Are you still shedding tears over the abolition of the Baby Bonus? The federal government will no longer be acting as stork to growing families in Australia and as a result expectant parents are left crying over spilt milk.
As announced in Wayne Swan’s budget, the $5000 Baby Bonus will be scrapped on March 1, 2014 to help get the budget back on track. It will be replaced with payments of $2000 for the first child and $1000 for other children. These payments will be means-tested, available only to families who qualify for Family Tax Benefit Part A. Families will receive an initial payment of $500, and the rest will be paid in seven fortnightly instalments. Under the new scheme couples earning more than $101, 000 will not be eligible.
In a controversial twist the Coalition leadership team revealed Labor’s pared-down Baby Bonus would be completely axed by an Abbott government under a plan to wind back the budget deficit and maintain carbon tax compensation without the carbon tax. Mr Hockey confirmed the Coalition, which introduced the Baby Bonus a decade ago, would no longer offer a basic family payment for parents of newborns.
Looking back, one might recall why the baby bonus was introduced in the first instance. Peter Costello used the bonus as an incentive to encourage Australian families to increase the population whilst the government eased the financial burden on having a growing family. The phrase by the then Treasurer was, “one for mum, one for dad and one for the country.” When the bonus first came into action on July 1, 2004, Australian labour wards experienced their busiest Thursday in three decades. A record 1005 babies born on July 1, compared with 500 the day before, one of the quietest Wednesdays on record.
Not to fear YourShare can assist in providing you with a yearly Cash-back to help ease the burden of the Baby Bonus blow and the budget itself. Why not replace what you would have received from the Baby Bonus with a yearly Cash-back from YourShare, yes that’s right, yearly. The government may not be dishing out the dollars but YourShare can get you back what’s yours. A typical Australian family can get a Cash-back of $1872 not once but every year (source here).
YourShare is a Cash-back service provider that can help millions of Australians get back their share of fees and commissions they are unwittingly paying to financial institutions from a large range of financial products. These include but are not limited to managed funds, superannuation, allocated pensions, master trusts, wrap accounts, home insurance, car insurance, mortgage, life insurance, health insurance and more.
So why not join the growing number of smart Australians who are registering with YourShare today and give the bun in your oven a blossoming beginning!
December 12, 2012, The Sydney Morning Herald, John Collett
Finding the right Home Loan
It’s one of the biggest financial decisions we will ever make, so what are some pitfalls to look out for?
To show the difference a small gap in interest rates can make I used the MoneySmart mortgage calculator provided by the Australian Securities and Investments Commission at moneysmart.gov.au.
If the interest rate is 6 per cent the amount repaid in interest is $326,516. If the interest rate is 5.5 per cent, the amount repaid in interest falls to $294,792, or a difference of $31,724 between the two interest rates.
However, the mortgage with the lowest interest rate may not necessarily be the best loan. Fees and charges can add thousands to the cost of a loan. All lenders are required to provide the ”comparison rate” alongside their advertised rates.
The comparison rate is based on a loan of $150,000 and a term of 25 years. It is a good attempt to capture the fees and charges of the loan and express those costs through the interest rate.
It captures most of the costs, but not all. For those who prefer to have help, mortgage brokers can be good. While they can help take the legwork out of finding the best mortgage, it does not remove all responsibility from the borrower. A good broker will have a spread of loans from various lenders and will recommend more than one mortgage. Brokers are paid a commission by the lenders at a time when commissions for financial planners, for example, are on their way out.
There is usually an upfront payment for signing a client and an ongoing trial commission, which is a percentage of the loan size. The larger the mortgage the larger the commission, so be wary of being advised by a mortgage broker to borrow more than is needed.
Some lenders pay higher commissions on their mortgages than other lenders. Brokers have to be licensed and with that comes better disclosure of commissions and ”volume” payments, if any, where the broker is paid more by the lender for selling more of its mortgages. Brokers also have to conduct an assessment as to whether the mortgage is ”not unsuitable” for the borrower.
That is much better than the bad old days but borrowers should also check directly with lenders to see what is on offer or with comparison websites such as canstar.com.au or ratecity.com.au.
