We all need something to look forward to and for many members of Generation X the lure of discount airfares and package deals are irresistible; others have luxury holidays high on the agenda.

And why not? We all love a holiday and what’s more, happiness, apparently, is not just in the holiday itself, but in the planning of it too.

Research conducted by Roy Morgan Research concluded that people with an overseas holiday planned are optimistic about the future. Not surprisingly, there’s a demonstrated link between optimism and health and well-being.

But it’s not just the planning; it’s how you fund your trip that has the biggest impact.

Alex and Tony are both in their mid-40s. During their annual portfolio review with us, Alex talked of their dream to visit Europe. With a hefty mortgage, they couldn’t see how they could afford such a holiday without refinancing their home.

To their surprise, we suggested they consider a savings account tailored to meet this specific goal.

These accounts are opened with a small initial sum, and pay bonus interest to encourage regular deposits.

Assisted by their local travel agent the couple planned the holiday of their dreams. They paid the upfront deposit, and with our guidance, selected a suitable account to save up the balance. An agreed amount was automatically transferred from each of their salaries every fortnight to this new account.

Eighteen months later, Alex and Tony sent us a selfie taken while sipping coffee beneath the Eiffel Tower.

Saving for something upfront may be considered somewhat old-fashioned. These days, there is a variety of options for funding the trip of a lifetime.

Some people sell assets like share portfolios or the ‘mid-life-crisis’ jet-ski that never got used. Many others turn to credit cards or holiday loans.

Holiday loans are unsecured personal loans lending up to $50,000 over terms of up to seven years. They’re quick to establish and approved cash is easily accessed. Interest is calculated at personal loan rates, i.e. lower than a credit card.

Jules and Paul financed their holiday using a holiday loan and returned with some fantastic memories. They also came home to a sizeable debt.

Many returning holiday-makers experience a kind of depression known as Post-holiday blues. Seriously – you can Google it!

Post-holiday blues seems to coincide with the fading of the tan and the unwelcome arrival of loan statements.

With little incentive to save for the holiday before they left home, the couple had zero incentive to pay for it once they’d returned.

The Huffington Post suggests that to beat post-holiday blues, simply plan your next trip.

Dispirited, Jules and Paul couldn’t even dream about another holiday. They were left depressed and servicing a loan that impacted their lifestyle for years to come.

Conversely, Alex and Tony returned from their big trip refreshed and debt-free.

With proof that it works, the couple drew up a new budget and savings strategy a few weeks after getting home. Having ticked Europe off the list, they’re eagerly anticipating their next adventure in South America.

We’re looking forward to following their travels on Facebook!

Speak to one of our advisers if you would like some information on different savings plans for your next holiday.

Sources:

www.roymorgan.com - Do holidays really make us happier? (1 August 2016)

www.huffingtonpost.com.au 5 simple ways to beat your post-holiday blues (Updated 6 January 2017)

Many people will make private arrangements for their retirement living. They may stay in their own homes, perhaps with help from family or other carers. Some will move into a retirement village and retain their independence. For others, a time will come when they need a higher level of care.

I thought I would point out a particular matter of concern amongst senior citizens currently, following some recent bad press about retirement villages.

Confusion – Retirement Villages are not the same as Nursing Homes

Recently there was much media attention on AVEO who is a large provider of retirement village accommodation. The concerns were related to ongoing costs, exit fees, lack of nursing, complicated contracts etc. To add to the confusion a high profile finance journalist wrote a story in an attempt to clarify cost structures, but clearly got confused themselves as they started to spell out the costs for government subsidised aged care facilities instead of user pays retirement villages.

Retirement Villages have contracts that need to be read carefully. It is a user pays model. It is not government subsidised. In most circumstances you will pay an upfront price – just like buying a home. However you will most likely incur a deferred exit fee based on a percentage per annum. You will also pay ongoing costs for maintenance etc. Retirement villages will claim they charge the deferred exit fee to recoup their upfront costs i.e. they let you buy a home/unit at a cheap price (less than the market value) so you have a better chance of being able to move in with limited finances. They then recoup the market value from your exit cost. For example, you pay say $250,000 for a unit. 5 years later you move to an aged care facility and receive just $180,000. That is the deferred exit cost you need to be aware of…before you move in.

There can also be issues with selling the unit. Make sure you understand that process and how that may impact you financially, especially if you need that money to pay for aged care accommodation or another unit somewhere else.

Aged Care facilities or nursing homes on the other hand, are predominately government subsidised and regulated…..

Fee Structure

In most cases a contribution towards the costs of aged care is required. Contributions vary and depend upon income, assets and pensioner status. Fees may include a combination of means-tested accommodation and care fees, a basic daily care fee and fees for extra optional services. Fees are revised twice yearly in line with pension revisions. Care recipients have the option of paying their accommodation fee as an upfront refundable deposit or a rent-style periodic payment.

As for the type of fees, depending on the facility, one or more of the following may apply:

Unlike retirement villages, the structure above is government regulated. Your deposit (RAD) is guaranteed to be returned in full, unless you agree with facility to deduct some ongoing costs.

What you pay towards full-time aged care is dependent on your assets and income as assessed by Centrelink. People with higher levels of assets will pay more. Some people with very low levels of assets will pay nothing – however everyone pays the Basic Daily Care Fee as a minimum.

It would be wise to seek the advice of a solicitor or financial adviser before signing any contract to enter a retirement village.

Before you enter full-time aged care it’s also advisable to refer to an accredited financial adviser. This is so you can determine what government support you are entitled to, work out what facility you can afford, and how to fund the ongoing costs. If you overstate or understate your financial position this will affect the fees you pay.

Introduction

The surge in bitcoin has attracted much interest. Over the last five years, it has soared from $US12 to over $US8000; this year it’s up 760%. Its enthusiasts see it as the currency of the future and increasingly as a way to instant riches with rapid price gains only reinforcing this view. An alternative view is that it is just another in a long string of bubbles in investment markets.

Nobel Economics Laureates Daniel Kahneman, Robert Shiller and Richard Thaler and many others shown that investors and hence investment markets can be far from rational and this along with crowd psychology can drive asset prices far from fundamentally justified levels. This note provides a refresher on the psychology of investing before returning to look at bitcoin.

Irrational man and the madness of crowds

Numerous studies show people suffer from lapses of logic. In particular, they:

 Tend to down-play uncertainty and project the current state of the world into the future – eg, resulting in a tendency to assume recent investment returns will continue;

 Give more weight to recent spectacular or personal experiences in assessing probabilities. This results in an emotional involvement with an investment – if it’s been winning, an investor is likely to expect it to keep doing so;

 Tend to focus on occurrences that draw attention to themselves such as stocks or asset classes that have risen sharply or fallen sharply in value;

 Tend to see things as obvious in hindsight – driving the illusion the world is predictable resulting in overconfidence;

 Tend to be overly conservative in adjusting expectations to new information – explaining why bubbles and crashes normally unfold over long periods; and

 Tend to ignore information conflicting with past decisions.

