FINANCIAL WINDFALL? How to spend your bonus money wisely

It doesn’t matter whether your financial windfall comes in the form of a tax refund, work bonus or a small inheritance, this ‘bonus’ money can help you to secure your financial future if it's spent wisely. Let’s take a look at four ways you can use your bonus money to help secure your financial future and give you long-term benefits, rather than a short-term happy dance!

1.   Pay off your debts

The interest on any unpaid credit card debts can quickly become out of control, so if you have one or more credit card debts that you can’t pay off, now is the time to clear that debt. Cash advances should also be paid in full immediately, as their interest rates are high and your debt can quickly skyrocket.

You can also pay out any personal loans (always check the terms first, as you may be penalised for early completion of these loans) and pay down your mortgage (check with your bank if you have a fixed interest loan, as you can only pay down a specific amount every year).

2.   Start an emergency fund

This is where your bonus money can come in handy by giving you a sizable nest egg that is only accessed in an emergency. Look for a savings account with the highest interest rates you can find (although interest rates are low at the moment, any interest is better than none!) and keep enough money in this account so that you can pay all your bills and household expenses for at least three, if not six months. If your bonus money isn’t large enough to cover six months’ worth of bills, keep topping it up until you reach your target and then you can breathe easy!

3.   Top up your super

Topping up your superannuation is a very ‘savvy’ strategy and involves making non-concessional contributions (after-tax) to a limit of $100,000 each financial year. However, if you are under 65 years of age, you can contribute up to $300,000 at a time by paying it forward, but you will need to find out if this applies in your situation.

Also, if you earn less than $53,697 each year and make non-concessional contributions to your super, you will be eligible for the government co-contribution scheme, where the government contributes additional money to your super fund. Low income earners on $37,000 or less can benefit from a low income superannuation tax offset contribution from the government. If you want to top off your super with your bonus money, it’s best to talk to a financial adviser who can make sure that you don’t go over your limits and pay extra tax.

4.    Open an investment portfolio

Making long-term investments in the share market is a risky tactic, but if you go in with your eyes wide open and find a fund manager who has a record for positive returns, you can start to grow a sizable nest egg for your future with your bonus money.

If you want financial advice on making the most out of your bonus money, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.

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BEYOND RETIREMENT - PLANNING FOR AGED CARE

Most people look forward to their retirement with relish, which is why organising your finances to fund your retirement is so important. Taking off around Australia, going on overseas trips and paying off the mortgage are popular retirement goals, but what about aged care?

Have you thought about paying for care when yourself or your partner are no longer able to care for themselves? What about dementia? How would you manage financially, if one of you was diagnosed with this condition? These are issues that no-one really likes to discuss but can be devastating from an emotional and a financial point of view if they do occur in the future.

If you have never considered the possibility of dementia in your family, you are not alone! In a recent survey, only 12% of older people in WA said that they have a financial plan in place in case one of them suffers from dementia. Of course, not everyone suffers from this condition as they age, but it’s fair to say that older Australians should have some sort of financial plan in place to cover any future deterioration in their health.

Timing is everything

If your partner needs care above and beyond what you can provide, it’s nice to know that you have a plan in place that you can fall back on. The last thing you want is to suddenly realise that looking after your partner at home is no longer possible, but you don’t have the resources to fund alternate care. It might even be the case that your partner needs full-time assistance following a fall and can’t be discharged from hospital into your care at home.

Another issue is trying to find the right facility, even if you have the funds because many aged care facilities have waiting lists. It will pay you to investigate your options and even tour some of these facilities, asking about their costs and services, then making a short list of your preferred facilities. We all hope that none of us will need aged care, but it’s always best to be safe rather than sorry!

Arranging your finances for your future

One point to note here is that if one of you needed to be admitted to an aged care facility, the other will still need to live at home. We all know that the costs of living alone aren’t much different to living as a couple (even if you do receive government support), so you should anticipate that your living expenses will possibly rise if one of you needs full-time care. 