YourShare can save you thousands of dollars in interest and fees over the life of your home loan. To complete a Home Loan Health Check, please click here
MORE than one million Australians are missing out on government benefits and payments because they don’t know they are entitled to the money.
The biggest reason people don’t receive these benefits is the adage: If you don’t ask, you don’t get.
In Australia, it is difficult for people to know if they are entitled to receive a payment or benefit if no one tells them, a 2010 research report called Missing Out found.
The Australia Institute report found that, in many cases, people are reluctant to actively ask for help.
Centrelink policy includes that each person is responsible for finding out what payments are available and to apply for them, Missing Out author David Baker says.
Baker found overly difficult forms and procedures are extra barriers to claiming benefits, followed by the perceived “stigma” of receiving assistance or benefit payments.
This stigma is reinforced by the language used by Centrelink, Baker says, and is a signpost to the Government’s attitude to providing these services.Of more than one million Australians being entitled but not receiving Centrelink payments, families are believed to be the biggest single group missing out, he says.
“The most common access barrier identified by parents was that they did not know what (assistance) was available or how to find out what was available,” Baker says.
Even Your Money’s inquiries to the Department of Human Services for help with this story was met with the same response: If you don’t know the specific benefits or assistance to ask about, no one could help.
We were eventually sent a host of email links to family-related assistance payments on the Human Services website and told to sift through them.
Financial Counselling Australia is familiar with working with people who need financial help and assistance and don’t know where to look or what they might be entitled to.
The organisation recommends people download a copy of the publication A Guide to Australian Government Payments from its website.
This is a government publication updated quarterly, with changes to amounts and basic entitlement details. It is something Centrelink could have recommended but didn’t.
The booklet is simple to understand, but you’ll still need to refer to the Human Services website, talk to Centrelink staff or get help from an independent community groups.
“It is really difficult for people to find this information. Even the payments booklet runs out almost straight away each time it is put out - they never seem to print enough,” says community support agency Camcare financial counsellor Donna Letchford.
“You can download it from the website but not many people can readily do that.
“However, there are other people out there who will give you the information – organisations that deal with social security rights, not for profit groups - they are always helping with social security issues.
“It is an uphill battle, even for someone like me, doing it almost every day.”
Letchford says when she sees clients, she always reviews their social security situation to make sure they are getting what they are entitled to.
“But even though I have the ability and access to their information, as a community professional I still have a great deal of trouble,” she says.
“The options of going in to see someone or even getting someone on the phone just take such a very long time and is very difficult to do.”
It is really important to persevere, Letchford says.
“That money can make a big difference, especially for families. Family tax benefits, allowances and rental assistance can be a huge help,” she says.
“People who have never been to a Centrelink before find it extremely difficult and even those who are more familiar find it hard.
“They are often going there during an emotionally tough time for them and the information should be much more readily available.”
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Finally, contributors are back to the balances they held before the global financial crisis.
It has been a long return, but superannuation funds have finally clawed back their post-GFC losses thanks to strong gains in equities. That means someone with $100,000 in a median balanced fund before the crash in 2007 is back to where they were (see graph).
But what a painful journey it has been, particularly for older fund members. The latest SuperRatings data shows the median balanced fund – where most people have their retirement savings – delivered 10 per cent over the 12 months to September 31, or 6.3 per cent a year for the past 10 years.
The SuperRatings research manager, Kirby Rappell, attributes the double-digit returns to a strong performance on Australian and international sharemarkets.
Overall, balanced funds are on target to achieve their long-term objective, earning 6.5 per cent a year for the past 20 years.
”If you look back to 1992, when mandatory super was introduced, super has delivered on its long-term promise of the inflation rate plus 3.5 per cent,” Rappell says.
So should consumers feel better?
Mercer’s latest index of global pension funds shows Australia’s $1.4-trillion super system is ranked third-best in the world, up from fourth place last year.
David Knox, a senior partner at Mercer and author of the report, says the score is based on the best weighting for a pension system across all age groups, including pensioners.
However, the typical Australian super fund has more than 70 per cent of its money invested in growth assets, which is high by world standards. The best scores went to countries with between 40 per cent and 60 per cent of their pension savings in growth assets.
A sharemarket crash prior to retirement can be devastating.
