SUPERANNUATION SAVINGS HURDLES
It all sounds easy enough – put extra into super, put this much into super etc etc. However, life isn’t always as black and white as that. We often have obstacles with our plans for the future. Here are a few of the potential barriers you could face so that you can at least be aware of them.
1. In a habit of living a ‘champagne’ lifestyle
You are young with limited financial responsibilities and quite frankly, cannot see the point of thinking about something that seems so far away into the future. However, if you are that way inclined to enjoying the finer things, you’ll probably want to carry on doing so after you’ve stopped earning an income. Take time to look at what you’re spending now and then compare it with the income you can expect from your super balance when you retire. If you just rely on your employer contributions will you have enough? A financial planner can help you with a plan to build up your savings gradually and still keep enough day-to-day budget for the things you enjoy. It’s a great way to make sure you can keep living in the style you’re accustomed to in retirement. The earlier you start the less impact it will have on your weekly income.
2. Tap away at your debt
Reducing the most expensive loans and liabilities first is a good starting point and saving on mortgage interest by getting ahead on payments runs a close second. It definitely makes sense to pay off debt as soon as you can, particularly when interest rates are higher like credit cards and personal loans.
A house, unlike super, is not an asset you can earn income from, unless you rent it out. If staying in your home after you retire is important to you, selling it to give you an income won’t be an appealing option. Coming up with a plan that allows you to build up your super balance and work towards being mortgage free will give you the best of both worlds. You’ll have a comfortable, familiar home plus enough money to enjoy your time spent living there.
Kids will definitely top the list for expenses however, you wouldn’t have it any other way. You want the best for them. But all those golden opportunities for your kids will come at a high price if you can’t provide for your own needs in retirement. So saving for your super helps them as much as it helps you. A decent retirement income means you can remain independent as you grow older and pay for your own care.
4. The long haul
Saving enough to live on for a couple of decades is a big ask. Sometimes, when we’re faced with such an enormous commitment, it can be easier to just shrug it off as something that’s just too hard to be worth making a start on.
If running the numbers for your ideal retirement income and super savings plan is beyond you, consider salary sacrificing as a way to build up your super. Thanks to potential tax concessions on contributions from your gross salary, and the power of compounding returns, even a small monthly contribution can make a significant difference to your super over time, with much less impact on your current take home pay and cash flow. And the sooner you start, the better your chances of accumulating enough super for a secure retirement, with very little effort.
Whatever your priorities are, a CERTIFIED FINANCIAL PLANNER® professional can offer valuable advice on getting the balance right between spending on your immediate needs and saving for the future.
AUDIT YOUR PERSONAL FINANCES
Do you often ask yourself, “where does all my money go?” If you’re on a good salary, you could still find that you go through your money. You could be spending too much on goods and services you don’t need. Here is a guide to show you how to do an audit of your finances.
Get your credit report
To know where you stand with banks and lenders, you should get a copy of your credit report. This will be needed, if you ever decide to consolidate debts or take out a new credit card. Your credit report lists your last seven years of credit applications and defaults.
Defaults are failures to pay a bill or loan repayment after 60 days. This will also show you your habits when it comes to paying back debts in full or on time. It is important to aim towards having a good, clean credit report.
Review current income and expenditure
Your bank statement is a good place to start, to look at and review your everyday spending habits.
If you have a poor record of paying debts back, focus on shifting more income toward servicing debt. You should create a budget around utilities, transport, food, grooming, luxuries, going out, and so on. If you are spending too much on luxuries, rein it in. See where you can make savings eg. If you don’t use all your calls or data per month, see if you can get a cheaper phone plan.
Consolidate or reduce debt
Australians have the highest ratio of debt to income in the world, at a whopping 212%! (source: Organisation for Economic Co-operation and Development). If you have high amounts of debt from credit cards, personal loans and other loans, talk to a financial professional about consolidating your debts into one loan. This puts you on top by paying off one loan instead of several at varying interest rates.
Budget and save
Once you’ve made all these changes, create a budget – and stick to it! This is the hardest part of your financial audit. Once you have made the changes, you can break free from debt and start saving your money!
STREAMLINING TAX TIME
Do you get to 30 June every year and ask yourself why are you so unprepared for tax time? Especially if you are a small business owner and have been focusing on your business, you possibly don’t know where to start.
Here are a couple of tips to implement for next year to minimise stress and increase your tax return.
1. GET ORGANISED AND IMPLEMENT GOOD RECORD KEEPING
Poor record keeping costs Australian businesses thousands of dollars each year.