This is magnified and reinforced if many make the same lapses of logic at the same time giving rise to “crowd psychology”. Collective behaviour can arise if several things are present:

 A means where behaviour can be contagious – mass communication with the proliferation of electronic media are perfect examples of this as more than ever investors get their information from the same sources;

 Pressure for conformity – interaction with friends, social media, performance comparisons, fear of missing out, etc;

 A precipitating event or displacement which motivates a general investment belief – the IT revolution of the late 1990s or the rapid industrialisation of China which led to talk of new eras are examples upon which were built general believes that particular investments will only go up.

Bubbles and Busts

The combination of lapses of logic by individuals and their magnification by crowds goes a long way to explaining why speculative surges in asset prices develop (usually after some good news) and how they feed on themselves (as individuals project recent price gains into the future, exercise “wishful thinking” and receive positive feedback via the media). Of course this also explains how the whole process can go into reverse once buying is exhausted, often triggered by bad news.

The chart below shows how investor psychology develops through a market cycle. When times are good, investors move from optimism to excitement, and eventually euphoria as an asset’s price moves higher and higher. So by the time the market tops out, investors are maximum bullish and fully invested, often with no one left to buy. This ultimately sets the scene for a bit of bad news to push prices lower. As selling intensifies and prices fall further, investor emotion goes from anxiety to fear and eventually depression. By the time the market bottoms out, investors are maximum bearish and out of the market. This sets the scene for the market to start rising as it only requires a bit of good news to bring back buying.

The roller coaster of investor emotion

Source: Russell Investments, AMP Capital

This pattern has been repeated over the years. Recent examples on a globally-significant basis have been the Japanese bubble and bust of 1980s/early 1990s, the “Asian miracle” boom and bust of the 1990s, the tech boom and bust of the late 1990s/early 2000s, the US housing and credit-related boom and bust of last decade and the commodity boom and bust of late last decade into this decade. History may not repeat but rhymes and tells us asset price bubbles & busts are normal.

Where are we now?

Our assessment in terms of global share markets is that we are still around “optimism”. Investor sentiment is well up from its lows last year and some short-term measures are a bit high, warning of a correction (particularly for the direction-setting US share market) but we are not seeing the “euphoria” seen at market tops. The proportion of Australians nominating shares as the “wisest place for savings” remains very low at 8.9%.

But what about bitcoin? Is it a bubble?

Crypto currencies led by bitcoin and their blockchain technology seem to hold much promise. The blockchain basically means that transactions are verified and recorded in a public ledger (which is the blockchain) by a network of nodes (or databases) on the internet. Because each node stores its own copy, there is no need for a trusted central authority. Bitcoin is also anonymous with funds just tied to bitcoin addresses. Designed to work as a currency, bitcoin therefore has much to offer as a low-cost medium of exchange with international currency transfers costing a fraction of what, say, a bank may charge.

However, bitcoin’s price in US dollars has risen exponentially in value in recent times as the enthusiasm about its replacement for paper currency and many other things has seen investors pile in with rapid price gains and increasing media attention reinforcing perceptions that it’s a way to instant riches.

However, there are serious grounds for caution. First, because bitcoin produces no income and so has no yield, it’s impossible to value and unlike gold you can’t even touch it. This could mean that it could go to $100,000 but may only be worth $100.

Second, while the supply of bitcoins is limited to 21 million by around 2140, lots of competition is popping up in the form of other crypto currencies. In fact, there is now over 1000 of them. A rising supply of such currencies will push their price down.

Third, governments are unlikely to give up their monopoly on legal tender (because of the “seigniorage” or profit it yields) and ordinary members of the public may not fully embrace crypto currencies unless they have government backing. In fact, many governments and central banks are already looking at establishing their own crypto currencies.

Regulators are likely to crack down on it over time given its use for money laundering and unregulated money raising. China has moved quickly on this front. Monetary authorities are also likely to be wary of the potential for monetary and financial instability that lots of alternative currencies pose.

Fourth, while bitcoin may perform well as a medium of exchange it does not perform well as a store of value, which is another criteria for money. It has had numerous large 20% plus setbacks in value (five this year!) meaning huge loses if someone transfers funds into bitcoin for a transaction – say to buy a house or a foreign investment – but it collapses in value before the transaction completes.

Finally, and related to this, it has all the hallmarks of a classic bubble as described earlier in this note. In short, a positive fundamental development (or “displacement”) in terms of a high tech replacement for paper currency, self-reinforcing price gains that are being accentuated by social media excitement, all convincing enthusiasts that the only way is up. Its price now looks very bubbly, particularly compared to past asset bubbles (see the next chart – note bitcoin has to have its own axis!).

Because bitcoin is impossible to value, it could keep going up for a long way yet as more gullible investors are sucked in on the belief that they are on the way to unlimited riches and those who don’t believe them just “don’t get it” (just like a previous generation said to “dot com” sceptics). Maybe it’s just something each new generation of young investors has to go through – based on a thought that there is some way to instant riches and that their parents are just too square to believe it.

Source: Thomson Reuters, Bloomberg, AMP Capital

But the more it goes up, the greater the risk of a crash. I also still struggle to fully understand how it works and one big lesson from the Global Financial Crisis is that if you don’t fully understand something, you shouldn’t invest.

At this stage, a crash in bitcoin is a long way from being able to crash the economy because unlike previous manias (Japan, Asian bubble, Nasdaq, US housing in the chart above) it does not have major linkages to the economy (eg it’s not associated with overinvestment in the economy like in tech or US housing, it is not used enough to threaten the global financial system and not enough people are exposed to it such that a bust will have major negative wealth effects or losses for banks).

However, the risks would grow if more and more “investors” are sucked in – with banks ending up with a heavy exposure if, say, heavy gearing was involved. At this stage, I think it’s unlikely that will occur for the simple reason that being just an alternative currency and means of payment won’t inspire the same level of enthusiasm that, say, tech stocks did in the late 1990s (where there was a real revolution going on).

That said, it’s dangerous to say it can’t happen. There was very little underpinning the Dutch tulip mania and it went for longer than many thought. So it’s worth keeping an eye on. But as an investor I’m staying away from bitcoin.

What does this mean for investors?

There are several implications for investors.

1. The first thing investors need to do is recognise that investment markets are not only driven by fundamentals, but also by the often-irrational and erratic behaviour of an unstable crowd of other investors.

2. Investors need to recognise their own emotional capabilities. In other words, investors must be aware of how they are influenced by lapses in their own logic and crowd influences.

3. To help guard against this, investors ought to choose an investment strategy which can withstand inevitable crises & remain consistent with their objectives and risk tolerance.

4. If an investor is tempted to trade they should do so on a contrarian basis. Buy when the crowd is bearish, sell when it is bullish. But also recognise contrarian investing is not fool-proof – just because the crowd looks irrationally bullish (or bearish) doesn’t mean it can’t get more so.

5. Finally, while crypto currencies and blockchain technology may have a lot to offer bitcoin’s price is very bubbly.

Dr Shane Oliver

Head of Investment Strategy and Chief Economist

AMP Capital

Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

Christmas is a time of giving and receiving, but as we approach this most dangerous time of the year for credit cards, we’d like to give you a quick refresher on the best ways to use your plastic so you don’t end up with a Christmas hangover of the financial kind.

CASH ADVANCES COST MORE

Using your credit card to withdraw cash will incur an interest charge immediately and at a higher rate than on purchases. There is no interest-free period on cash advances. If you must take cash off your card, repay it as quickly as possible. Don’t wait for your statement.