Knox says taking a life-cycle approach to super is best for most people. Asset allocations vary with age. As members age, growth assets are reduced and safer assets (bonds and fixed interest) increased.
”Someone rolling over their super at 65 and planning to live off their allocated pension for the next 20 years might reduce their exposure to growth assets to 50 per cent,” he says. ”At over 70, it might be appropriate to drop that to 30 per cent growth.”
Over the past 20 years, super funds have changed from defined-benefit schemes to defined-contribution schemes, shifting risk from the employer to the employee. Knox says until the early 1990s only a third of people had super. ”The introduction of mandatory super in 1992 changed all that. Everyone gets at least 9 per cent across the whole workforce,” he says.
But that shift means being ”disengaged” is not an option. In the aftermath of the GFC, members discovered that investment labels meant little. ”Balanced” funds lost a third of their value because of a heavy exposure to equities; ”capital stable” options went into the red; and ”cash” made losses.
Call YourShare to find out how you can make the most of your super by claiming back the fees and commissions you pay each year! Visit www.yourshare.com.au or call 1300 554 774
STEPHEN McMAHON October 30, 20128:08PM – Daily Telegraph
LOW interest rates are not something Australia should aspire to, a senior Reserve Bank board member says.
In a clear indication the RBA may look to postpone its widely expected Melbourne Cup Day rate cut, deputy governor Philip Lowe said there were some signs the Australian property market is recovering and unemployment is relatively low.
Despite most homeowners using the recent interest rate cuts to pay down debt, Mr Lowe believes Australia is well positioned to meet the challenges of global uncertainty.
The more “positive tone” of Chinese economic data in recent weeks was seen as a major bonus and may led to the RBA putting on hold any plans for another cut.
“It is not inconceivable that strong growth in Asia, driven by domestic demand, could continue despite the problems in the advanced economies,” Mr Lowe said.“Australia obviously has a very strong interest in this outcome, not least because we have benefited more from the growth in Asia than any other advanced industrialised economy.
“The uncertainty over how Europe will resolve its debt and banking problems and the looming fiscal cliff in the US is however continuing to weigh on Australian consumer sentiment, he said.But Mr Lowe was positive Australia was well positioned despite the recent global uncertainties and high Australian dollar.
“The economy has recorded solid growth, the unemployment rate remains relatively low, inflation is consistent with target, public debt is low and the banking system is sound. Few countries can make such claims,” he said.But he also warned that while the quantitative easing by US Federal Reserve, Bank of Japan and European Central Bank have been good so far its long-term implications are yet to be fully understood.
Since November, the RBA has cut the cash rate by 1.5 per cent – to 3.25 per cent – its lowest level in 3 years.
With funds showing signs of recovering to pre-GFC levels, follow these simple steps to ensure your money continues to grow.
In case you’ve been wondering whether your super will ever recover from the global financial crisis, relax. It just did.
Well, on average anyway, so maybe not yours. Being retired and taking money out would require a financial miracle to recover, though there are a few things you can do to help.
Super funds with 60 per cent or more of their investments in shares and other so-called growth assets have clawed back everything they lost in the GFC.
Yet the sharemarket isn’t within cooee of its pre-GFC peak, a reminder that super isn’t only about shares.
It’s about being taxed at 15 per cent instead of your marginal rate and, once 60, not taxed at all when you take your money out.
Any decent super fund is diversified and, yes, includes things such as term deposits.
”It’s not super that performs badly, it’s the underlying asset. Investing in the same things outside super would put you in a worse position because you’d pay more tax and have lower capital,” says Philip La Greca, technical services director at Multiport, which advises DIY super funds.
”Super is the only place where you get a tax break for putting in capital,” he adds.
BACK ON THE HORSE
So what can you do to keep your super growing?
Funnily enough, it’s less about pouring more money in – which won’t do that much if you go about it the wrong way – and a lot more about avoiding mistakes. Top of the not-to-do list is constantly switching within, or for that matter between, funds – especially quitting an asset which is on the ropes. That’s like selling something at the lowest price you can get.
Had you done that in 2009, when the average super return dropped 12.9 per cent, consultants Chant West say, and moved from 70 per cent shares to, say, 30 per cent, you still wouldn’t have made up the loss.
