Finance

The impact of natural disaster on property values and insurance

4 July, 20235 July, 2023 Updated on5 July, 2023 Finance

Australia’s vast expanses and varied climates make us prone to natural disasters.

In recent years alone, we’ve experienced the devastating impacts of bushfires in the southern parts of the country, flooding along the Eastern Coast, as well as significant storm events and cyclones.

As you can imagine, the aftermath of a natural disaster typically involves a lot of clean-up and rebuilding for those affected.

However, there are also a number of flow-on effects from these events for those not directly affected that are of particular importance to homeowners and first home buyers.

Impact on Home Values

A natural disaster can drastically reduce the market value of affected properties, as property buyers become deterred by the high risk factor associated with the property or area.

This can also make it difficult for owners to sell their homes or vacant land, as the buyer pool willing to take on that risk reduces.

In some cases, properties in high-risk areas may become uninsurable, which can further impact value, sometimes causing these properties to become unsellable as purchasers are deterred by the inability to insure the property.

Impact on Insurance

Following a natural disaster, insurance companies are inundated with claims for damages, which can take months, or even years, to process.

Property owners in affected areas may face increased premiums, regardless of whether or not the event directly impacted them, due to insurance companies requiring their underwriters to assess potential future risks to ensure a balanced risk portfolio across their entire insurance pool.

For example, in its ‘Report on Home and Contents Insurance Prices in North Queensland’, the AGA reported that North Queensland’s home and contents insurance premium rates had increased by around 80 per cent over the period of its investigation. Throughout that time, North Queensland experienced Cyclone Larry, Cyclone Yasi, and the Mackay Storms. By comparison, premium rates across Australia increased by around 25 per cent for the same period.

Underinsurance or uninsurance is often the outcome, with homeowners either unable to afford the cover or justify the cost, presenting a substantial financial risk to homeowners if a natural disaster occurs.

Tips for Property Buyers

It is crucial to conduct thorough research, especially when considering buying a property in an area prone to disasters.

Know the Property History

Research the history of the property, including the surrounding area, to understand the risk for natural disasters:

Research historical records of property damage in the area.
Check with the local council for any risks in the area and any tools they might offer.
Be familiar with the environmental factors that create risk for the area.

Read the Fine Print

Not all insurance policies are created equal, so it’s essential to understand the terms and policy definitions of any insurance contracts, particularly for disaster prone areas:

Discuss the appropriate levels of insurance coverage with an insurance agent,
Research insurance providers and consider their options.

Also, by researching insurance coverage and obtaining quotes during your property due diligence, you can factor the actual cost into your budget to ensure you can afford cover and not be forced into uninsurance or underinsurance.

Risk Mitigation & Disaster Management

If you’re looking to purchase a property in a high risk area, be aware of risk mitigation strategies to assist with reducing risk.

Understanding your property’s building materials and construction methods may help to protect your property.
Understanding risk mitigation activities you could take to reduce your exposure. For example, in bushfire prone areas, being aware of hazard reduction activities such as fuel-reduction burning, removal of vegetation and maintaining fire lines.

Without appropriate insurance cover or a streamlined disaster management plan, the financial implications of natural disasters can have dire consequences.

If you’d like further advice in relation to ensuring you are adequately protected, or if you require assistance with purchasing a home, please reach out to discuss how we might be able to assist.

The information provided in this article is general in nature only and does not constitute personal financial advice.

