Charting a course to financial recovery 

Charting a course to financial recovery 

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.  

Building a Strong Foundation: Avoiding Mortgage Default

Building a Strong Foundation: Avoiding Mortgage Default

Updated on Budgeting, Economy, Finance

When building a home, it’s often said that the foundations are the most important part. Their primary purpose is to hold your house up – supporting the structure and preventing it from being affected by uneven ground. Similarly, when purchasing a home and financing it with a mortgage, your financial foundation is just as crucial. A solid financial foundation can help you avoid mortgage stress, loan default, or even eviction. Unfortunately, economic factors such as higher living expenses, interest rate hikes, or job loss can jeopardise your financial foundation. What is mortgage stress? Mortgage stress occurs when homeowners face difficulty meeting their mortgage repayments and their living expenses. The Australian Bureau of Statistics has developed a “Mortgage Affordability Indicator”, which applies a 30% mortgage repayment threshold based on a household’s income. Mortgage stress can cause immense strain on individuals and families and increase the risk of mortgage default. Defaulting on a home loan happens when borrowers cannot make repayments as per the agreed terms and conditions of the loan agreement. This situation may result in serious consequences, including eviction and mortgagee possession of the property by the lender. How to avoid mortgage stress and loan default 1. Know Your Financial Situation One of the most crucial steps to avoid mortgage default is having a clear understanding of your financial situation. By evaluating your income, expenses, and overall financial position, you can identify potential risks and understand what options are available to you. Tracking your income and expenses will help you to analyse your spending habits and identify areas where you can cut back or make adjustments to free up cash flow. This is also a great time to review your expenses and renegotiate with service providers. Reviewing your financial position may help you identify available options to assist in financial hardship. 2. Seek Professional Guidance A mortgage broker can help you assess your current loan terms and explore options for refinancing or loan modifications that better align with your financial circumstances. They can provide valuable advice and assist in negotiating more favourable terms with your lender. 3. Communicate with Your Lender If you anticipate difficulties in making your mortgage repayments, it is best to communicate proactively with your lender in advance. Most lenders have teams dedicated to supporting customers experiencing financial hardship. They may be able to offer temporary payment arrangements or alternative solutions to help you through a difficult period. Case Study: Consider the case of John and Sarah, a couple facing the risk of defaulting on their mortgage due to a sudden but temporary loss of income. To avoid this outcome, they took several steps: Reviewed their financial situation – John and Sarah underwent a complete review of their financial situation. They reviewed their expenses, paused or cut back on discretionary spending, and renegotiated with all of their utility and service providers. This freed up cash flow to allocate towards their home loan. They also identified that they were slightly ahead with their home loan repayments. Communicated with their lender – John and Sarah reached out to their lender to explore their loan repayment choices. Since they had made some progress in their payments, they were eligible for a repayment holiday. This option would allow them to pay less towards their home loan for the next six months. They had examined their financial situation and were confident that they could manage these reduced repayments, and this would give them six months to replace the lost income and get back on their feet. To prevent mortgage stress and default, it’s important to actively manage your finances and have a clear understanding of your financial situation. Though it can be tough, taking early action and being transparent with your lender can help you work together to overcome financial challenges and ensure the safety of your home. If you are facing any difficulties in making your mortgage payments, you can find helpful resources on the MoneySmart website: https://moneysmart.gov.au/. The information provided in this article is general in nature only and does not constitute personal financial advice.

Fixed rate mortgage expiring… Now what?

Fixed rate mortgage expiring… Now what?

Updated on 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.

Super in your 30s: It’s important to squeeze it in!

Super in your 30s: It’s important to squeeze it in!

