Unlocking financial secrets for different phases of life

9 September, 202017 September, 2021 Updated on17 September, 2021 Finance, Investing

One of the keys to financial success is to adopt the right strategy at the right time. As you move through the stages of life, here are some tried and tested ‘secrets’ that will help you build and protect your wealth.

Teens and young adults
Time is on your side so get saving. Through the magic of compound interest, a little bit invested now can grow into a big amount over time. Most young people don’t want to think about life in 50 years time, but if a 15-year-old starts saving just $10 per week into an investment returning 5% pa (after fees and tax), when they turn 65 their total outlay of $26,000 will have grown to over $116,000. Contributing those savings to a tax-favoured vehicle such as superannuation may provide an even higher final return.

Single life
Saving is still a key strategy as careers are established, but usually with a shorter timeframe and a specific purpose in mind – buying a home, for example. This is a time when savings strategies can be brought undone by the allure of desirable things and the ease with which one can go into debt. Take care not to indulge in too many luxuries, and avoid taking on any high interest debt, such as credit cards. Rather, commit to working out a budget and sticking to it.

Family focus
The time of kids and mortgages is also the time of peak responsibility. It’s likely that your most valuable asset is your ability to earn an income, and illness, disability or death could deprive you and your family of that income. The financial consequences of each of these possibilities can be managed with a blend of income protection, total and permanent disability, trauma and life insurances.

Preparing for retirement
With offspring launched into the world and earning capacity often at a peak, a wealth of opportunities open up for pre-retirees. By all means enjoy some lifestyle spending, but don’t forget to supercharge your super in anticipation of a long retirement. In times of normal interest rates, using surplus income to pay off any outstanding home loan is often recommended, however, when interest rates are very low, investing spare income into super and leaving debt repayments until later may deliver a better outcome.

Golden years
Australians are up there with the leaders when it comes to enjoying long and healthy retirements. That means retirement savings need to last, so a): don’t go too hard too fast in spending your super, and b): don’t invest too conservatively, particularly in times of ultra-low interest rates. On the plus side, if you’ve employed the above secrets in each phase of life, you should be in good shape to enjoy a long, financially comfortable retirement.

Whatever your stage of life, there are many things you could be doing to secure your financial future. To find out more, talk to us today.

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

Horror $47,000 cost blows up the owning vs. renting debate: ‘More expensive’