REWARDS PROGRAMS ARE NOT FREE

Credit cards with a “rewards program” come with an annual fee. This charge can be $100 or more per year, plus extra for any additional cards on your account. If you have a “rewards” card but haven’t been rewarded for your use in the past year, it might be a better idea to exchange your card for one without all the bells and whistles and no annual fee.

READ THE FINE PRINT

Credit providers are required to state their terms and conditions in simple English so it is a worthwhile exercise to read through these documents when you are shopping around for a new card or when you are advised of a change to your current service. A slight misunderstanding can cost you money or reduce the benefits your card was supposed to deliver.

Credit cards are an excellent way to manage your Christmas buying. The secret is to keep a record of your spending so the statement isn’t a complete surprise and then pay off the full balance every month; otherwise you could still be paying off this year’s gifts a year from now.

If you have any further questions on how to manage debt, talk to one of our TFC Financial Advisersand we can get you heading in the right direction.

Research shows that around one-fifth of Australians aged between 21 and 64 will suffer from a medical event, such as an accident, injury or terminal illness that will leave them unable to work.

Despite this alarming statistic, it is estimated that 95% of Australian families have inadequate levels of personal insurance cover in place, with many relying solely on the default cover held within super to protect them.

This is of great concern as insurance cover held through super can be very limited, with some types of cover prohibited from being held within the super structure.

WHAT INSURANCE COVER CAN I HOLD WITHIN SUPER?

You can hold Life, Total and Permanent Disablement (TPD) with an ‘Any Occupation’ definition, and ‘Indemnity Value’ Income Protection insurance cover within super without any potential problems. That said, a court decision made in 2016 has made claiming under the 'Any' occupation category more onerous with greater reliance on retraining options.

However, Trauma, ‘Own occupation’ TPD, and ‘Agreed Value’ Income Protection insurance cover is no longer generally available within super. Trustees of regulated super funds (including SMSFs) cannot provide policies to members unless the benefits satisfy a condition of release such as death, total and permanent disablement, or reaching age 65, in the event of a claim.

To address some of these restrictions, different styles of policies are offered including flexi-linked Trauma and TPD, and income-linked Income Protection.

WHAT IS FLEXI-LINKING?

Trauma and ‘Own occupation’ TPD insurance cover can be ‘flexi-linked’ to Life and TPD insurance cover held within super. This is treated as one policy.

The way flexi-linked policies work is that the super fund trustee owns the portion of the policy that can be released from super in the event of a claim e.g. ‘Any occupation TPD’ or the attached Life insurance cover (which can be released from super in the event of death).

Whereas the individual owns the portion of the policy which would not meet a super condition of release in the event of a claim e.g. ‘Own occupation TPD’ and Trauma insurance cover.

WHAT IS INCOME-LINKING?

Similar to flexi-linked policies, Income Protection insurance cover held personally can be linked to cover held within super via the ‘income-linking’ structure.

The benefits of linking:

You can still fund the majority of your insurance premiums from your super fund whilst being able to access additional insurance features generally not available through super, including crisis benefits and specified injury benefits.Premiums for flexi-linked Trauma and ‘Own Occupation’ TPD are generally cheaper than ‘stand-alone’ policies.Rather than paying two sets of policy fees, you will only need to pay one, reducing the premiums.You will generally be entitled to a tax deduction for the portion of your Income Protection insurance premiums funded via your personal cash flow.

THE RISKS ASSOCIATED

In the event of a claim, any benefit paid under the flexi-linked policy reduces the linked cover by the amount paid.The level of flexi-linked cover cannot exceed the level of linked Life cover.If the cover held within super is cancelled for any reason, such as the non-payment of premiums, the linked cover is also cancelled.

If you’re looking for insurance cover and want to keep premiums affordable, a linked policy may be for you. Check with your TFC Financial Adviserand we'll be able to review what you have and see if you can make savings by linking your policies.

The short answer is ‘yes’, but only up to a point.

People in richer countries are, collectively, happier than people in poor countries. Within countries, people with higher incomes are generally happier than people on low incomes. Surprisingly, once basic living needs are met, the amount of happiness gained from each additional dollar of income rapidly declines.

What is ‘Happiness’ ?

What is it about money that contributes to happiness? And what does happiness even mean? Perhaps what people are really expressing is contentment or satisfaction with their lives.

Rather than putting us into a perpetual state of bliss, money is more likely to contribute to a sense of security, better health, less stress and, perhaps above all, choice.

It’s interesting to see what choices boost happiness. For example, in something of a paradox, giving money away makes people feel happier than spending it on themselves.

And experiences such as travel or skydiving, or even just going to a movie, provide more enduring satisfaction than material purchases. Good memories, it seems, provide better value than physical possessions.

Happiness Planning or Financial Planning?

What does this have to do with financial planning?

Well, for many people, their financial plan is all about milestones: buying a house, meeting school fees and funding retirement. Important as these things may be, what’s missing is the journey – and no, that doesn’t mean the insurance premiums, super contributions and mortgage repayments. It means Santorini sunsets, sand between the toes and, perhaps more important than anything, time spent with family and friends.

On that basis, instead of financial planning maybe we should call it ‘happiness planning’?

Of course your plan will have a financial component, but it will be focused on the journey of life, rather than financial destinations; on achieving a balance and knowing what’s ‘enough’. It will be more about experiences, bucket lists and relationships than annuities, tax refunds and superannuation.

Putting It Into Perspective

Yes, money is important in providing choices and experiences, and that’s probably a major reason why richer people report higher levels of happiness.

And yes, your financial planner is going to mainly focus on super and investments and insurance as the means of opening up more options for you. Just don’t let that become the be all and end all.

More people are happily rejecting the idea of a conventional retirement. Technology is helping to blur the lines between work and play, and Millennials are opting to pursue experiences now with the expectation that they will work in some form well beyond today’s typical retirement age.

So ask yourself: what makes you happy?

What sort of choices do you want to be able to make? Then share the answers with your financial planner, and ask for a plan that will not only meet your long-term needs but also allow you to indulge your shorter-term whims and desires. Start by contacting us today on 4639 1399 and put your happiness plan in place.

The short answer is ‘yes’, but only up to a point.

People in richer countries are, collectively, happier than people in poor countries. Within countries, people with higher incomes are generally happier than people on low incomes. Surprisingly, once basic living needs are met, the amount of happiness gained from each additional dollar of income rapidly declines.

What is ‘Happiness’ ?

What is it about money that contributes to happiness? And what does happiness even mean? Perhaps what people are really expressing is contentment or satisfaction with their lives.

Rather than putting us into a perpetual state of bliss, money is more likely to contribute to a sense of security, better health, less stress and, perhaps above all, choice.

It’s interesting to see what choices boost happiness. For example, in something of a paradox, giving money away makes people feel happier than spending it on themselves.

And experiences such as travel or skydiving, or even just going to a movie, provide more enduring satisfaction than material purchases. Good memories, it seems, provide better value than physical possessions.

Happiness Planning or Financial Planning?

What does this have to do with financial planning?

