Finance

Insurance: Inside or outside Super?

28 August, 20198 September, 2022 Updated on8 September, 2022 Finance

Most people can choose to own life insurance themselves or to hold this insurance in their superannuation fund. But it’s not a simple decision – the way these policies operate and are taxed may vary depending on whether they are held inside or outside super.

A key benefit of having life insurance within your super fund is that the premiums are deducted from your super account, rather than your personal account. The disadvantage is that it can reduce the amount of money you have available in retirement.

In some circumstances, the super fund can claim a tax deduction for the cost of the premiums. So it’s tax-efficient because the premiums are effectively paid with pre-tax money.

However, it’s important to realise that not every superannuation fund offers every type of life insurance cover. Few super funds offer trauma cover because they can’t claim a tax deduction for these premiums. It may not be possible to get the amount of cover that you need, and the terms are sometimes less comprehensive than a policy owned directly.

Another disadvantage is that it’s not always possible to immediately withdraw the money from your super fund. This is because superannuation is designed as a retirement savings vehicle subject to a strict set of rules controlling access. As a result, a beneficiary must satisfy a condition of release as defined in the legislation before receiving any lump sum payment from a Total and Permanent Disability policy held within a super fund.

Anyone can own or be a beneficiary of a life insurance policy owned directly, but the options are narrower for policies held in super because the person must be considered a beneficiary under the super, and may end up paying tax on the payout.

Another option is to take out cover both through super and directly, and in fact, this combination may sometimes offer the best solution.

To find out what would work best in your circumstances, please contact us today.

This is general information only

Fixed rate mortgage expiring… Now what?

10 May, 20234 May, 2023 Updated on4 May, 2023 Budgeting, Economy, Finance

If your fixed interest rate expiry is coming up, you might have started to think about what happens next and what action you need to take. Or you might be sticking your head in the sand and avoiding the topic entirely. Be warned! The worst thing you can do is take no action at all. If your fixed interest period is due to expire, then it’s time for a review of your finances – Revisit your budget A fixed rate expiry will mean a change to what is often one of our biggest expenses – the home loan repayment. In a rising interest rate environment, this likely means a bigger expense you will need to allow for. By revisiting your budget, you can make sure you can afford the new home loan repayment amount, or adjust your spending where needed. Know your financial situation Your financial situation is going to impact what options are available to you and what options might be best for you. If there’s been recent changes to your income position such as job loss, income reduction or maternity leave, for example, this may impact your ability to refinance your loan. As a result, you may have to stick with your current lender on terms you may not be happy with. If you have surplus cash flow that you want to use to reduce debt, a variable rate loan might be more appropriate so that you’re not as limited with the ability to make repayments. Alternatively, if cash flow is tight, you might appreciate the stability of a fixed rate loan, and knowing your repayment amounts won’t increase during the fixed rate period. By having a good understanding of your current financial position and future goals, you can determine what your needs are and what the best strategy is for you moving forward. Look at what the market is doing One of the main factors to consider when deciding between a fixed and variable interest rate is the current market. While no one has a crystal ball, it’s important to consider what is happening with the economy, housing markets and interest rates. Are interest rates trending up or down? And what might this mean for both fixed and variable interest rate loans? Get clear on your options When your fixed interest term expires, you will need to choose between either re-fixing your loan for a period or switching to a variable interest rate loan. This is also a good opportunity to review your existing loan provider against other loan providers, to ensure you are being offered a competitive rate. With your market research in hand, it’s time to call your existing lender to request a rate review. You can let them know you are considering refinancing your loan and want to know what the best they could offer is. It might be time to switch lenders if they’re not prepared to offer you a competitive rate. 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.   