Another consideration is giving someone the power of attorney over your affairs if you are unable to make decisions about your care in the future. Your family may also be concerned about their inheritance if you enter aged care, which can be a serious concern for many families. Life directives are also another delicate subject, but they are important as they ensure that your wishes are upheld and take the pressure away from relatives who would otherwise need to make these decisions on your behalf. All of these matters you need to discuss with your family so that you can ease their burden and make sure that you have the right resources to fund any future health events.

If you are reaching retirement age or are already retired, why not make an appointment to see me (Amanda McCall) and we can make sure that you have everything covered for your advanced years. Phone 07 3356 6929 or book your appointment online.

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FEDERAL BUDGET 2018 – How will it affect your retirement?

Whether retired or contemplating retirement, there are a few things you should know about changes made in the 2018 Federal Budget that could affect you and your financial future.

Examples of these changes, that will take effect from 1 July 2019, include:

  • pensioners can now work longer and earn more;
  • new retirees can contribute to their superannuation for another year;
  • more older Australians can tap into the equity in their home via the pension loans scheme;
  • more choice and flexibility in retirement income products, including options that provide income for life (note: these latter changes will not be in place from 1 July 2019 as it will take time for superannuation providers to develop and implement these products).

Expansion of Pension Work Bonus

The Pension Work Bonus is money earned by Australian pensioners that is exempt from the pension income test. This is over and above the income free amount per fortnight for pensioners (i.e. $168 for singles or $300 for couples).

(i)                 The Pension Work Bonus will increase from $250 to $300 per fortnight. Thus, the first $300 earned will be exempt from the pension income test.

(ii)                Pension Work Bonus eligibility will be extended to self-employed pensioners who will be able to earn $7,800 per year self-employed with no impact on their pension.

A one-year exemption from the superannuation work test

Australians aged 65 to 74 can continue make voluntary superannuation contributions for 12 months after no longer meeting the work test (i.e. 40 hours minimum worked in any 30-day period during the financial year). Note: this applies only to those with a superannuation balance less than $300,000 at the beginning of the 12-month period.

Expansion of Pension Loans Scheme

If the bulk of your finances is tied up in your home but you don’t want to sell, you may be able to use the equity in your home via the Pension Loans Scheme to top up your pension.

(i)                  Eligibility of the Pension Loans Scheme has been extended to all Australians of Age pension age, even maximum rate pensioners.

(ii)                Maximum allowable income stream from Pension Loan combined with Age Pension increased to 150 per cent of the Age Pension.

Expansion of retirement income options

To boost the standard of living of retirees, the government is working on a framework to provide retirees more choice and flexibility in the retirement income products they are offered and also to require providers to provide simplified standardised (easy to understand) information on their products. Furthermore, superannuation fund trustees will be required to develop a strategy to help members achieve their retirement income objectives and also to offer members the option of products that will provide income for life, no matter how long the member lives.

Even small changes can make a big difference to your future financial security so even in retirement, or especially in retirement, it is important to regularly review your finances in relation to the current financial and legislative environment. For peace of mind about your financial future, seek out sound advice from a qualified financial planner.

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A BEGINNER'S GUIDE TO INVESTMENT OPTIONS

All of us deserve a well-funded retirement, but sometimes we need additional funds long before our retirement age and it’s good to know that we have the financial resources when they are needed.

Maybe you are having another baby or you want to help your kids purchase their first car or first home? This is when an investment portfolio can come in handy, because you can leave it to build until you retire or you can withdraw some of the funds on as as-needed basis.

What do you need to know about investments?

One of the main points to understand about investment portfolios is that nothing is guaranteed. People have lost everything by making the wrong decisions concerning their investments, so you must obtain sound financial advice before deciding what to do with your money.

Having said that, one of the best pieces of advice is to diversify your investments, because all the asset classes (investment types) react differently to fluctuations in the market place. One asset may show a positive return, whilst another might drop in value, but over the longer term, you should be looking for consistent returns overall.

So what are your investment options?

In general, there are four asset classes: cash, fixed income, property and shares.