Well, for many people, their financial plan is all about milestones: buying a house, meeting school fees and funding retirement. Important as these things may be, what’s missing is the journey – and no, that doesn’t mean the insurance premiums, super contributions and mortgage repayments. It means Santorini sunsets, sand between the toes and, perhaps more important than anything, time spent with family and friends.

On that basis, instead of financial planning maybe we should call it ‘happiness planning’?

Of course your plan will have a financial component, but it will be focused on the journey of life, rather than financial destinations; on achieving a balance and knowing what’s ‘enough’. It will be more about experiences, bucket lists and relationships than annuities, tax refunds and superannuation.

Putting It Into Perspective

Yes, money is important in providing choices and experiences, and that’s probably a major reason why richer people report higher levels of happiness.

And yes, your financial planner is going to mainly focus on super and investments and insurance as the means of opening up more options for you. Just don’t let that become the be all and end all.

More people are happily rejecting the idea of a conventional retirement. Technology is helping to blur the lines between work and play, and Millennials are opting to pursue experiences now with the expectation that they will work in some form well beyond today’s typical retirement age.

So ask yourself: what makes you happy?

What sort of choices do you want to be able to make? Then share the answers with your financial planner, and ask for a plan that will not only meet your long-term needs but also allow you to indulge your shorter-term whims and desires. Start by contacting us today on 4639 1399 and put your happiness plan in place.

When most people think about financial planning they tend to focus on the wealth creation side of things, but often forget about the wealth protection. Building a financial plan without adequate insurance is like building a house on flimsy foundations.

Comprehensive insurance cover can be a significant expense; however these costs can be made more affordable by taking advantage of the tax deductions that apply to specific types of insurance, and to some methods of implementing insurance.

Income Protection

Due to the high frequency of claims, premiums for income protection insurance can be quite high. However, they are tax-deductible, so the cost is discounted at the same rate as the policy holder’s marginal tax rate. For example, someone on a marginal tax rate of 39% (including 2% Medicare levy), paying a premium of $1,000 would have an out of pocket cost of just $610, after the tax deduction is claimed.

It needs to be remembered, however, that any benefits paid under an income protection policy are treated as assessable income, and therefore subject to tax.

Life Insurance

While the premiums for life insurance are not normally tax-deductible to individuals, there is a simple way to gain a tax benefit. Superannuation funds can claim a tax deduction for the life insurance premiums they pay. So by taking out life insurance via a superannuation fund, a similar result can be gained as if the premium was deductible to the person taking the insurance.

Using superannuation to provide life insurance has another potential benefit. As premiums are paid by the fund, it reduces the pressure on household cash flow. This may reduce the ultimate superannuation payout, but if the savings made outside of super are used wisely, the overall financial position should be improved.

The proceeds of life insurance are generally not taxable. However, a death benefit paid from a super fund to a non-dependant may be subject to some tax.

Total & Permanent Disability Insurance (TPD)

TPD insurance is usually attached to life insurance. From a tax perspective it’s treated in a similar way, so implementing it via superannuation is usually the most tax-effective way to do it. However, TPD policies held in super must have a stricter definition of what constitutes ‘total and permanent disability’ than similar policies held outside of super.

Trauma Insurance

Trauma insurance pays a lump sum if the policy holder suffers a defined medical condition or injury. It cannot be implemented through superannuation. Premiums are not tax-deductible, but benefit payments are not subject to tax.

As with investing, the main focus on insurance shouldn’t just be on saving tax.

It is a protection tool. Always talk to one of our qualified advisers to ensure you get the appropriate level of cover, and the most tax effective way to implement it.

I thought I would write this article as it is probably the most discussed item on the agenda when a family approaches us for aged care advice. It is also a decision that requires careful consideration and possibly referral to an accredited aged care adviser. Hopefully it will make you more aware of, or be able to identify financial issues earlier in the process of providing care.

The main concern we encounter from a family is how to pay the advertised room rate or RAD(refundable accommodation deposit) to the nursing home they choose. If they are required to pay a full or part RAD the following considerations need to take place:

What investments or assets do we need to sell: bank savings, shares or property?Should we just pay the interest on the unpaid RAD and not pay a lump sum at all?What about tax if we sell investments?How could paying the nursing home’s RAD affect what I wrote in my will?What’s the impact on my/our age pension? Will I get more or less?

As you can see there are multiple considerations to make. It is not as simple as just telling a family they should pay as much of the RAD as possible, although in many cases it is a simple mathematic equation i.e. are they earning more than 5.73%p.a. on their current investments? Yet, sometimes that’s not even important to the person needing care.

Here’s a real life example:

Mrs. Jones is in fulltime care already. She has recently received the proceeds from the sale of her retirement unit. She is an aged pensioner and has not paid any RAD yet. Her son did seek advice on how to best fund mum’s aged care but when the funds became available she refused to pay any RAD. Their financial adviser visited the mother to discuss, and as it turned out her main concern was what happens to the RAD if the nursing home goes bust. She wasn’t concerned about her ongoing costs etc – it was all about the security of the RAD. Once she was made aware that the RAD was government guaranteed (excerpt from “myagedcare” website provided) she agreed to pay a lump sum off the RAD which lowered her ongoing annual costs by up to $11,000 p.a.

SELLING ASSETS TO PAY THE RAD

Should the person requiring care sell a portfolio of dividend earning shares to pay a RAD? Perhaps not, if the dividends after tax are earning say 8%p.a. plus capital growth, not to mention a possible capital gains tax event if there is an underlying profit. An 8% yield is better than 5.73% (DAP). What if those shares were bequeathed in the will to a family member and you’ve just told the family to sell them to pay the RAD? That brings us to the next concern:-

RAD AND THE ESTATE

At death the RAD goes back to the estate and is divvied up as per the will, unless there is a specific instruction in the will related to the return of a nursing home RAD. If you instruct the person or suggest they should sell investments to pay the RAD and that contradicts with their will, it can obviously cause problems.

AGED PENSION AND THE RAD

If the person or couples are in receipt of a part pension, paying a lump sum towards the RAD will generally result in an increased pension. This is important as the pension is used to help fund their aged care costs. If the person or couples are in receipt of the full pension already, there is no pension increase. Their main benefit in that case is the earning rate from their investments versus the DAP of 5.73%p.a.

Should the person requiring care pay a RAD if their health looks very unstable?

Maybe not?

Consider the following case:

Allan has to move into care. The doctors at hospital say he can’t go home and he may only last weeks, or it could be a few months at best. Should Allan pay a RAD or just pay the DAP?

If he pays a RAD and then dies shortly afterwards, the RAD forms part of his estate. The RAD can only be released to the estate upon receipt of a letter of probate from the family solicitor. This can take months, whereas if Allan had left the funds in superannuation (example) with his wife as beneficiary, the funds would go to her a lot more quickly, not to mention avoiding the need for letters of probate which are costly. It may also be wise for Allan or his family to check with his bank as to whether a letter of probate is required to close his bank accounts and for what amounts, upon Allan’s death.

IN SUMMARY

We shouldn’t assume that paying a RAD is the best outcome. There are other considerations that the family needs to take into account. If you identify any of the above issues with the people you provide care for it would be wise to refer them to see an aged care accredited financial adviser.