”If you’d switched to cash in early 2009 then you would have missed the rebound. You’d still be lagging. It’s very difficult to time the market,” Chant West’s research manager, Mano Mohankumar, says.
What you put where in super should change over time, becoming more conservative as you get older, but that’s quite different from flitting from one portfolio to another every year.
Some funds will even do the adjusting automatically as you age – check if yours has what will probably be called a life-cycle option.
But, as a rough rule, until you’re
about 40 your super should be in a high-growth, more risky option. There’s plenty of time to recover from the inevitable next sharemarket crash and ride the good years.
As you get older, tone it down to a more balanced, less risky option. (Stick this on the fridge as a reminder, if you like.)
LOW RISK IS LOW RETURN
Another mistake is being too conservative in retirement and not taking into account that life expectancy is getting longer.
Advisers say you should have two years’ income in the bank, and the rest of your super invested in growing assets such as shares and property.
In an era of single-digit returns, which happens to be the norm, it’s also critical that your fund has low fees. This will be easier after next July when MySuper starts, but don’t wait until then.
Industry funds are normally cheaper than retail ones, though check out BT’s low-fee Super for Life or ING Direct’s no-fee Living Super, which is half cash and half sharemarket index funds.
And don’t keep funds left over from previous jobs going. Consolidate them to save on multiple fees. The fund you want to keep will have a form for this.
Choosing the right portfolio is even more crucial to your super than picking the fund. Still, there’s no denying the more you put in, the faster your super will grow.
And yes, there will be years it doesn’t grow but they’ll be more than made up for by those in which it does.
Salary sacrificing is the best way into super. Not only do you pay a flat 15 per cent (unless you earn more than $300,000, in which case bad luck), it can even reduce tax on your other income as well if you’re on the border between different marginal rates. A super-charged, so to speak, variation of salary sacrificing occurs when you turn 55.
Then you can also start a pension from your super and, silly as it sounds, pay it back in.
That way the earnings in your super become tax-free. Don’t ask. Although the pension, fleeting as it is, is taxed, it comes with a 15 per cent rebate. Once you’ve reached 60, the pension isn’t even taxed.
OPTIONS FOR LOW EARNERS
Alas, salary sacrificing won’t do all that much on a salary between $18,201 and $37,000, which puts you in the 19 per cent bracket. Less than $18,201, it won’t do anything since you’re not paying tax to begin with.
By the way, the 15 per cent rebate in the last budget for taxpayers in the 19 per cent bracket only applies to the employer contribution, not extra salary sacrificing you might make.
Then again, wait long enough and what’s in your super eventually becomes tax-free.
Luckily, there’s an even better option for some. Less than $31,920, the co-contribution is the go. Put $1000 into super (not by salary sacrificing – sorry, this has to be after-tax income) and the government will add its own $1000 gratis. The main condition is that you have at least a part-time job.
The co-contribution, as the government calls it, extends right up to an income of $61,920, but it falls by 3.33¢ – no, I’m not kidding – for every extra dollar you earn.
So on a $50,000 salary, a $1000 contribution would get a $397 co-contribution – about the same gain as salary sacrificing $2600.
Yes, you can salary sacrifice and make a voluntary contribution at the same time as well. But remember, the salary sacrifice is considered income so, before you ask, it’s not a way of getting around the limit.
YourShare is the easiest way to save on the fees and commissions on your superannuation… giving you extra dollars in your own pocket! More info is available at www.yourshare.com.au or call 1330 554 774
By Alan Kohler and Ian Verrender
News Limited Network
October 28, 201212:00AM
IT certainly has been a super industry, delivering fabulous returns for each of the 20 years that it has been in operation.
Palatial beach houses, foreign built convertibles and luxury saloons, the odd yacht and frequent trips to exotic destinations. That’s your superannuation at work. Except that those benefits have flowed to those fortunate enough to work in an industry that has a government guaranteed and regulated inflow of cash but no rules regarding fees or performance.
For those it was supposed to benefit, a rapidly ageing Australian workforce, it has been a different story, particularly in the past five years as the Global Financial Crisis and a lacklustre Australian stockmarket have savaged returns.
There are two main reasons. The fees being skimmed off the $14.2 trillion in national savings are way too high. And the performance has been abysmal.