14 November, 202414 November, 2024 Budgeting, Education, Finance

Financial advisor Robert Goudie has warned Aussies about the extra costs involved in owning a home and that renting isn’t always dead money. You might have heard the phrase that renting is “dead money” or that you’re just “paying off someone’s mortgage”. When you’re forking out hundreds of dollars a week to keep a roof over your head, that idea can seem fairly depressing. But Consortium Private Wealth financial advisor Robert Goudie wants Aussies to change their mindset when approaching rental payments. He told Yahoo Finance that while property ownership should still be a major goal for Aussies, it’s not always the most ideal situation and you shouldn’t rush into it without understanding what you’re paying. “From what I’ve seen, sometimes it’s more expensive to own the property because no one thinks about the cost of ownership, which is your rates, and your insurance, and your water and service charges. and any maintenance that might be applicable,” he said. He wanted to set the record straight and did the calculations for how much you can save when you rent. Goudie gave an example of Person A who was spending $500 per week on a house worth $750,000 and Person B who bought a $750,000 house and lived in it. Person A would have spent $26,000 in a year on rent. However, the other person, who stumped up an impressive $100,000 deposit and had a 6.5 per cent interest rate on their loan, would have paid $42,250 just on the interest for the mortgage. When you add on rates and insurance costs, the annual bill rises to $47,250, or just short of $910 per week. That means Person A will be able to save $410 more per week than Person B. “People say rent is always dead money. Is interest not dead money? Paying money to a big corporation making billions… I think it is,” Goudie explained to Yahoo Finance. “If rent is dead money, then interest should be considered dead money as well.” Buying might not be the best idea right now The financial advisor wants this general advice to be a warning for Aussies to do the calculations themselves to work out if buying a property is going to be the best financial move for them. “I don’t blame young people for wanting to get on the property ladder… there is that feeling of, ‘If I don’t get in now, [property prices] just keep going up’,” Goudie explained to Yahoo Finance. However, he gave an example of a client who has a home, but the mortgage repayments are so much higher than the rent he used to pay that he now feels “guilty” about having a coffee at a cafe. “That’s not living,” Goudie said. What about capital growth? Yes, there is the very real elephant in the room about the big difference between renting and owning a property. When you have bought a home, you will hopefully be able to live in it when it’s fully paid off. In that case, it’s far cheaper than renting. You can also use it as equity to buy another property or you could sell it for more than what you paid for. Goudie pointed out that not every home that is bought benefits from capital growth and can sometimes go down in value, which is what is being seen in parts of Melbourne this year. But even if it does go up in value, you can’t use that capital growth in the short term to pay for your food or keep the lights on. The financial advisor said his weekly cost comparison was designed purely to compare “apples to apples”. Many Aussies think property ownership is out of reach Goudie admitted that while you might save hundreds of dollars a week by renting, it’s not a long-term and secure way to look at accommodation. “I can’t imagine myself at age 85 renting with the threat of being kicked out at a moment’s notice, because in Australia, we do not have long-term lease or rental agreements,” he said. “There needs to be changes in that space.” But for many Aussies, the idea of owning a home is a distant or even completely out-of-reach concept. According to new research by Australian Housing and Urban Research Institute (AHURI), three in five renters expect they will never own their own home. “This shows a significant shift for Australian renters,” lead researcher Professor Emma Baker of the University of Adelaide. “Whereas previously anyone who desired home ownership believed they would be able to move into that tenure, now more Australians are conscious that this dream may not be a possibility for them.” Property prices have been soaring in cities across Australia at the same time that inflation and stagnant wage growth have impacted many peoples’ wallets. But this isn’t just a young Australian issue either. AHURI’s research found the proportion of people renting in the private market has increased across all age brackets from people in their late teens to their 80s and above. “The rise of renting in Australia is a multigenerational phenomenon,” Professor Baker said. Source: https://au.finance.yahoo.com/news/horror-47000-cost-blows-up-the-owning-vs-renting-debate-more-expensive-053110244.html The information provided in this article is general in nature only and does not constitute personal financial advice. 

What is money… really?

4 November, 202017 September, 2021 Updated on17 September, 2021 Economy, Finance

That $50 note in your pocket. What’s it worth? “$50,” you say, probably thinking it’s a dumb question. But is it really? Or a sheet of plastic and a bit of ink that likely cost the note printer less than a cent? Your $50 note only has value because the government declares that it does. This lack of intrinsic value means your $50 note, and the balances of bank accounts that represent most money in circulation, might better be described as currency rather than ‘real money’. Over the past few thousand years all sorts of items have been used as currency, from shells and cocoa beans to soap and cigarettes. But to be considered real money, several key criteria need to be met. The most important are that it is: Recognised as a medium of exchange and accepted by most people within an economy. Durable. Portable, having a high value relative to its weight and size. Divisible into smaller amounts. Resistant to counterfeiting. A store of value over long timeframes. Of intrinsic value, i.e. not reliant on anything else for its value. Throughout history gold and silver have come closest to meeting these and other criteria, though nowadays you’ll have difficulty in paying for your groceries with gold Krugerrands. Also, you’ll want to keep your gold and silver in a safe place, and it was people seeking to do just that which gave rise to paper money and our current system of bank-created money. What started out as a good idea… Centuries ago goldsmiths would take in gold and silver for safekeeping and issue the owners receipts, or notes, confirming the amount of gold held. The depositors soon discovered that these notes could be used for payment in place of the physical gold, but the goldsmiths noticed something else. It was rare for anyone to redeem all their notes at once. They saw the opportunity to issue notes as a loan that borrowers paid back over time, with interest. Provided borrowers paid back their loans on time and only a small proportion of owners wanted their gold back at any given time, all was well, and goldsmiths transformed into bankers. But this didn’t always work out. An economic shock might see everyone wanting their gold back, and if the bank couldn’t deliver the full amount that was demanded, it went broke. To help prevent this, many countries created central banks, with some governments even acting as lender-of-last-resort. While government control and the rules around banking have evolved over time, private banks are still the source of most currency created today. When things get real In economically stable times it’s easy to think of currency and real money as the same thing. However, a couple of examples reveal the difference between the two. One is when a government starts printing money to pay for its programs. Inflation usually results, and the value of currency can plummet. In the case of hyperinflation, paper money and bank deposits can quickly become worthless as happened in Germany in the 1920s. The difference between currency and real money and the issue of intrinsic value has implications for other investments. If you would like to learn more, talk to us. We’re here to help. The information provided in this article is general in nature only and does not constitute personal financial advice.