Let’s put some systems and processes in place to avoid this happening again next year. The trick is not to see tax and tax returns as a once a year event but make them part of your regular business administration.
You may have a bookkeeper and/or an accountant for your tax needs, but you still need to be able to keep them informed of changes in circumstances, and understand if any changes to the tax rules apply to you or things you can claim.
The Australian Tax Office have a range of apps and online tools to assist small businesses with good record keeping. The ‘My Deductions’ allows you to record your receipts as they come in rather than keeping the old shoe box full of faded dockets.
Don’t forget to include things that don’t typically have a receipt such as home office usage and equipment – If you use part of your home as an office you will need to keep a log of the time, space and items which are used for business.
2. GET ADVICE BEFORE 30 JUNE
It is too late to start thinking about minimising your tax bill in July or August. Each year it can differ however for financial year ending 2018 the big tax deductions included are:
- $20,000 immediate write off for business asset purchases
- Superannuation – Depending on age, business owners may be able to contribute up to $25,000 in super and get a deduction for the contribution.
- Prepaid interest – You can bring forward next year’s interest deduction by paying a lump sum of interest before 30 June.
So definitely worth getting advice on these sort of things prior to 30 June. Mark it in your calendar now for next year.
These tips will get you on the road to good tax planning for 2017/2018 financial year.
EARLY PLANNING, THE KEY TO AGED CARE CHOICE
Early planning is definitely the key when considering aged care at home or a residential aged care facility.
These days there are Home Care Packages available that provide access to services that can help you to stay at your own home for as long as you can. Support services include cleaning, meal preparation and transport for shopping and appointments.
However, depending on your dependency for assistance you may need to consider an Aged Care Facility. Aged care facilities provide accommodation and care depending on your personal needs. Care can range from personal care, such as help with showering and occasional nursing care to continuous nursing care for those who are unable to look after themselves.
Many residential care facilities have significant waitlists and this is one reason it is vital to plan early.
You should visit a few that appeal to you, along with family members. Becoming familiar with your options can enable you to have meaningful conversations regarding your options and make more informed lifestyle and financial decisions.
When you move into an Aged Care Facility an accommodation payment will be payable. This can be paid as a lump sum, in regular instalments, or a combination of a lump sum and regular instalments.
This amount will vary between facilities and as a general rule will be higher for newer places. There will also be ongoing aged care fees and your living expenses.
A financial planner can help you minimise the fees you may have to pay and/or maximise governments benefits you may receive. They can also determine whether care in your preferred facility is affordable, and potentially start restructuring your assets to improve your financial position. A financial planner can also help address your estate planning needs.
For more information please contact me via this page to arrange a FREE 30 minute consultation. https://amandamccall.com.au/contact-financial-services-brisbane
FINANCIAL SECURITY FOR THE SELF EMPLOYED AND CONTRACTORS
The trend of more flexible work arrangements is becoming increasingly popular as more people work as contractors rather than employees.
The benefits include building a wide range of skills, flexibility around children or allowing time to travel. The downside includes no superannuation, annual leave and sick leave and no consistency of income.
Here are a few tips to ensure you make the most of your contracting dollar:
1. BUILDING A CASH BUFFER
Building and maintaining a cash buffer is critical as a contractor. It is a good idea to have about 3 - 6 months wage up your sleeve. This may seem like a lot and hard to achieve. One step at a time. Work towards it as it will give you peace of mind should you be faced with the unexpected.
2. MAKE SURE YOU ARE PAID WHAT YOU ARE WORTH
Ensure your hourly rate covers an allowance for holidays, sick leave and superannuation. Have you researched your going rate in the industry? Know your minimum fall back position in pay negotiations - know whether to accept a less than ideal contract or walk away.
3. MAKE THE MOST OF TAX DEDUCTIONS
Keeping receipts for home office supplies or for a laptop that you need for work may be a valid tax deduction. Depending upon how you are paid and where you regularly work, some of your travel costs may even be tax deductible. Have a chat to your accountant or consult the ATO website for the range of costs that might be tax deductible to you.
4. KEEP NETWORKS & SKILLS FRESH
It will be your responsibility to invest your own money in the occasional course to make sure you are up-to-date. LinkedIn (like it or hate it) has made the job of keeping in touch and extending your professional network much more straightforward. LinkedIn allows you to stay connected with colleagues and associates long after they leave their current employer.
Contracting, like any form of self-employment has its ups and downs. The flexibility and freedom does come with some barriers and uncertainty, but that doesn’t mean you have to forego your financial security and independence. Some things that are worth going after, may take a little more work and planning.