Charting a course to financial recovery

27 February, 202427 February, 2024 Budgeting, Education, Finance

Australian Bureau of Statistics, (ABS) figures indicate that between 2017-2018 and 2019-2020 total average household debt rose from $190,000 to $204,000. That’s an increase of over 7% in two years! The reasons why would make for an interesting study, however a more pressing question might be what can we do about it? Combine high levels of debt with rising interest rates and a cost-of-living crisis, and it’s no surprise that Australian households are reaching out to Debt Management (DM) companies to help regain control of their finances. DM companies are private organisations that can assist by: Sometimes, DM companies repay your debts – to a specified limit – and you repay them under a single loan arrangement. Terms and payment amounts can be negotiated, offering a beacon of hope and a sense that you’re taking back control. If this sounds like the perfect solution, remember that for every pro, there’s usually a con. For example: While weighing the pros and cons of a DM service, here are a few do-it-yourself strategies for consideration. Budgeting Creating a budget is a 3-step process. The government’s Moneysmart website lists easy ways of cutting back everyday spending. Negotiating Rather than customers defaulting, most banks and utilities companies prefer to negotiate repayment terms, sometimes even offering assistance programs. The key is to reach out before it’s too late. Be upfront about your situation and willing to arrive at a mutually beneficial arrangement. Remember, nobody wins when debts are not paid. Government assistance The Australian government provides a range of financial assistance packages and interest-free loans depending on circumstances. These include crisis payments for unexpected situations, and income support payments for cost of living expenses. Of course there are conditions, but further information, including application criteria, is available from the MyGov website. Financial counselling Financial counsellors help you understand your financial position and assist you to navigate your way out of difficulty. Some local communities offer free, or low-cost, financial literacy programs, aimed at providing education about money and debt reduction. Everyone’s financial position is unique. There’s no one-size-fits-all, so it’s important that your action plan is specific to your needs and that you’re 100% comfortable with any decisions you make. If you’re uncertain, seek the assistance of a qualified financial planner. What’s crucial is that you do something; being proactive is empowering and sets you on the path to financial recovery. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Are we jeopardising the bank of Mum & Dad?

13 September, 20238 November, 2023 Updated on8 November, 2023 Education, Finance

The temptation is obvious. Soaring house prices have made buying a home tough for most home buyers and prompted many parents to think they should step in and make a financial contribution. The typical argument is that Mum and Dad don’t really need the money and that their children will inherit it one day anyway so it might as well be now when it can do some real good. As a result of this thinking, the Bank of Mum and Dad is now estimated to be one of the top 10 mortgage lenders in the country, as more and more people turn to their parents for financial help when buying a home. According to Digital Finance Analytics, parents are now contributing $90,000 on average towards the first home deposit of each of their adult children, up 20 per cent in the past twelve months. With the median house price in Australia’s combined capital cities now $896,000, parents contribute just over 10 per cent as a deposit, or if two sets of parents are involved, 20 per cent as a deposit. For most parents, this is a large amount of money, which can be given to their children either as a straight-out gift or as a formal loan or so-called ‘soft’ loan. Typically, this is done by drawing down against the value of their home as security and gifting the funds or providing a guarantee for their child to buy a home using their home as collateral. The financial comparison site, Finder, estimates that 60 per cent of all first-home buyers access funds from their parents to buy their first home. More, it found that 50 per cent of these children were facing some level of financial stress before deciding to buy a property with the help of their parents. While gaining financial support from Mum and Dad might be essential for many Australians to take that first step onto the home ownership ladder, is it a good decision for Mum and Dad? While some parents can afford this financial handout, it is only the case for some. Figures from the Association of Superannuation Funds of Australia show 1.68 million, or more than half of all Australians over 70, have no super. Of those older Australians who do have super, the median value is between $100,000 and $149,000, suggesting few in this age bracket have funds they can afford to give away. ASFA estimates only 185,000 Australians have $500,000 or more in super, and about 27,325 individuals have more than $2 million in super – a figure where giving funds to children might be affordable. These figures change considerably for Australians in the 50–70 age bracket as these younger Australians have had access to super for longer. However, it’s clear that the Bank of Mum and Dad is not as flush with funds as suspected, and many are sowing the seeds of their own financial destruction. While it is simple in the first flush of retirement to think there is more than enough to support Mum and Dad for as long as they live, life events might undermine this. No one knows how long they will live or what medical issues they may face through retirement, which could mean they themselves need every cent they have. Throw in the prospect of one or both parents needing to move into a nursing home at some stage, which can be a significant cost of around $500,000 per parent; then their finances start looking very shaky. The real fear is that in trying to help their children buy a home, all the Bank of Mum and Dad is really doing is pushing up house prices and sowing the seeds of their own financial problems. The information provided in this article is general in nature only and does not constitute personal financial advice.