Retirement: it’s time to get busy living!

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

Many people eagerly anticipate retirement. Others view its approach with trepidation, worried over how they’ll fill their days. Australians are living longer; it’s not unreasonable to assume you’ll be retired for 20 or 30 years. Not sure how you’ll fill all those days? We have a few ideas to kick-start your new life. Learn/Teach something Do you have skills and talents you can share with others? Are you interested in learning from others in return? The University of the Third Age (U3A) may be your kind of group. Located all over Australia, U3A groups meet regularly to provide learning and engagement for older people and disabled younger people. Organisers run structured courses with professional leaders or casual knowledge-share sessions conducted by group members or invited guests. Look up the U3A in your area or visit www.u3a.org.au for information. Become an Olympic athlete Return to your favourite sport or learn a new one. Sports like archery and golf are Olympic sports! It’s true, and organisers of the 2020 Tokyo games are considering including bowls as well. Or closer to home, you can begin preparing now to enter the Pan Pacific Masters Games on the Gold Coast in 2020. Write your memoirs Everyone has a story to tell – yes, even you! You may think your life is rather ho-hum, but your children and grandchildren might disagree. Many independent publishers will help you produce a beautiful memoir with a short print run, perfect for family and friends. Community Feel like giving something back? The Australian Men’s Shed Association is a body that supports the health and wellbeing of men. It’s a terrific organisation for retirees with academic or practical skills to share through events and learning activities. To find a Men’s Shed near you, go to www.mensshed.org for details. If that’s not your thing consider helping 4-legged friends at your local animal shelter. Love children? What about becoming a “Pyjama Angel”? Full details can be found on the Pyjama Foundation website www.thepyjamafoundation.com. Or check out your community notice board for local opportunities. If retirement has snuck up and caught you unprepared, think about what you enjoy doing, what your skills and interests are and get busy. You’ve still got a lot of living to do – and finally, it’s all about you! 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