Gerard Ball 07 4639 1399

Financial Planner – Aged Care Specialist

M.FinPlan, B.Bus, DipMR, AFA

For many people, reducing the mortgage as fast as possible is a wise strategy to use on the path to financial security. But if you think outside the square there are some options that might be available which involve maintaining or even increasing your level of debt for investment purposes.

A Case Study…

The experience of James and Lisa shows just how restructuring your mortgage can bring your financial objectives within reach, in a way you never thought possible.

James and Lisa earn $135,000 a year between them but they have concerns as to how they could achieve their long-term personal objectives.

Lisa works part-time and with two very young children feels that if she went full-time the cost of childcare would be prohibitive. She also wants to be at home with the children until they reach school age. Additionally, they have longer-term objectives of owning a holiday property and covering the costs of the children’s secondary education.

With the help of their adviser, the plan they could adopt begins with Lisa giving up work altogether. They could borrow an additional $100,000 on their mortgage and invest this in a diversified portfolio.

The Result Is:

Lisa can give up work to look after the children;As Lisa no longer earns an income she is eligible to receive Family Tax Benefit B until their youngest child turns 13;Due to the reduction in their combined income, they are now also eligible to receive a portion of the Family Tax Benefit A;As a result of interest on the investment loan, their combined taxable income has reduced. This leads to a $3,000 tax refund which is applied to paying off the mortgage;The investment portfolio will mature about the time the children commence secondary education and, in the meantime, generates a return of some $7,000 a year, which is also applied to reducing their mortgage.They are now on track for their $275,000 mortgage to be paid out in 16 years instead of 30 years.

Without affecting their standard of living, James and Lisa have achieved their short-term family objectives, while also bringing them closer to their long-term goals.

Of course, no two scenarios are the same so it is vital to look at your own financial position and goals – including insurance needs, structuring the right investment portfolio and making sure your cash flow is planned out. Talk to one of the licensed financial advisers at TFC Financial to get the right advice for you.

We hope you enjoyed the first article in the 'Building a Successful Financial Future' Campaign, next week we will publish Article 2 - An Often Forgotten Aspect of Insurance.

Department of Human Services www.humanservices.gov.au “Family tax benefits”

If managing life’s everyday complexities only seem achievable when you’re daydreaming about the chef, cleaner, personal assistant or nanny that you don’t have, you’re probably not alone. And, if ‘turbulent’ is the way you’d describe your day-to-day routine, these tips may help you get back the hours you need for the things that matter most.

1. Organisation – the Holy Grail

Planning yours or the family’s life can take a lot of headspace so it’s important to unload your brain and write things down – and with technology on your side; being organised doesn’t have to mean being “old school”. There are plenty of great digital apps available to help you and your family stay on track, some of them allow you to share lists and calendars across all of your devices. And when it comes to being organised, less can often be more. Why not keep your mail and filing to a minimum by switching to online statements? Going paperless is faster, more convenient and better for the environment.

2. Manage your money

Being busy can often be a good excuse to put off small tasks that can help you be better off financially – the key is to start small and pick off the ‘easy’ jobs. Start with a budget calculator. Be realistic, don’t spend what you haven’t got and automate bills and savings on or near pay day to ensure you’re left with just the right amount of spending money. Another easy task is consolidating your super. Most of us can say that we’ve changed jobs or moved homes at least once in our lives and this can often result in losing contact with your super fund/s. Having your super in one place means you can stay on track of your retirement savings and avoid multiple fees and charges.

3. Work on the inside out

Keeping a focus on your own health and wellbeing may help curb disruptions like illnesses. A balanced meal plan, getting enough sleep and regularly blocking out time for physical activities like the gym or a walk in the park may help with a range of things like increasing your endorphins or improving your mood and energy levels. If finding the time is a pressure point, consider services like Hello Fresh or Lite ‘n Easy to take care of your meals for you – remember, there are plenty of options and providers so make sure you shop around to find the best one that suits your needs. Also look at incidental exercise opportunities in your daily routine – like getting off the bus or train one stop early and walking the rest of the way.

4. Let someone else do it

If all else fails, outsource. Supermarkets now deliver to your doorstep, so you no longer have to waste hours on the weekend trawling the aisles. And, don’t forget to delegate. For odd jobs you need help with, check out Airtasker, an online marketplace where you can outsource anything from tidying up your resume to assembling Ikea furniture. Or reach out to the family, older kids can get away with doing more sophisticated chores like mowing the lawns or washing the car.

5. De-clutter your home and mind

A tidier home, car, wardrobe and work station can make a big difference. Research reveals that crowded physical spaces impact your ability to focus and relaxing. An added bonus is when you have a place for everything; you’re also less likely to misplace your keys. Your mind may benefit from space as well. Disconnecting from your phone, emails and social media can be essential for your health, wellbeing and sanity. Venture outside or listen to some good music, catch a comedy or see a friend uninterrupted. It’s important to factor in time for yourself.

We can help you take the load off

Finances can take up a big part of your life, speak to us to explore some of your options. Taking care of your finances may help free you up to do more of what you love.

Meet the Team of Advisers

i Interactions of top-down and bottom-up mechanisms in human visual cortex. Produced by AMP Life Limited

For the next time you’re itching to get out, but don’t want to spend a fortune, here’s a list of 10 things to do for about $10 (or less).

1. Get near some water

If you live in Australia, you probably live within 50km of the coastline.i And if you don’t, there’s a good chance you live near another type of water source – a river, dam, lake or even the local pool. Research shows that being in blue space (near a body of water) is great for your overall wellbeing. The smells and sounds can be a calming influence on your mind, while the body and immune system will benefit from being amongst nature.ii

2. Save by shopping in the local markets

You may be surprised about the number of markets held throughout the week that cater to different interests and needs. And you might pick up some bargains. For example, perhaps you’d like to check out the local farmer’s produce, pick up some art, or clothing from a designer who’s just starting out. The easiest way to find the local markets in your area (or an area you’d like to visit) is to do an online search, then pop those dates in your diary so you know when they’re coming up. Most markets are held close to public transport and usually have reasonably priced food.

3. Go to the movies

Many cinemas have one day in the week that’s cheaper than the rest (usually a Tuesday, costing between $10-12). If you have a concession card, or are a member of a health fund or association, you may get even better deals. Visit the website of your local cinema to find the best options, and since the snacks at cinemas can cost an arm and a leg, bring some from home.

4. Get walking

You may be across the range of walks available in national and state parks, but there’s likely to be some in and around the area you live too. Sydney and Melbourne have free walking tours, and many local councils offer self-guided walks (meaning you can download and follow directions to see and learn about different sites in your area). Simply search for self-guided walks in your local area. And if you’re interested in joining a group, get involved in the free walking groups run by the heart foundation.

5. Discover your local community events

If you haven’t already, visit your local council’s website. They often list a raft of family friendly and interesting events that are happening in your area – usually all summarised in a calendar, to download and have at hand. And if your council’s events aren’t to your liking, you can also search for events happening in surrounding council areas or an area you’d like to visit.