In the 12 months to the end of June, $135 billion in workers’ contributions flowed into the coffers of those looking after our retirement savings. Of that, $17 billion was skimmed straight off the top in fees.
“You can see why it is such a honeypot,” says Alex Dunnin of research group Rainmaker. “It would be a different story if there was some decent returns but for most people, their superannuation has gone backwards in the past five years.”
The reason? The main one is the manner in which fees are applied. Rather than charge a flat fee for a service with maybe a bonus for good performance, our superannuation industry charges a percentage of “funds under management”.
So the bigger the pot becomes, the more money the industry earns, regardless of performance.
No wonder the industry is overjoyed at the Federal Government’s recent decision to lift the mandated contributions to 12 per cent of wages.
Another reason relates to the industry structure. It is built like a Sara Lee cake; layer upon layer upon layer. For a start, there are more than 400 superannuation funds, resulting in an enormous duplication in administrative and back-office functions.
It doesn’t stop there. The super fund manager has to choose where to invest the money and for this, a specialist asset allocation consultant is employed. That job done, the funds then are deployed to various investment funds. Many of these investment funds are run by the AMP and the big four banks. Those running the investment funds use brokers to conduct transactions. And each step of the way, fees are paid.
Despite all that highly paid expert advice and administration, the returns for an alarming number of funds have failed to keep pace with inflation, even over a 10-year period.
Even those figures are incorrect. For on top of the 15 per cent tax and the unregulated fees, superannuation schemes include life insurance policies, the fees for which are deducted after the returns are calculated. So in many cases, the returns are simply paying the insurance premiums.
The Australian head of one of the world’s biggest investors, Justin Arter of BlackRock, recently highlighted the need for change and for consolidation in the industry, arguing it was time for super funds to merge and then run their own affairs in house, rather than outsourcing investment decisions.
In recent months, many of the retail superannuation funds have claimed that fees finally are falling. But in many respects that simply is a manipulation of the truth. Many of the retail funds – those supposedly run by professionals – have split their fee structures. Even though they still largely distribute through financial planners, they’ve conveniently isolated the planner’s fee. So the fee is the same but you get two separate bills instead of one.
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October 23, 2012, Sydney Morning Herald
Matt Wade, Dan Harrison, Madeleine Heffernan
AT LEAST $28 will be added to a typical family’s health insurance cover next financial year after the federal government moved to cap increases in its private health insurance rebate to the rate of inflation.
The rebate now increases in line with premiums, but from April 2014 it will only rise by the rate of inflation – or in line with premiums if they increase less than inflation.
This policy is likely to dilute the impact of the rebate over time if premiums follow recent trends and rise by more than inflation. In February for example, a premium rise of 5.06 per cent was approved by the federal government, more than four times the inflation rate in the year to June.
Also, those paying a “lifetime cover loading” on their health insurance because they signed up after the age of 31 will no longer receive a rebate on that component of their premiums. This effectively increases the penalty for taking out health insurance after the age of 31.
The health insurance rebate is projected to be one of the fastest growing areas of federal health expenditure and the government and consumer groups claim the changes will make the rebate more sustainable.
But the opposition’s health spokesman, Peter Dutton, said he was concerned about the impact of the changes on family budgets and labelled them Labor’s “latest cash grab”.
Dr Michael Armitage, chief executive of the industry peak body Private Healthcare Australia, said that because health inflation runs at a figure significantly higher than the consumer price index “it is likely that consumers will be paying more for their private health care”.
A spokeswoman for the nation’s largest health insurer, Medibank Private, said ”a range of other reforms will be required to ensure that this does not lead to an adverse impact on the overall cost of health insurance for all Australians”.
The government estimates the changes will add an average of $28 a year to family health insurance premiums and $14 a year for singles in 2013-14. Limiting increases in the rebate to inflation will save the government $700 million over the next three years while eliminating the rebate on the lifetime cover loading components of premiums will save $390 million.
These savings will help offset the cost of dental health reforms, the government said in its midyear economic and fiscal outlook yesterday.
Under legislation passed earlier this year, singles on $83,000 and families above $166,000 a year begin to lose the rebate, typically worth $1000 a year to families. It cuts out altogether for singles on $129,000, and families on $258,000.