Cash: This can include the money you have in your normal account at the bank, as well as in a term deposit. It’s always good to have some easily accessible cash on hand, but if you are looking for a good return on your investment, cash gives the lowest return out of the four asset classes.

Fixed income: These are bonds issued by governments and corporations who want to raise money for their endeavours. You purchase these bonds (essentially lending the government or corporation your money) and they promise to return your money plus a fixed interest on a certain date. The yield from these bonds is usually slightly higher than with cash, but it’s still a fairly low return, however many Aussies like bonds because they tend to be less risky than property or shares.

Property: Whilst we all know that the property market fluctuates over time, this asset class generally offers a positive return on your investment over the longer term. If investing in property is something that you would like to explore, you can either buy the property yourself or use a property management fund to oversee your investments. Whichever option you decide, you can choose between residential, commercial and industrial property, with residential offering the best capital growth, whilst commercial or industrial properties offer higher rental returns than capital growth.

Shares: To receive good returns in the share market, you really need to understand the markets well. This asset class is not for the faint-hearted, which is why most Aussies invest their money with a managed fund rather than going it alone. Serious money can be made and lost in the share market, but if you are in it for the long haul, you should see positive returns on your investment, if you have chosen a good fund manager.

As I mentioned earlier however, nothing is guaranteed, so you need to have a diversified portfolio that is designed to give you the best return on your investments, given both your risk tolerance and your age.

Why not make an appointment to explore your options for a diversified investment portfolio? Call me (Amanda McCall) on 07 3356 6929 or book your appointment online.

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AGE APPROPRIATE TIPS FOR RAISING MONEY-WISE KIDS

When all it takes is the tap of a plastic card to buy just about anything you need, how do you teach your kids the value of money? A cashless society may have some benefits, but it can make it very difficult to teach our kids that money does not grow on trees, when there is no money changing hands!

With no perception that money comes from hard work, and only seeing the treat in their hand that didn’t require handing over cash, parents are starting to struggle to instil money-wise habits in their kids. If you are struggling with the concept of teaching your kids about money in an increasingly cashless society, here are our pick of the best age appropriate tips for Australian parents.

Tips for toddlers

Clearly any money-wise tips need to be very basic at this age, but there are two easy strategies you can use to get them in the mood. First, you can show them that pressing buttons at the ATM gives you cash and second, you can take this money into the store and show them that you use this money to buy groceries.

Tips for pre-schoolers

This is the time to start introducing a few small chores for payment, teaching them that they can receive cash for doing a job. It’s also a good time to talk about saving vs spending their money, and if they choose to spend it on sweets they will soon learn that they have nothing to show for their money when it’s gone!

Tips for 5 to 8-year kids

At this age your child starts to really learn about the concepts of immediate and future gratification, making this the ideal time to help them start a savings plan for their pocket money. Encouraging them to save for a special toy, new bike or skateboard, helps them to integrate money-wise habits into their lives, something that will stay with them forever.

Tips for 8 to 12-year kids

At this age, you can start to discuss the family finances with your child (in simplistic terms of course), helping them to understand that every dollar spent has to be earned. Giving them a job that requires managing a budget is a great strategy for teaching them money-wise skills. For example, you could put them in charge of the budget for the family’s pizza night, giving them hands-on experience of managing a monthly budget and making it last for 4 weeks!

Tips for teenagers

Teenagers always want the latest technology, fashion and gadgets and are always pestering their parents for money. A great way to make them more money-savvy is to agree to pay half for their cherished possession if they find the best price, whether online or in-store. This will definitely motivate them, but make sure that they show you their research to prove that they have found the best price. This teaches them some very valuable shopping habits, which hopefully will help them to become financially responsible young adults.

These tips will help parents to educate their children about money in an increasingly cashless society. If you want your teenagers to learn more about budgeting and taking control of their financial future, why not give them an appointment with a financial planner for their 16th birthday or when they start their first job (whichever comes first). Call Amanda McCall on 07 3356 6929.

or book an appointment via email.

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