6. Check out the local library

While we’re on the topic of things the local council offers, it can be a good idea to become a member of your local library (if you’re not already). And if you’re rolling your eyes at this thought, but it’s been a while since you’ve visited one, here’s why they’re good:

most have regular events and movie nights, often with some great speakersthere’s usually free Wi-Fi, so you can search the net to your heart’s content without worrying about how much data you’re usingthere’s access to the local and international paper and magazines to read at your leisureif you have young children or grandchildren, there are usually free activities held there one or two days a week, as well as child friendly play areasand that’s not to mention all the books.

To find out more about what events your local library has, look them up online, or just pop in and ask.

7. Visit a museum or art gallery

Research the galleries and museums in your local area. Sometimes, unless there’s a special exhibition, entry can be free, so all you’ll need to pay is the cost to get there. If you’re a member of a health fund or association, you could get other discounts too. But, if you don’t live near a gallery or museum, don’t fret. Many of world’s best galleries have virtual online tours. For example, you could visit Paris’ famous Louvre museum. There are lots of other options too, simply search online for 'virtual gallery tour' and you’ll see loads of different virtual tours, some with access to guided talks, and some that are interactive which can be a fun activity to do with kids.

8. Get into some online learning

While we’re on the topic of going online there are lots of other things you can do too. Like:

signing up to free online courses like highbrowgetting inspired by interesting people in the ted talks seriesor searching for free online study in a topic that interests you.

9. Have a picnic

For the days you just want to get outside in the nice weather, it can be easy to forget the humble picnic. Pack some food, coffee, your book and go to the local park to sit under a tree. You may be surprised at just how relaxing it is.

10. Go to a meditation class

It’s not for everyone, but if you’re interested in the health benefits that come with meditation iii, you might want to try a free class. Just search online for free meditation classes in your area – some require a donation to come along, but only what you’re willing to give.

© AMP Life Limited.

i Australian population review 2017. www.worldpopulationreview.com/countries/australia-population/ ii Benefits of water. Lifehack blog. http://www.lifehack.org/424336/science-explains-how-staying-near-water-can-change-our-brains iii Benefits of meditation. Psychology today blog, 2013. https://www.psychologytoday.com/blog/feeling-it/201309/20-scientific-reasons-start-meditating-today

Almost one in four Australians (23%) believe they are definitely or mostly ‘living the dream’, according to recent research from the Financial Planning Association.i Here are six traits that have helped them to achieve their dreams.

1. Strong Personal Habits

Australians living the dream are family oriented, spending more quality time with their family during the week than the average Australian. And they’re five times more likely to meditate or engage in spiritual activity.

2. Dream about the future

Australians living their dream life dream more about the future than others. Four in five (82%) often or always dream about their future, compared to just 61% of those who say they are not living the dream.

3. Plan Ahead and Stick to the Plan

These people are planners. They’re almost five times more likely than the average Australian to plan and stick to the plans they’ve made (23% compared to 5%). They are more likely to act quickly on their plans (71% compared to 41%), turning their vision for the future into reality.

4. Have High Levels of Self-Belief

High self-belief correlates strongly with those who are living the dream. Almost all Australians (96%) who are living the dream believe in their ability to create the life they want, compared to just 54% of those not living the dream.

5. Seek Out Advice from Others

They make their financial decisions in consultation with others and are nearly three times more likely to seek advice from a financial adviser when making financial decisions (24% compared to 9% of those not living the dream). Nearly half (45%) are currently receiving or have received advice from a financial adviser, compared to just 22% of those not living the dream.

6. Have Fewer Regrets

They are less likely to have regrets in life than those who are not living their dream life. A quarter (26%) say they have no regrets at all. Those who do have regrets mostly regret not saving enough (24%) or making poor decisions (19%).

The outcome is less financial stress

Australians who are living the dream have the lowest levels of financial stress. More than one in three (34%) are not at all stressed about their finances (compared to 11% of those not living the dream).

What it means to live the dream

Australians believe living the dream means having the lifestyle of their choice. Most of the measures we attribute to are linked to success in the area of personal finance. Australians in 2017 define the as the ability to have the lifestyle of their choice and move forward each day towards greater financial independence. They place strong emphasis on their ability to create safety and security for their family, own a home, pursue hobbies, and free up time with those they love – all without fear of regret.

What does ‘living the dream’ mean to you?

We can help you create a plan so you can start living the dream sooner.

Contact one of our TFC Financial Advisers today or give us a call on (07) 4639 1399.

i FPA ‘Live the dream’ 2017 National Research Report , August 2017 ‘Live the dream – research into Australians living a successful life’ an independent publication based on a McCrindle Research national survey commissioned by the Financial Planning Association of Australia of 2,635 Australians aged between 23 and 71 gathered from 2-13 June 2017.

Just as everyone should have a trusted health professional to rely on, so should everyone have a trusted financial planner. Professional financial advice isn’t just for the wealthy.

Financial planning is about establishing a long-term strategy to secure your financial future with the lifestyle and living standards you desire, regardless of your starting point.

‘Value’ often goes beyond dollars and cents. It can be the peace of mind and security that comes with being better prepared for the future. Once you've begun a relationship with a licensed adviser you will quickly see that he or she adds value to your circumstances by helping you in a number of ways.

How can a financial planner help?

SETTING GOALS This process helps you decide where you want to go in life. A skilled financial planner can assist you to identify your financial goals, prioritise them and understand the steps required to turn your vision into reality.

By knowing your goals and timeframes, it’s easier to see where to concentrate your efforts. You'll also quickly spot the distractions that would otherwise blow you off course.

GETTING A FINANCIAL PLAN STARTED Developing a written plan with a clear emphasis is critical to achieving your financial objectives. Your planner can provide budgeting and debt management advice to help you start creating wealth without the costly anchor of “bad” debt. Protecting your future dreams with appropriate insurance is another key aspect your planner will manage.

MAINTAINING A DIVERSIFIED PORTFOLIO Every financial planner is required by law to take a client’s risk tolerance into account as part of their personalised financial plan. Diversification is another important tool for managing risk.

This means that the advice given and any investments recommended as part of that process are suited to your specific needs and risk level. And these will change to meet your circumstances as they vary throughout life.

BEING THERE OVER THE LONG TERM Going your own way is rarely the best option. Most people don’t have the background knowledge to feel confident about making investment decisions that will have a large bearing on their financial future. Keeping up with all of the legislative changes and new investment offers is also an onerous task. Your planner will be there to steer you on your path to financial independence and ensure your plan remains relevant and on track.

While investment magazines and online subscription services can provide very useful information, they are often written by journalists with a general grounding in financial concepts but who are not looking at the fuller picture. A financial planner is trained to take into account all legislative and strategic implications to ensure you receive the best advice possible... and this training is ongoing.

Your financial plan is not a one-off, set-and-forget arrangement. Just as life has its many twists and turns your plan must be flexible and appropriate to your needs at any point in life. If you would prefer to have a qualified, experienced and licensed financial planner work together with you on achieving your lifestyle and financial goals, give us a call at TFC Financial.

Demography is the study of population – births, deaths, ages, life spans, migration, and so on. Governments can record the changes but in free societies can do very little to change the overall trends. It’s a bit like the tide coming in – you can adjust where you sit on the beach but you can’t stop the water rising.