Updated on Budgeting, Superannuation

If you are in your thirties, chances are life revolves around children and a mortgage. As much as we love our kids, the fact is they cost quite a lot. As for the mortgage, this is the age during which repayments are generally at their highest, relative to income. And on top of that, one parent is often not working, or working only part time. Even if children aren’t a factor, career building is paramount during this decade. Are you really expected to think about super at a time like this? Well, yes, there are a few things you need to pay attention to. Short-term plans As careers start to hit their strides, the thirties can be a time for earning a good income. If children are not yet in the picture, but are part of the future plan, then it’s an excellent idea to squirrel away and invest any spare cash to prepare for a drop in family income when Junior arrives. Just remember that any savings you want to access before retirement should not be invested in superannuation. Long-term comfort Don’t be alarmed, but by the time a 35-year-old couple today reaches retirement age in 32 years’ time, the effects of inflation could mean that they will need an income of about $164,287 per year to enjoy a ‘comfortable’ retirement. If you are on a 30% or higher marginal tax rate, willing to stash some cash for the long term, and would like to reduce your tax bill, then consider making salary sacrifice (pre-tax) contributions to super. For most people super contributions and earnings are taxed at 15%, so savings will grow faster in super than outside it. Growing the nest egg Even if you can’t make additional contributions right now there is one thing you can do to help achieve a comfortable retirement: ensure your super is invested in an appropriate portfolio. With decades to go until retirement, a portfolio with a higher proportion of shares, property and other growth assets is likely to out-perform one that is dominated by cash and fixed interest investments. But be mindful: the higher the return, the higher the associated risk. Another option for lower income earners to explore is the co-contribution. If you are eligible, and if you can afford to contribute up to $1,000 to your super, you could receive up to $500 from the government. Let your super pay for insurance For any young family, financial protection is crucial. The loss of or disablement of either parent would be disastrous. In most cases both parents should be covered by life and disability insurance. If this insurance is taken out through your superannuation fund the premiums are paid out of your accumulated super balance. While this means that your ultimate retirement benefit will be a bit less than if you took out insurance directly, it doesn’t impact on the current family budget. However, don’t just accept the amount of cover that many funds automatically provide. It may not be adequate for your needs. Whether it’s super, insurance, establishing investments or building your career, there’s a lot to think about when you’re thirty-something. It’s an ideal age to start some serious financial planning, so talk to a licensed financial adviser about putting a plan into place.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Push the super pedal down in your 50s

Push the super pedal down in your 50s

Updated on Education, Retirement, Superannuation

If 50 really is the new 40, then life has just begun. The kids are gaining independence or may have left home, and the mortgage could be a thing of the past. Bliss. But galloping towards you is… retirement! Here are some ways to boost your retirement savings. Increase your pre-tax contributionsYou can ask your employer to reduce your take-home pay and make larger contributions to your super fund. If you are self-employed, you can increase your level of tax-deductible contributions. This strategy is commonly known as ‘salary sacrifice’. If you are earning between $120,001 and $180,000 per year, any income between those limits is taxed at 39%. Salary sacrifice contributions to your superannuation fund are only taxed at 15%. Sacrificing just $1,000 per month to super will, over the course of a year, see you better off by $2,880 on the tax differences alone. Plus, the earnings on those super contributions will be taxed at only 15%, compared to investment earnings outside of super being taxed at your marginal rate. Don’t overdo it though. If your salary sacrifice plus superannuation guarantee contributions add up to more than $25,000 this year, the excess is added to your assessable income and taxed at your marginal tax rate. Retiring slowlyOnce you reach your preservation age you might start a ‘transition to retirement’ (TTR) pension from your superannuation fund. The idea is to allow people to reduce working hours without reducing their income. Keep your money workingThere is a tendency to opt for more secure, but lower-return investments as we approach retirement. However, even at retirement your investment horizon may still be decades. With cash and fixed interest producing some of their lowest returns in history, it may be beneficial to keep a significant portion of your portfolio invested in growth assets. Insurance and death benefitsWith the mortgage paid off or much diminished and a growing investment pool, your insurance needs have probably changed. This is a good time to review your insurance cover to ensure it continues to be a match for your changing circumstances. It’s also a good idea to check the death benefit nomination with your super fund. By making a binding nomination you can ensure that your death benefit goes to the beneficiaries of your choice, and may mean they receive the money more quickly. Get a plan!Superannuation provides many opportunities for boosting your retirement wealth. However, it is a complex area and strategies that benefit some people may harm others. Good advice is absolutely essential, and the sooner you sit down with a licensed financial adviser, the better your chances of having more when you reach the finishing line. Contact us today to get started.   The information provided in this article is general in nature only and does not constitute personal financial advice.