Harvesting Financial Success

27 September, 20238 November, 2023 Updated on8 November, 2023 Budgeting, Education, Finance

Spring is the perfect time to rejuvenate your financial habits as well as your garden! Here are 5 ways to set you, and your garden, up for success: 1. Plan your garden: Start with deciding what type of garden you want. In other words, get clear about what goals you want to achieve and by when. Once you have your list of goals prioritise them, so you know where to focus your efforts. Tip: If a goal is large and will take some time to achieve, set yourself some smaller goals with shorter timeframes along the way. 2. Pull out the weeds: You don’t see garden designers on TV rushing in to plant a new garden without getting rid of the weeds first. In financial terms this is the same as eliminating bad debt. Bad debt is debt used to purchase things that don’t go up in value, like cars and household goods. Financing purchases with credit card debt (where the entire balance isn’t paid off each month), personal loans and perhaps ‘buy now, pay later’ facilities mean paying very high interest rates or late fees. Your total cost ends up much more than the original purchase price. These are your weeds – pull them out and don’t let them take hold again! 3. Prepare the soil: A key element to a flourishing garden is good soil. For us this is managing our cashflow. For many people our income is fairly consistent, so the focus is on managing outflows. Think of this as a spending plan not a budget. The ‘B’ word has a strong association with denial and, much like a diet, too much restriction can be counter-productive. Be honest when completing it as you need to know exactly where your cash is going. Your adviser can be a huge help with this. It’s an opportunity to look at your spending and think again about your goals. Is the enjoyment you get from three streaming services more than what you’ll get from achieving your goal? What do you want more? Tip: Ways to reduce spending often require some planning. Taking lunch to work can save a heap of money. Too rushed to do it in the morning? Make something the night before – and remember to take it with you the next day! 4. Plant your garden: This is where things start to take shape! Gardens often start small so think of this as your initial investment which over time becomes larger and larger. In your financial life this is the power of compounding. To help those initial plants fill out your garden quicker you can add other small plants over time. This is known as dollar cost averaging or adding regularly to your initial investment to boost the effect of compounding. 5. Protect from pests: Your garden will appreciate some help to guard against pests and disease. In the same way it’s a good idea for you to protect your biggest asset – your ability to earn income. Income protection and other types of life insurance can protect you against unexpected events and prevent all the hard work you’ve put into your financial garden from unravelling. Success requires commitment because, just like droughts which affect your garden, there will be times when reaching your goal seems hard going. Don’t abandon your dreams! With clear goals, elimination of bad debt, a realistic cashflow plan, disciplined regular saving and protection of your biggest asset, you’ll be harvesting rewards season after season! The information provided in this article is general in nature only and does not constitute personal financial advice.   

What does a good financial adviser do?

9 June, 20212 June, 2021 Updated on2 June, 2021 Aged Care, Budgeting, Economy, Finance, Insurance, Investing, Retirement, Superannuation

Some people may think that a financial adviser’s role is to forecast the direction of the share market from month to month and invest clients’ money accordingly. This is not the reality, of course. Investments are only one small part of what your financial adviser can provide for you. Consider for a moment the number of websites, newsprint and broadcast time dedicated to financial topics these days. Australians seem to have an insatiable appetite for understanding finance. Whether it’s the latest share market activity, economic news or the constantly changing tax and superannuation rules, a licenced financial adviser can help answer your burning questions and save you the hassle of finding it yourself. Usually, the benefit you receive from a financial adviser can be spelt out in dollar terms. It might be the income tax you have saved by re-structuring your salary, or a new concession from the Australian Tax Office (ATO) or Centrelink that you didn’t know you could get. The finance section of your newspaper or online magazine probably includes a regular “advice” or “Q & A” column. By law, these columns must warn readers that the advice does not consider your personal situation or needs, and you should consider its appropriateness before acting. In setting your financial strategy, a good financial adviser will take the time to get to know you and your circumstances. This means that everything recommended to you—the investment portfolio, super contribution strategies, savings plans and insurance advice—is tailored to your personal needs, goals, and tolerance to risk. As the years go by, your financial strategies will need adjusting due to changes in the broader environment or something closer to home. Whatever the case, your adviser is there to help you make the most of the good times and the bad. And a regular financial review doesn’t always mean major changes, but at least you’ll know that you’re on the right track – and not having to do it alone. Quality, knowledgeable advice is critical, and wherever you are on your financial path, now is always the best time to talk to us. The information provided in this article is general in nature only and does not constitute personal financial advice.