Research by worldwide organisations including the United Nations and European Union shows disturbing trends such as these:

In 1980 Australia’s median age was 29. By 2050 it will be almost 50.By 2050, there will be only 2.7 people of working age to support each Australian aged 65 years and over. This is compared to 5 in 2010.By 2055 there will be around 40,000 Australians aged 100 years or over.By 2050 there will be twice as many older citizens in the world than children, with the exception of Russia and China.

THE CAUSES

There are three irreversible demographic trends behind these figures. First is the bulge in retirement from the baby boomers (those born between 1946 and 1964). Many of the early baby boomers have either already retired or are close to it, and the late boomers are well into planning for their retirement. This bulge will guarantee a high proportion of older people in our society in the future.

Second is the fall in fertility rate. In developed societies we are not having enough babies to replace ourselves.

And thirdly, better nutrition and medical care means we are living longer.

THE OUTCOMES

These three trends mean:

The number of employed people, ie. taxpayers, will dramatically reduce.The number of retired people needing social security, health and aged care support will rise.Government budgets will come under increasing pressure as society struggles with the problem of supporting a very large population of older people.Financial systems will come under threat as retirees sell off their assets to fund their retirement.

Every nation’s medical and social security system depends on taxpayer money to fund its existence. Politicians may be unwilling to admit it but some unpopular decisions will have to be made. The simple choices are to raise taxes or restrict access to government benefits to only the most needy. The longer the decisions are delayed, the more difficult the transition will be.

The constant decline in birth rates will stunt the growth of national economies. As the consumer population decreases, production and product advancement will decrease due to a lack of demand, and economies will follow.

What does this mean for you?

Of course, it depends on your age and financial situation. Self-sufficiency in retirement should be a goal for everyone – nobody wants to be reliant on a heavily burdened and potentially restrictive welfare system. Being self-sufficient will give you the freedom to choose the lifestyle you want.

If you are a long way from retirement, make a commitment now to be a self-funded retiree. Investigate the many opportunities to accumulate a healthy superannuation balance by your preferred retirement age. With more time up your sleeve the contributions can be far more manageable.

If you are planning on retiring soon, you may need to review what retirement means to you and look at other options such as working a few more years.

This all sounds like a reality we would rather not hear, but like the tide coming in, there is not much we can do to stop it.

Is it time to review your retirement plans with a financial planner?

Talk to your Adviser at TFC Financial about the best ways to manage your investment risk.

Phone Us: 07 4639 1399

When it comes to financial management, no single investment will continually outperform all other investments all of the time. To minimise potential losses and to smooth your investment returns over the longer term, you should spread your portfolio across various investments. But that can be easier said than done so there are different ways to diversify.

Diversify Across Asset Classes

Asset classes are the broad categories of investments and include equities, fixed interest, property and cash investments. Equities include both Australian and international shares. Fixed interest includes government, semi-government and corporate bonds. Property includes residential, retail and commercial properties. Cash includes term deposits and at-call cash accounts.

Lower risk asset classes, including fixed interest and cash, protect your capital during adverse market conditions. On the other hand, higher risk assets, such as Australian and international shares, can deliver good returns during the boom times. Holding a mix of asset classes may help to provide more stable returns over the medium to longer term as markets rise and fall.

Diversify Within Asset Classes

This could mean spreading your share portfolio across different industry sectors because certain sectors may outperform others over a given period according to economic conditions.

Two good examples are mining and tourism. The Australian resources industry helped keep Australia’s economy a shining light against a gloomy international backdrop following the Global Financial Crisis. Tourism, on the other hand, struggled with a high Aussie dollar making travel to Australia more expensive. Nobody knows what the future holds - both of these industries are facing completely different conditions a few short years later - so a balance across industries is crucial.

It Can Be Simple...

Even with a relatively modest amount to invest and very little time, you can achieve a balanced portfolio with the right mix of investments.

Managed funds offer easy access to a wide range of investments. By investing in a managed fund, professional fund managers select individual investments for you. In addition, most managed funds offer several different options to cater for varied levels of investment risk.

Other options include purchasing shares in Listed Investment Companies (LICs) and Exchange Traded Funds (ETFs) on the stock exchange. Depending on its charter, a LIC holds shares in a wide range of companies, while ETFs invest across all stocks making up a particular index, such as the S&P/ASX 200. Buying shares in an ETF or LIC gives you exposure to all the stocks held by the fund.

Talk to your Adviser at TFC Financial about the best ways to manage your investment risk.

Phone Us: 07 4639 1399

Note: past performance is not an indicator of future results.

Talk to a licensed financial adviser before you make any adjustments.

Contact Us Here to make an appointment.

If you rely on your investments for income, an important aspect of managing your portfolio is cash flow. Correctly structured cash flow is critical, so let’s have a look at what you might need to think about.

What is cash flow?

Cash flow simply looks at the payment frequency of income from an investment. This income is paid regularly (ie. monthly, biannually, annually), but can sometimes be erratic, particularly for longer term investments, such as private equity.

It differs from the total income return in that it examines how often and when income is paid rather than the actual level of income received from the investment over a set period.

Why is cash flow important?

It’s important to understand the cash flow components from your portfolio for two main reasons:

1. It’s a fundamental step in having an effective personal financial budget.

While you may be receiving income from an investment, if the income doesn’t arrive regularly enough to meet living expenses, you will need to access cash from other sources to bridge the gap. This might involve getting a cash advance from a credit card at high interest rates, or reducing (or possibly eliminating) your monthly savings.

2. Uneven cash flow makes accelerated debt reduction difficult to achieve.

Due to the high initial costs involved, many of us go into debt to purchase items such as cars. However, this debt comes at a price: while you are carrying it - you cannot use these funds to invest elsewhere. It makes financial sense to reduce lifestyle debt as quickly as possible so that these funds can be used to invest in financial assets that will appreciate in value to create enduring wealth.

Consider cash flow diversification

Diversification doesn’t stop at your choice of investment assets. You need to consider it from a cash flow perspective too. It is essential to have a sufficient mix of underlying assets within your portfolio so that a relatively even income is received throughout the year.

While some investments may look similar at first glance, a prime differentiator between them may be the frequency of dividend, distribution or yield payments and the terms on which they are paid.

Understanding cash flow is crucial to being able to maintain a budget, and following a workable budget is the key to efficiently managing your wealth and achieving your financial goals.

Ask us for further guidance on how to manage your investment cash flow.

The word “thrifty” is rarely thought of in a positive sense but that’s not fair because if we continually spend more than we earn, our debts will eventually catch up and other words such as “default” or “bankrupt” might become more familiar.

Being thrifty doesn’t mean doing without – quite the opposite.

Here are six simple tips to build up your savings.

1. Create a budget and stick to it

Before you can get your spending under control you need to know exactly how your income compares to your expenses. There are many free online budgeting tools available, such as the MoneySmart Budget Planner found at www.moneysmart.gov.au.

There is also a multitude of smartphone apps that can help you to record everything you spend. This can be an interesting exercise. At the end of every month, you can easily compare your total purchases and outlays to your budget. You might be amazed to see where your cash is actually going.

2. Be debt smart

Make a list of your debts and organise them in order of annual interest rate. Those with the highest rates (most likely your credit cards) should be paid off first, especially as the debt is not tax-deductible. It rarely makes financial sense to invest money to receive 5%pa while you are paying credit card interest of 20%pa – or more.