How to help your adult child buy their first home

23 March, 20235 April, 2023 Updated on5 April, 2023 Budgeting, Finance, Superannuation

By Robert Goudie This savings strategy is about building a healthy deposit and allowing kids to learn about consistent, regular saving. The strategy will require patience to build a substantial deposit over several years. I also acknowledge that not all parents are able to help their children buy their first home. In my professional life as a personal financial adviser, I have seen many parents assist their children in purchasing their first home. This has often been done with a lump sum. But, unfortunately, this doesn’t have the bonus of any tax efficiency or teaching children a regular savings habit to give them a sense of achievement. Purchasing a home can be difficult, especially as property prices have increased significantly in recent years. For many people, the high cost of housing (and living) has made it difficult to save a deposit for their first home, and even if they can do so, they may not be able to afford the monthly mortgage payments on a home that is within their budget. Building a larger deposit can reduce the debt levels needed to buy their first home or even help them to buy in their preferred area. For parents with the financial capacity and want to help their children save for their first home without handing over a large lump sum, this strategy, combined with some patience, provides an effective way to build the deposit faster. (Please note: I would only recommend parents to do so that have met their own retirement financial goals and have the extra capacity to help out) By subsiding your children’s income regularly, it can allow your child to start salary-sacrificing pre-tax dollars into superannuation – something that they normally couldn’t do without your help. Superannuation salary sacrifice Salary sacrificing is a way for employees in Australia to contribute part of their pre-tax salary into their superannuation account. This can be a tax-effective way to save for retirement because the contributions are taxed at a lower rate than your marginal tax rate. In Australia, the tax rate on contributions made through salary sacrifice is 15%. Contributions are made from your pre-tax salary, which means they are not taxed at the same rate as your income tax. This can be a significant saving if you are on a high marginal tax rate. For example, suppose you are on a marginal tax rate of 45% and were to salary sacrifice $10,000 into your superannuation account. In that case, you will pay $1,500 tax on those contributions (15% of $10,000). However, if you received that $10,000 as salary instead and then contributed it to your superannuation account after tax, you would pay $4,500 in tax (45% of $10,000). In this example, salary sacrificing would save you $3,000 in tax ($4,500 – $1,500). This can be a significant saving, especially over the long term. However, it is important to note that there are limits on the amount you can salary sacrifice into your superannuation account each year. FHSSS In recent years, the Australian Government has implemented the First Home Superannuation Saver Scheme (FHSSS), allowing individuals to save for their first home inside their superannuation account. The policy was designed to help first-time home buyers save for a deposit more quickly by allowing them to make voluntary contributions to their superannuation account, which can then be withdrawn for a home deposit once certain conditions have been met. Under the FHSSS, individuals can apply to withdraw voluntary contributions of up to $15,000 from any one financial year from 2017 onwards, up to a total of $50,000 across all years. If you are in a couple, this is a combined $100,000. Again, these contributions are taxed at a rate of 15%, which is generally lower than an individual’s marginal tax rate. The money saved through the FHSSS can be withdrawn (less the 15% tax) for a home deposit once the individual has held their superannuation account for at least 12 months and met other specific eligibility requirements. Note that superannuation contributions, including contributions made under the FHSSS, must still be within the standard annual caps for concessional super contributions. The FHSSS is one of several government initiatives aimed at helping Australians save for their first home and addresses housing affordability issues in the country. It is available to Australian citizens and permanent residents aged 18 and older who have not previously owned property in Australia and meet additional eligibility requirements. Let’s crunch the numbers Let’s assume a couple make a $14,705 contribution each into superannuation, earning $80,000 each per year, and continue this strategy for a full four years. We will first look at the amount saved in superannuation that can be used for a first home deposit and compare this saving with after-tax dollars outside the superannuation system. After four years of salary sacrificing into superannuation and assuming no investment returns, you would have accumulated a combined $99,994. Compare this to saving after-tax dollars; you would have accumulated $77,054 in comparison. If a couple is lucky enough to have the ability to achieve the above, they would have saved $102,000, which is an extra $23,400 when compared to saving in after-tax dollars. Now let’s look at the amount of income that would need to be provided by those generous parents or grandparents to ensure that the household cash flow remains the same: $15,000 less the marginal tax rate of 34.5% is $9,825 per person or $19,650 for a couple. Other thoughts Of course, many individuals and couples may already be actively saving for their first home deposit. Therefore, they may not need their generous relatives’ full support to achieve the above. Grandparents and parents can also choose to add a lump sum to help them at the time of purchase. It is worth noting that I have seen many clients take significant pleasure in helping their children and seeing the benefit of this assistance whilst they are still alive. However, as mentioned above, any gifting needs to ensure that generous relatives do not compromise…

Stop resting on your (high income earner) laurels!