It’s time to get focused on super in your 40s

It’s time to get focused on super in your 40s

Updated on Budgeting, Education, Finance, Investing, Retirement, Superannuation

Typically your forties is a time of established careers, teenage kids and a mortgage that is no longer daunting. There are still plenty of demands on the budget, but by this age there’s a good chance there’s some spare cash that can be put to good use. A beneficial sacrificeAt this age, a popular strategy for boosting retirement savings is ‘salary sacrifice’ in which you take a cut in take-home pay in exchange for additional pre-tax contributions to your super. If you are self-employed, you can increase your tax-deductible contributions, within the concessional limit, to gain the same benefit. Salary sacrificing provides a double benefit. Not only are you adding more money to your retirement balance, these contributions and their earnings are taxed at only 15%. If you earn between $90,001 and $180,000 per year that money would otherwise be taxed at 39%. Sacrifice $1,000 per month over the course of a year and you’ll be $2,880 better off just from the tax benefits alone. It’s important to remember that if combined salary sacrifice and superannuation guarantee contributions exceed $25,000 in a given year the amount above this limit will be added to your assessable income and taxed at your marginal tax rate. What about the mortgage?Paying the mortgage down quickly has long been a sound wealth-building strategy for many. Current low interest rates and the tax benefits of salary sacrifice, combined with a good long-term investment return, means that putting your money into super produces the better outcome in most cases. One caveat – if you think you might need to access that money before retiring don’t put it into super. Pay down the mortgage and redraw should you need to. Let the government contributeLow-income earners can pick up an easy, government-sponsored, 50% return on their investment just by making an after-tax contribution to their super fund. If you can contribute $1,000 of your own money to super, you could receive up to $500 as a co-contribution. Another strategy that may help some couples is contribution splitting. This is where a portion of one partner’s superannuation contributions are rolled over to the partner on a lower income. Your financial adviser will be able to help you decide if this strategy would benefit you. Protect what you can’t afford to loseWith debts and dependants, adequate life insurance cover is crucial. Holding cover through superannuation may provide benefits such as lower premiums, a tax deduction to the super fund and reduced strain on cash flow. Make sure the sum insured is sufficient for your needs as default cover amounts are usually well short of what’s required. Seek professional adviceThe forties is an important decade for wealth creation with many things to consider, so talk to us and we’ll help you make sure the next 20 years are the best for your super.   This is general information only

What will you do with your tax refund?

What will you do with your tax refund?

Updated on Tax

Thousands of Australians receive tax refunds every year. Some refunds won’t even cover the cost of a pizza to celebrate, however many are quite substantial. If you’re one of the lucky ones, what will you do with your tax windfall? If you go out and spend it, all you’re doing is giving part of it back to the government in the form of GST. Sure, it’s nice to splurge once in a while but there are other places you can stash your cash and reap a longer term benefit. Consider these options: a) Superannuation contributions Your superannuation fund will surpass any other investment vehicle simply due to the law of compounding… and your contributions are taxed at only 15%. Whilst superannuation funds remain the most tax-effective haven and thus the best way to grow your investments, the downside is that once your money is contributed it’s usually not accessible until you retire. b) Regular investment plan Consider investing the lump sum and setting up a regular savings investment plan to build it up. This will help you meet future objectives such as a new home, education or new car. While a certain amount of money in the bank is helpful for emergencies, now could be the time to consider a longer term plan with assets such as property or shares. You can invest in a managed fund with an initial deposit of $1,000 and make monthly contributions. While such investments are subject to fluctuations in value, you will see them grow over time. c) Reduce your mortgage By paying it straight into your mortgage, you immediately acquire more equity in your home and reduce the interest. Having more equity in your home also means that you can re-borrow that money again for investment, gearing, or to purchase other assets. So that’s an option that could keep on working for you. The moral of this story is to have a plan and then apply it. Work out where your tax refund will work best for you then talk your decisions through with your licensed financial planner.     The information provided in this article is general in nature only and does not constitute personal financial advice.