To gift or not to gift

31 October, 20188 September, 2022 Updated on8 September, 2022 Finance

With Australia’s age pension being subject to an assets and income test, a simple way for part-pensioners to increase their pension payments is to give away some assets. Not surprisingly the government is on to such an obvious strategy. It’s called gifting, and while it is perfectly legal for you to give away whatever you want whenever you want, if you exceed the relevant limits, Centrelink will continue to assess, what it calls “deprived assets”, for five years. The limits Gifting is defined as giving away assets or transferring them for less than their market value. Limits are the same for both singles and couples. If you give away less than $10,000 within a single financial year and no more than $30,000 over five consecutive financial years, Centrelink will disregard these gifts. Any gifts in excess of the allowable amount will be assessed as an asset (and, where applicable, subject to the income test) for a period of five years from when the gift was made. Planning ahead These rules don’t just apply to existing pensioners. They also concern anyone who is applying for the age pension, as recent retiree Frank discovered. Frank has reached age pension age and based on his current assets and income he should be eligible for a part pension. However: Four years ago he gave his daughter one of his cars, valued at $25,000. At the same time he gave his son $25,000 in cash, to match the value of the car. Two years ago Frank sold a beach house on the open market for $210,000. This was $40,000 less than the initial valuation from the estate agent. In the past year he spent $35,000 on home renovations and $15,000 on an overseas trip. What does this mean for his pension assessment? The money spent on renovations and holidays count as normal living expenses, not a gift. Likewise, with $210,000 being the best offer Frank received for his holiday home after it had been on the market for a couple of months, the property would not be considered to have been disposed of for less than its market value. Whilst he understands that the money he gave to his son is clearly a gift, Frank’s biggest surprise is the treatment of the car. Four years after he gave it to his daughter it’s about to be treated by Centrelink as an asset Frank still owns. That means Frank gave away $50,000 in one year. The annual ‘Gifting Free Area’ is $10,000, so the difference, $40,000, will be counted as an asset for the next year. This will reduce his pension by more than $100 per fortnight. If Frank had thought about his pension five years before he was eligible to apply for it, he could have achieved a better outcome. Seek advice To gift or not to gift? It’s an intricate question. The right answer depends very much on personal circumstances, so talk to your financial planner. He or she can help you work through all the issues, including the complex calculations of the impact of multiple gifts over several years. To gift or not to gift 31/10/2018 This is general information only

Post Christmas Sales – A Survival Guide

20 December, 202314 December, 2023 Updated on14 December, 2023 Budgeting, Education, Finance

We’ve all experienced it… the undeniable allure of post-Christmas sales. No sooner has Christmas wrapped up for the year than the frenzy of Boxing Day Sales descends upon us. Every store window beckons, and our inboxes overflow with promises of unbeatable discounts. But before you indulge in some festive leftovers and make a beeline for the air-conditioned wonderland of sales, let’s take a moment to pause and ponder… Is that shiny, discounted gadget truly a necessity? Do those new outfits genuinely add value to your wardrobe? Or might there be a wiser way to allocate your hard-earned money? The Allure and Reality of Post-Christmas Sales The holiday season often leaves our wallets feeling lighter than usual. Australia’s festive spending reached an eye-watering $74.5 billion in 2022, marking an 8.6% increase from the previous year, according to the Australian Retailers Association. And Boxing Day? A whopping $1.23 billion was spent in just 24 hours! These figures aren’t just numbers; they paint a picture of our collective weakness for a good holiday sale. But here’s the other side of the coin: while sales can offer genuine bargains, they also come with pitfalls. The risk of accumulating more debt is a very real reality for many shoppers, especially with credit cards already stretched thin from holiday shopping. And let’s face it, impulse purchases can often lead to buyer’s remorse and an overstuffed home. The Merits of Post-Christmas Sales While the post-Christmas sales period often comes with warnings of overspending, it’s not all doom and gloom. When approached with a well-thought-out strategy, these sales can be a great opportunity to secure essential items—be it electronics, clothing, or household goods—at a fraction of their original prices. But how can one truly benefit without falling into the common traps? The key lies in being discerning. With a bit of planning and restraint, the post-Christmas sales can be both enjoyable and economically rewarding. Smart Money Moves Beyond Sales It’s easy to forget about your bigger picture goals when there are neon signs screaming discounts of 50% OFF or more! But remember, every dollar spent is a dollar less saved… or put towards those bigger picture goals. Before you fall prey to the post-Christmas sales, consider these alternatives: Save for a Rainy Day: Life is unpredictable. Having a safety net can make all the difference. Debt Reduction: Free yourself from the burden of debt, by paying down your credit cards and/or any loans you have. Invest: Think stocks, bonds, or other avenues to grow your wealth. (Hello Financial Freedom!) Financial Goals: Would you rather a new outfit? Or to be one step closer to that dream holiday, new car, or first home? Post-Christmas sales can be both a treasure trove and a minefield. The choice is yours. This festive season don’t succumb blindly to the allure of holiday sale discounts. Instead, either purchase your “need to have” items (remember, be discerning here!), or skip the sales completely and opt to put the money towards your financial goals! Here’s to spending wisely, and a financially savvy new year! The information provided in this article is general in nature only and does not constitute personal financial advice. 

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