Tap into the amazing power of compounding

9 October, 20198 September, 2022 Updated on8 September, 2022 Finance

When you invest over a period of time, compound interest is your best friend. In effect, it means you are earning interest not just on your own capital, but also on the interest you’ve already earned. Over the long term, this might be phrased as “interest on interest on interest on interest on interest …” or more simply, “free money”! So how do you get this free money? This is how… A simple start Imagine you place $100 in an investment that earns 10% pa. At the end of one year, you’ve earned $10. Then you spend all the interest you receive. At the end of each year, your investment amount is back to $100. That’s simple interest. At the end of 10 years, you will still have your $100, and you will have received a total of $100 in interest. I = P(1+r)n-P Don’t worry, we’ll do the maths for you. It calculates your net profit when you earn interest on the interest. That’s what compounding is all about. Going back to our first example – if you re-invest the interest on your original $100, at the end of the first year you will have $110. Leaving it invested at 10% pa, you will earn interest of $11 in the second year, bringing the total in the account to $121. If you keep going for 10 years, your investment will grow to $270.70 – that’s your original $100 plus $170.70 in interest. Time is money – literally This example may not seem so impressive, but the power of compound interest really shines over the long term. Looking at our simple situation and taking the interest out each year for 30 years, you will earn a total of $300 in interest. But relying only on the compounding of the interest (ie. no other deposits are made), the total interest earned over the same time would be $1,883.74. A child born today could easily live to 100. Simple interest on a $100 investment would amount to $1,000 over their lifetime. Left to compound untouched at 10%, that same investment would grow to $2,113,241! Even on such a small initial investment, that’s an incredible difference! The other critical factor is the actual rate of earnings. If the earnings rate dropped just 1% to 9% pa, a one-hundred-year investment would grow to only $783,548 A couple of drags Don’t forget to take into account tax and inflation. They act as drags on investment performance. Let’s assume investment earnings remain at 10% pa and are fully taxable. What will your $100 grow to over 30 years at different tax rates? As for inflation, although we are currently experiencing very low inflation, nobody knows how long this will last. If it reaches the Reserve Bank’s target of 3%pa, you will need $2.43 in 30 years’ time to buy something that costs $1.00 today. There are many ways of minimising the effects of tax and inflation. Picking the right tax environment is clearly important. Capital gains are only taxed when an investment is sold, so growth assets have an advantage over those that only produce income. They also cope better with inflation. Investment risk Always remember, seeking higher returns generally involves taking higher risks but some of those risks can be managed with an effective and professionally constructed investment strategy. If you want to take advantage of “the most powerful force in the universe” contact us for a chat. This is general information only

Financial advice is not the same for everyone

20 March, 20198 September, 2022 Updated on8 September, 2022 Finance

Investment planning is an important part of financial planning but underpinning the whole process of creating wealth in the first place is having a good financial strategy. For many people that strategy is taking each day as it comes and letting the future look after itself; but in a complex and ever-changing world, isn’t a more active approach a good idea? Each of us has specific needs and desires, of course, but there are a number of common challenges that we need to think about when developing our financial strategies. Stage of life Baby boomers are moving into retirement in droves, so Gen X is taking on the mantle of being the great wealth accumulators. For the most part, this generation has their strategies in place: pay down the mortgage, contribute to super, maybe buy an investment property, and wait for the kids to leave home. Generationally, it’s millennials who face the greatest challenges in developing a financial strategy. Younger millennials are just embarking on careers and the focus is, understandably, on having a good time. Many feel priced out of the housing market, and while the ‘gig’ economy promises greater work flexibility, this comes with reduced job security and often no employer superannuation contributions. Then there’s the challenge of balancing starting a family with establishing a career. All up there’s a lot to plan for. Gender The path to income equality is a slow and frustrating one. In general, over their working lives, women continue to earn significantly less than men. This is largely due to time out of the workforce to look after children. However, progress is being made, and an increasing number of women are earning more than their partners. Having Dad take time off to look after the kids then becomes a viable financial strategy. On top of that, the gig economy, and technology in general, is opening up more opportunities for stay-at-home parents to earn a decent income. Relationship breakdown Sadly, many long-term relationships end, and the emotional and financial costs can be high. This isn’t an issue that anyone wants to think about but is obviously a trigger for developing a new financial strategy. This is particularly important when children are involved, and expert help will likely be needed. Inheritance More wealth is being transferred from older to younger generations than ever before, and thanks to superannuation, this trend can only grow. Receiving an inheritance is often the event that leads many people to seek financial advice. While the focus may be on creating an investment plan, this is an ideal time to look at the broader financial strategy to make the most of any inheritance. Never too soon to start The upshot is that pretty much everyone can benefit from having a financial plan. It doesn’t need to be complicated and you can get the ball rolling yourself. A simple savings plan or paying off credit card debt can be good places start. To make the most of your situation it’s a good idea to talk to a financial adviser. A qualified financial adviser can help you understand the complex financial environment and what you need to know to work out the likely outcomes of different strategies. Contact us today! This is general information only