5 ways to benefit from record low interest rates

5 ways to benefit from record low interest rates

Updated on Finance

Interest rates have never been lower, and it’s possible they might fall even further. This creates opportunities for householders and businesses, so how can you best take advantage of low interest rates? 1. Pay off your debt more quicklyBy maintaining constant repayments as interest rates fall, you’ll reduce the time it takes to pay off your loan. That’s because interest will make up less of each repayment, with more going to reduce the outstanding capital. And the great thing is that to take advantage of this strategy you don’t need to do anything. Lenders usually maintain repayments after each drop in interest rates unless you instruct them otherwise. 2. Refinance your home loanLenders vary in the extent to which they pass on cuts in official interest rates. So if you want to reduce your loan repayments it might be worth shopping around to see if you can find a better deal from other lenders. Just make sure that, if switching lenders, you take all fees into account to be certain you really are saving money. If you are restructuring your borrowing another thing to consider is fixing the interest rate on all or part of your loan. This can provide protection from the impact of rising interest rates in the future, though it may mean you benefit less from any further cuts in rates. However, with interest rates already very low, there simply isn’t the room for rates to fall much further. 3. Buy a first home – or upgradeLow interest rates create opportunities for first homebuyers to get a toehold in the property market, and for existing homeowners to upgrade to a bigger home or better location. While lower interest rates can be a bit of a two-edged sword, as they tend to drive up property prices, most people are happier borrowing in a low rate environment rather than when rates are high. 4. Borrow to investWhile Australians love to invest in property, borrowing to invest in shares is also a viable wealth creation strategy. Often referred to as gearing, the key to successfully investing borrowed funds is that the total returns must exceed the total costs. As the most significant cost is usually the interest on the loan, low rates make this strategy more attractive. Take care, however. Gearing can magnify investment returns, but it can also increase your losses. It’s therefore important that you fully understand investment risk and how to minimise it. 5. Expand your businessThe whole point of a reduction in interest rates is to stimulate the economy, and that includes encouraging business owners to invest in their enterprises. Low interest rates make it cheaper to borrow to buy equipment to increase productivity, to take on more staff, or buy out a competitor and generally expand the business. Take adviceSome of these strategies are simple ‘no-brainers’. Others involve significant levels of risk. To take a closer look at how you can make the most of low interest rates, talk to us. We’re here to help.    This is general information only

Making the most of low interest rates

Making the most of low interest rates

Updated on Finance

Banks have not been passing on the full reduction in the Reserve Bank’s official cash rate, but no one knows with any certainty, what the future holds for rates and to what extent. Most predictions are that they will remain at the low end for some time to come, so while borrowers love low rates and savers curse them, what can be done to make the most of the situation? Yay! Major winners of low interest rates are households with mortgages that were taken out at a higher rate. Keeping up repayments at the original level will see the mortgage paid ahead of schedule, delivering a big reduction in the total interest bill. Property investors can also be winners, particularly when buying property away from the high prices and low rental yields of inner capital city areas. However, care still needs to be taken to avoid excessive debt that could have a disastrous effect when rates rise. Businesses benefit from a low and stable interest rate environment. It’s cheaper to borrow to grow the business; and a major reason why the Reserve Bank lowered interest rates to stimulate business investment. Boo! For everyone cheering on low rates there will be someone booing them. People who depend on term deposits, high-interest savings accounts and bonds have seen their interest income fall by more than half! Self-funded retirees are particularly affected, especially where interest payments make up most of their income. Low rates aren’t always the friend of new entrants into the housing market as commonly touted. Low interest has been a major contributor to the rise in house prices, saddling new borrowers with higher levels of debt. With higher debt, any future rate rises will bite harder, so new borrowers need to carefully assess their ability to meet loan repayments when interest rates do rise. It’s also a good idea to reduce debt whenever possible. Life is also difficult for investors, including everyone contributing to superannuation. The low yield from conservative investments (cash and fixed interest) means there is a greater ‘cost’ in minimising portfolio risk than has previously been the case. One consequence of this is to drive many investors to search for other investments that offer higher cash returns at a potentially higher risk. Looking for yield While a bank share paying an annualised 5.83% dividend (including franking credit) looks very attractive beside a term deposit offering 1.70% interest, it needs to be remembered that, in the current climate, any effort to increase yield comes with an increase in risk. Even so, high yield shares can be a viable option for some investors who need a regular income. What to do? The best way to navigate the world of low interest rates depends very much on your personal circumstances. Good advice is critical, so talk to us about your situation.   This is general information only

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