacrifice?

Salary sacrifice (also known as salary packaging) is a government initiative that allows you to pay for some items or services straight from your pre-tax salary – therefore reducing your taxable income and putting more money in your pocket.

It is an Australian Taxation Office approved scheme, but you do need agreement from your employer to be able to take part as they have to pay fringe benefits tax on the benefits provided to you. That is, all benefits except for superannuation.

Who should salary sacrifice?

Everyone’s situation is different but typically, salary sacrifice is particularly advantageous to middle and high income earners.

Not-for-profit organisations have special exemptions and their employees are eligible for attractive benefits that make salary packaging a rewarding option. People working for not-for-profits can receive cash benefits such as entertainment and loan repayments from pre-tax income.

A salary packaging arrangement must be agreed to at the start of employment and should be discussed when finalising contract negotiations. It cannot be retrospective so needs to be in place before you earn the income.

What can you salary sacrifice?

It all depends on who you work for – the benefits available to you are determined by your employer, but most will at least offer salary packaging for super.

Some of the other common benefits include:

• Cars
• Computers
• Childcare
• Meals and entertainment
• Holidays

Why salary sacrifice into super?

Giving up some of your pay and redirecting it into your superannuation can be a good way to save tax in the short term, and grow your retirement savings in the long term.

Any pre-tax funds that are contributed to super receive a special 15% tax rate as opposed to that portion of your salary being taxed at your marginal tax rate, which is typically much higher.

What this means, is that the higher the marginal tax rate, the higher the savings.

Having said all that, the super contribution limits are changing and after 1 July 2017, if you have an adjusted taxable income of more than $250,000, you will need to pay 30% tax on super contributions.

Case study

Zach earns $80,000 before tax, excluding his employer’s super contribution.

If Zach decides to redirect $10,000 of his pay into salary sacrifice super contributions, he will save $1,950 in tax, with the extra money going into his super fund.

 

Zach’s boost	Does nothing	Salary sacrifices $10,000
Take-home pay	$60,853	$54,303
Tax	$19,147	$15,697
Extra money into super	$0	$8,500
Net benefit	$60,853	$62,803 ($1,950 better off)

 

Assumptions: The figures used in this table are estimates only and are based on 2016/2017 income tax rates and a Medicare Levy of 2%.

Do’s

• Make sure you can afford to do without the salary sacrificed amount as funds cannot be accessed for the period of the arrangement.
• When speaking to your employer about salary sacrifice, understand that your employer does not have to agree to salary sacrifice, however they still do need to pay the 9.5% Super Guarantee (SG).
• Request that your salary sacrifice agreement be in writing and be signed by your employer for your own protection.
• Seek professional advice to maximise your savings.

Dont’s

• Don’t forget that you are actually giving up part of your salary to redirect it into super, so your take home pay will be lower.
• If you have a current arrangement, don’t forget to adjust your salary sacrifice contributions to avoid going over the concessional cap that is coming into play from 1 July 2017.
• Don’t forget that employer paid super (currently guaranteed at 9.5%) counts toward your concessional cap.
• Don’t lose any of your employer paid super entitlements as a result of salary sacrificing. There is a loophole in the super guarantee rules enabling an employer to cut an individual’s super entitlements when the employee reduces their taxable salary.
• Don’t jeopardise your savings potential by going it alone. You can get help from the professionals and make your money work harder for you.

Where do you start?

The most important do before requesting your employer to start salary sacrificing is to speak to a financial planner who can look at the big picture and see how this piece of the puzzle fits in.

A financial planner can assist in creating an appropriate overall financial strategy and consider salary sacrifice in the context of your long term plan.

Call The Hopkins Group on 1800 726 082 and ask to speak to a financial planner who can help assess if salary packaging is a good option for you. You can also fill out an online enquiry to get in touch with our team.

 

 

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Disclaimer: John Hopkins Financial Services Pty Ltd is a Corporate Representative of WealthSure Financial Services Pty Ltd Level 1 190 Stirling Street PERTH WA 6000 ACN:130 288 578 AFSL: 326450.

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.