19 November, 202429 October, 2024 Updated on29 October, 2024 Education, Investing, Superannuation

Achieving a high income is a significant accomplishment. You’ve put in the hard yards, climbed the ladder, and now you’re pulling in the big bucks! But don’t be mistaken; a high income does not automatically equate to financial security. Just because the money is rolling in today doesn’t mean you’re protected from tomorrow’s uncertainties. Resting on your high-income earner laurels, assuming that a large salary guarantees long-term security without considering long-term financial planning, can be downright risky. So, before you get too comfortable, it’s time for a reality check. When “More” Becomes the Norm Earning more often leads to spending more, a phenomenon known as lifestyle inflation. As your income grows, so does your desire for bigger and better things—a nicer house, a new car, dinners at fine restaurants. This lifestyle upgrade can feel deserved, but without careful planning, it can leave you no better off financially than when you earned less. For instance, imagine a couple earning a combined $350,000 a year. On paper, that sounds like a strong financial position. But between a large mortgage, car loans, private school fees, and regular international holidays, their expenses could easily absorb most of their income. If an unexpected event like a job loss or economic downturn were to happen, they’d find themselves in a precarious situation, with little financial buffer. This is the danger of lifestyle inflation: it’s subtle and easy to justify, but it can undermine your ability to build real wealth. High Income ≠ Financial Security A high income can create the illusion of financial security. It’s easy to assume that as long as the money is coming in, you’re set for life. But without the right safeguards in place, a high income can actually mask financial vulnerabilities. Take Liam, for example. Liam, a 34-year-old marketing executive in Sydney, was earning $250,000 a year and living a pretty comfortable lifestyle. He assumed his high income meant he was financially secure. But when the pandemic hit, his job was made redundant, and without an emergency fund or sufficient savings, Liam found himself in financial distress within months. Liam’s story illustrates a key point: a high income is not a substitute for financial planning. If your finances aren’t structured to handle changes, even a hefty salary won’t protect you from financial uncertainty. How to Future-Proof Your Finances So, how do you make sure you’re not resting on your laurels, assuming that your high income will take care of everything? Here are some strategies to ensure you’re future proofing your finances, no matter how much you earn. 1. Create a Budget and Stick to It A budget is just as important for high earners as it is for those with more modest incomes. Avoid the temptation to spend simply because you can. Instead, allocate funds towards savings, investments, and building an emergency fund. 2. Build an Emergency Fund Even high earners need a safety net. A good place to start is having 3-6 months of living expenses in an emergency fund. This ensures that if something unexpected happens you’ll have the financial resources to cover your expenses without going into debt. 3. Invest Wisely Don’t rely solely on your salary—make your money work for you by building a diversified investment portfolio. The earlier you start, the better, as even small investments can grow significantly over time thanks to compound growth. Don’t wait—time is your biggest asset when investing! 4. Plan for the Long Term Even if retirement seems far away, it’s never too early to start planning. Superannuation is a tax effective structure for building wealth and making contributions to super can be a tax effective strategy for high income earners! 5. Don’t Overlook Insurance Insurance might not be the most exciting part of financial planning, but it’s essential. Income protection, life insurance, and health insurance are vital tools to safeguard your financial future. Take Control Before Life Happens While earning a high salary certainly opens doors to a more comfortable lifestyle, it also comes with the risk of complacency. The belief that you’re financially set simply because you’re earning more is dangerous. Lifestyle inflation, lack of an emergency plan, and failure to invest wisely can all leave you vulnerable when life throws a curveball. It’s not about depriving yourself of the things you enjoy—it’s about ensuring that your financial future is secure, so you can continue enjoying them for years to come. So, don’t rest on your laurels. Take proactive steps now to secure your financial future. You’ve worked hard for that high income. Now its time for that income to work for you! The information provided in this article is general in nature only and does not constitute personal financial advice. 

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