Robert Cooke, managing director of private hospital owner Healthscope, said the latest changes were ”not a fundamental shift in policy, but combined with the means testing of the private health insurance rebate, it’s a further erosion of the value of health insurance”.
In a statement to the Australian Securities Exchange, health insurer NIB welcomed news ”changes to the rebate will be accompanied by discussions over the setting of health insurance premiums”. The decision to effectively freeze the rebate allocation, NIB said, opens the way to ”allow health insurers to set premiums independent of government interference”.
Don’t forget YourShare can help you save on your health Insurance … click here to find out more. By signing up with us you could save up to one and a half months on your premiums!
Greg and Melinda Kerr have followed a simple savings philosophy that has shaved years of their mortgage and saved them tens of thousands of dollars in interest.
Got any savings secrets? Share them with us
“I always hated owing money to the bank,” says Greg Kerr. “And I never forget the saying, I think my dad told me, that a little bit will always add up to a lot. I just look at things and look to try and pay as much off my home loan as I can.”
One of his tactics is to always save any gold or silver coins he receives in loose change. “I have a container in my car that holds a couple of hundred dollars in coins and every time that’s full I put it into a big money box, then every year I’d take that to the bank and cash the coins in and it would come to about $4000 and I’d put that straight into the house,” he says.
The other annual top-up to the mortgage comes from his tax return, though his most successful strategy has been to make weekly, rather than monthly, repayments on his mortgage.
“So instead of paying, say, $2000 every month, I split that $2000 into four, so $500 a week, and then if everything was going OK with us financially, I’d increase those payments – I would pay $650 a week, it would come automatically, every single week.”
Kerr stays motivated by watching the forecast term on his home loan, which he’s reduced from 30 years to 19 years since buying his home four years ago, and he hopes to have the house paid off in full in the next five years.
The sooner the better
Senior financial adviser Sarah Riegelhuth, of financial advisory firm Wealth Enhancers, says one of the best financial strategies is to pay down your home loan quickly, and the sooner you can start doing that the better.
“The point in which you pay the most interest is in the first years of your loan because the principal is at its highest point. The sooner you can get onto reducing that principal the better off you’ll be because your interest will start reducing right away,” Riegelhuth says.
One of the key reasons why it’s best to pay off your home loan before other investment debts is because the interest on your home is not tax deductible, Riegelhuth says.
“It’s just costing you money; you don’t get anything in return,” she says. “Usually paying your home loan would be the first step to focus on. Unless of course you’ve got any other debt that’s not tax deductible that’s at a higher rate of interest, like credit card debt or a personal loan, then you’d pay that off first, and then your home loan.”
Check the difference
Financial journalist and author of Smarter Property Investment, Peter Cerexhe, says home owners should play with some numbers on online mortgage calculators to see how much of a difference small repayments or more regular payments can make to reducing the life of their loan.
“What you’ll find is that if you can afford to pay a little extra, you can achieve a substantial reduction in the term of the mortgage,” Cerexhe says.
“If you can afford an extra $100 a month, put that figure in and see what it does to the term of the mortgage, then put in $150 a month and have a look to see what that does. Each of these will take a year or more off your mortgage. At a certain point however the benefits slow down. It’s not like if $200 is great then $400 will cut off twice as many years – that doesn’t happen. By trial and error you’ll find an amount that is really effective for you for reducing the term of the mortgage.”
For example, a $300,000, 30-year loan at 7 per cent, will have minimum monthly repayments of $1995.91. By paying an extra $100 a month, you will save four years and 2 months off your loan. If you pay $200 extra a month you’ll save seven years and one month, or 11 years if you paid an additional $400 a month.
Find what works for you
Greg Kerr’s approach of increasing the interval of payments is another good strategy.
“Increasing your payments to fortnightly or weekly intervals is the equivalent of making 13 monthly repayments a year, and this approach on its own can make a significant difference,” says Cerexhe. “That’s a way of setting it up so you don’t have to think about it, it just happens. It works well if your pay cycle is weekly or fortnightly.”
It’s a case of choosing a strategy that works for you and keeps you motivated, Cerexhe says.