Discovering Your Financial Mindset

2 August, 20232 August, 2023 Education, Finance, Investing

In the quest for financial stability and success, we often focus on tangible elements like earning more money, saving diligently, or investing wisely. But have you ever stopped to consider the role your financial mindset plays in achieving your financial goals. Understanding financial mindset Your financial mindset is a set of beliefs and attitudes you hold about money — how you earn it, save it, spend it, and invest it. This mindset largely influences your financial behaviours, decisions and ultimately your financial success. Each mindset carries a unique perspective about money, influencing your financial decision-making process. There are four common financial mindsets: 1. The Spender enjoys the thrill of the present, often overlooking long-term financial security for immediate gratification. If you frequently find yourself making impulsive purchases, or your credit card balance perpetually outweighs your savings, you may identify with this mindset. 2. The Saver is characterised by frugality and a steady focus on long-term financial security. If you diligently maintain a budget or feel a sense of accomplishment when growing your savings, the Saver mindset most likely resonates with you. 3. The Avoider, often plagued by financial anxiety, tends to shy away from money matters. If you find bills and bank statements overwhelming, or frequently procrastinate financial planning, you likely have an Avoider mindset. 4. The Investor sees money as a tool for wealth creation. If you appreciate the potential of assets and are willing to take calculated risks for future returns, you are most likely aligned with the Investor mindset. Identifying Your Current Financial Mindset So how do you uncover your financial mindset? It begins with self-reflection – Do you often worry about money, or do you feel confident about your financial situation? Are you comfortable taking calculated financial risks, or does the thought of investing scare you? Do you view money as a tool for achieving your dreams, or a necessary evil to be managed? Examining your feelings and behaviours around money can provide valuable insights into your current financial mindset. This process is beneficial because it sets the stage for potential shifts in perspective that can improve your financial life. Once identified, you can analyse your money behaviours, uncover potential blind spots, and take action to optimise your financial decision-making. For instance – If you identify as a Spender, incorporating a budget and automating savings can provide some balance to your financial outlook. Savers could benefit by introducing an element of investment to their financial strategy, allowing their savings to work harder for them. Avoiders must confront their fears and actively engage with their finances, perhaps by seeking professional guidance. While Investors generally have a positive approach, ensuring a balanced portfolio to mitigate risks is essential. Transforming your financial mindset requires commitment, patience, and time. Take it slow and make gradual changes as you grow more comfortable with your changing perspective on money. It’s not just about money; it’s about your attitude towards it. Adjusting your financial mindset means transforming both how you see money and how you engage with it, paving the path to financial success. The information provided in this article is general in nature only and does not constitute personal financial advice.

Estate Planning is not just for retirement

16 August, 202314 August, 2023 Updated on14 August, 2023 Finance

Many people think that Estate Planning is only for people who are close to retirement, especially if we fall into the trap of thinking that Estate Planning is just about getting a will. But did you know that Estate Planning addresses key protection strategies whilst you’re still alive? It doesn’t matter who you are, Estate Planning is for everyone. What are the key pillars of Estate Planning? Estate Planning is all about making sure that you get the choice as to what happens to you and your assets – whether that’s if you need someone to make decisions on your behalf, or you pass away and your estate needs to be divided up. 1. Advance Care Directive Should something happen to you, and you are unable to communicate decisions about your medical care and treatment, an advance care directive allows you to: As long as the directive is valid, it must be followed and cannot be overridden by medical professionals or family members. 2. Power of Attorney A Power of Attorney allows a person who you nominate to make financial and legal decisions on your behalf if you lose capacity as a result of illness, injury or disability. They can help ensure important financial and legal matters are handled without delay if you can’t manage them yourself – for example, paying your bills, managing your bank accounts, managing your investments and buying and selling property. 3. A Valid Will Whereas the first two pillars ensure that important matters are handled in accordance with your wishes if you’re incapacitated, a will ensures that those same matters are handled in accordance with your wishes after your death. A will gives you the best chance of ensuring that your assets go where you want them to. If you die without a valid will: 4. Superannuation When you pass away, your superannuation is distributed to the person(s) you have nominated in the fund’s death benefit nomination. However, this may not be binding on the super fund, and if you haven’t nominated a beneficiary this could result in a lengthy process as the super fund trustee needs to decide who gets the money. Superannuation is also not automatically included as part of your estate. The best way to ensure your super is distributed in accordance with your wishes is to nominate your legal personal representative. Your Executor will then be required to distribute your super according to your Will. An estate plan gives you choice and control Whilst growing your wealth is one part of a great financial plan, protecting your wealth in the event of your incapacity or death is just as important. Ensuring that your estate plan is in order gives you choice and control in how your affairs and assets will be handled, which in turn benefits both you and your loved ones. If you would like to explore your estate planning options, contact us to get started. The information provided in this article is general in nature only and does not constitute personal financial advice. 