“I know some people that every time their mortgage balance ends in 200 or less they’ll pay off that $200. It’s a trigger to them, and they pay that off because $200 is an affordable amount so it slips in unnoticed,” Cerexhe says.
“It’s a matter of trying to find what suits your personality and the way your mortgage comes in.”
Or by using your Cash-back from YourShare and adding it to your mortgage you could save even more!!!Complete the Home Loan Health Check to see what you could save!
Good riddance winter, with your one-after-the-other cold, mould and reality shows Channel Ten has oversold.
If the change of season/programming has you all inspired to embark on a spring clean, then don’t forget that all-important financial house.
Here’s a handy money-health checklist, inspired by the Australian Securities and Investments Commission’s efforts for this week’s MoneySmart Week.
DO YOU HAVE FINANCIAL GOALS?
I write often about the importance of actually having a target if you want to hit one. Think about it: how much money have you earnt over your working life, and what do you have to show for it? If the answer is “not much” you’re likely focusing too much on ”here and now” rather than ”somewhere else and later”. To resist the consumer temptations thrown at us every day, you need a tangible, ultimately achievable reason – so get dreaming.
ARE YOU OPTIMISING INCOME AND EXPENSES?
A little extra goes a long way – unless you simply adjust to spending it. First, are you getting all the benefits you’re entitled to? Think family tax benefits and Centrelink payments, and giveaways for lower earners such as the superannuation co-contribution. Ensure you are earning what you are worth (ladies, I am especially talking to you).
The other key part of your personal balance sheet is what you spend. Just like striking the delicate balance that is calories in, energy out, if money out exceeds money in your finances will spiral out of control and become unhealthy. And in this case it’s your debt that may bloat.
Do you know where your money goes? ASIC says only 54 per cent of us do. Noting it or signing up for the regulator’s TrackMySpend smartphone app can yield all sorts of surprises. A relatively painless place to start ”trimming the fat” is to get a good deal on so-called fixed costs such as utilities.
IS YOUR DEBT ON THE DECLINE?
Give some thought to whether your overall money equation is getting better or worse.
Sure, throwing extra money at loans does wonders to clear them early, but there are also easier ways – like getting a better home-loan deal while keeping your repayments the same.
For example, move a $300,000 loan from a big bank charging 6.8 per cent to one of the 5.8 per cent lenders and maintain your former repayments and you’ll save $54,219 and nearly 4½ years. You should be accelerating personal loan payments, too.
With credit cards, transfer any outstanding balance to a card offering no or low interest for a period. Our sister publication Smart Investor magazine has just named ANZ’s First Visa Card, which charges 2.9 per cent for 12 months, as the best value.
The best way to attack your debts from a mathematical perspective is from highest to lowest interest – and set a time target (with the aid of a site like infochoice.com.au) to keep motivation up.
ARE YOU GETTING WEALTHIER?
I mentioned the financial-fitness equation earlier; if you are managing a money surplus, are your savings or investments growing? And does that mean you have a cash stash that you could access in an emergency?
A caveat here: if you still have debt, repaying it is one of the smartest possible financial moves (and house any emergency funds in or alongside a loan too).
You earn an effective return equal to your interest rate – which could be 20 per cent or even higher on a credit card – and this is tax- and risk-free. Otherwise, you need well-diversified investments.
WILL YOUR SUPER COVER YOU?
Jump on the tremendous super calculator at moneysmart.gov.au to project the potential size of your super fund at retirement.
You need an amount large enough to generate annual income of two thirds of your final salary; a rough and ready lump-sum guide is 20 times that salary.
If you’re nowhere close, look at clever ways to redress this, such as before-tax salary sacrificing; but just be aware the new limit for concessional contributions (which includes your employer’s) is $25,000 a year.
Before we leave the subject of the future, it’s vital to also check that you and your family are protected with adequate insurance and that you have up-to-date wills in place.
At moneysmart.gov.au you can input your details into a questionnaire, which will then give you feedback about your progress and make suggestions.
Of the 4000 Aussies who have taken the test so far, the most common failings were missing a tax return, having no income-protection insurance and foregoing available income. How will your finances fare?
Nicole Pedersen-McKinnon is the editor of afrsmartinvestor.com.au. Follow her on Twitter @NicolePedMcK.