3. Time for a mortgage check-up?

Like all things, mortgage products change – particularly with interest rates at record lows. If you are more than five years into your mortgage, it could be time for a review. Check with your lender to ensure you’re getting their best rate. You might be astonished at the deals lenders are prepared to do to keep your business.

4. Get creative in the kitchen

Have you looked deep into your kitchen pantry lately? At least once a week gather up the household and get creative. Brainstorm how to use some of the existing ingredients from your pantry and fridge (those that are still edible!) in new and different ways. This creative exercise will not only be fun, but will save on your grocery bills.

5.Switch and save

When was the last time you compared costs on your home/health/car insurance, phone plans, gas and electricity? By shopping around and negotiating a better deal you could save significant dollars on your monthly spend. There are helpful websites to make comparison shopping much easier but be aware that they only list providers who have paid to be promoted on their sites.

6. Be organised!

Most people are amazed at how many gifts they buy each year, often at the last minute. By establishing a gift list and allocating a set budget for each recipient well ahead of time, you can progressively buy gifts on sale during the year. This will certainly help your cash flow and circumvent overspending by avoiding that last minute rush.

As you watch your bank balance increase, enjoy the feeling of being in control and knowing you can have whatever you want with just a little discipline.

Ask Now: How we can help?

A growing number of Australians are encountering the challenges of assisting elderly relatives with the move into aged care. One of them is David. Recently he had to help his 82-year-old mother, Jan, with the painful decision to move into care. It meant leaving the family home she had lived in for decades, separation from most of her possessions, and moving into an unfamiliar environment surrounded by strangers. It was a time of great emotional stress for both of them, and adding to that stress was the discovery that Jan’s care would cost many thousands of dollars each year.

Sharing the costs

Australian aged care policy is based on the view that those who are financially able to should contribute to the cost of their care. While people with little money will have their accommodation costs paid by the Australian government, a means test sees wealthier individuals paying for part or all of their aged care.

In Jan’s case, once the proceeds from the sale of the family home were added to her savings she had total assets of $1.2 million.

This left her facing the following fees:

A basic daily fee of $49.07[1]. This is the same for everyone.Accommodation fees. These are set by the aged care facility and can be paid as a daily fee, by a refundable accommodation deposit (RAD), or a combination of the two. Jan opted to pay a RAD of $600,000. This sounds enormous, but the RAD is effectively an interest-free loan to the aged care facility. The interest the facility earns on this deposit covers the cost of accommodation, and following Jan’s death the RAD, less any deductions initially agreed with the care provider, will be repaid to her estate.A means-tested care fee of $50.73 per day.[2]Fees for additional, optional services such as physiotherapy, hairdresser and dentist. Jan declined this option.

Jan’s fees therefore added up to $99.80 per day or $36,427.00 per year. That proved a bit of a shock for both David and Jan, but there is something they are forgetting.

The cost of independent living

When presented with an annual aged care bill in one hit, it’s easy to overlook the costs of independent living. In her own home Jan’s utility bills, council rates, insurance, food costs and visits to the movies were spaced out over weeks and months, and she really wasn’t aware of what they added up to. However, based on the ASFA Retirement Standard, it’s fair to assume that her annual expenditure was in the range of $24,250 and $43,665[3], depending on her standard of living.

In care, the fees cover most living costs. Jan will still need to pay for items such as clothing, gifts and private health insurance, but the cost of her accommodation and care may not be very much different to what she was spending living at home.

A grim reality

Naturally, David and Jan are concerned about how long Jan‘s remaining liquid funds will last, but the grim reality is that people who require aged care are frail. Only 20% of residents will survive more than five years, and one quarter will pass away within six months. In other words, longevity will most likely be the biggest determinant of Jan’s total aged care costs.

Supportive advice

The myagedcare.gov.au website provides a wealth of information. However, a move into aged care is one of life’s most stressful events and many financial and non-financial decisions need to be made, either by the person making the move or their family. A financial adviser with experience in aged care matters can provide both good advice and valuable support at this emotional time.

Meet our aged care specialist: Gerard Ball

Sources:

My Aged Care website www.myagedcare.gov.au Income and assets assessment for aged care home costs

My Aged Care website www.myagedcare.gov.au Residential Care Fee Estimator:

The Association of Superannuation Funds of Australia Ltd - ASFA Retirement Standard http://www.superannuation.asn.au/resources/retirement-standard/

[1] As at March 2017

[2] As calculated by the Residential Care Fee Estimator at http://www.myagedcare.gov.au/fee-estimator/residential-care/form using $600,000 of financial assets and $600,000 of other assets (the RAD) as at March 2017

[3] As at March 2017

When most people think of salary sacrifice they think of superannuation. It’s pretty easy to see why. If someone earning $100,000 a year takes the last $10,000 of that amount as cash salary, they will pay $3,900 in tax and the Medicare levy. Salary sacrifice that same amount as a concessional contribution to super and only $1,500 will be lost to tax.

The reduction in the annual concessional contribution cap to $25,000 limits the amount that can be salary sacrificed to super, so it’s worth remembering that there are other expenses that can be paid with pre-tax income under a salary packaging arrangement. This is subject to your employer’s agreement, of course.

The FBT Effect

While pretty much any expense can be included in a salary package, including mortgage repayments, school/childcare fees and holidays on the French Riviera, your employer will be required to pay fringe benefits tax (FBT) on most of these. Usually both the value of the benefit and the amount of tax will be deducted from your gross salary. The problem is that the FBT rate is equivalent to the top personal marginal tax rate. So if you are not in that top tax bracket you will usually be worse off packaging most personal expenses; and if you are in the top bracket there’s little to be gained.

That said, there are some items that receive special treatment for FBT which can be worth packaging. And this can work really well for employees of some not-for-profit organisations.

Exceptions to the rule

Particular items that relate to your work are exempt from FBT so there can be a clear benefit in including them in a salary package, such as:

portable electronic devices,items of computer software,protective clothing,a briefcase,a tool of trade.

While there’s a limit of only one of each type of device per year, you can always hand down this year’s model to the kids when you upgrade next year.

Special tax treatment

Another popular item for salary packaging is a car; either one owned or leased directly by your employer, or one leased by you under a novated lease arrangement. While FBT usually applies, it is calculated on the ‘taxable value’ of the vehicle. Depending on a number of factors this may be less than the actual value of the benefit received, providing you with an overall financial advantage.

Otherwise deductible

Your employer can pay expenses on your behalf that you would be entitled to claim as a tax deduction. In the long run this won’t put more money in your pocket, but you will receive the benefit sooner than if you have to submit your tax return and wait for your refund.

One thing to be aware of: your employer’s compulsory super guarantee (SG) payments only need to be paid on your salary component. Unless you negotiate otherwise, salary packaging can lower SG contributions.

Charitable opportunities

Not-for-profit organisations, including hospitals and charities, enjoy a range of FBT exemptions or rebates. These open up some real opportunities for salary packaging by employees. Different caps apply depending on the type of organisation, but in some cases employees can effectively package benefits with a pre-tax value of over $15,000.

Advice required

This article is a basic introduction to salary packaging. Whether you are an employer or employee, this area can be complex and the potential benefits depend greatly on individual circumstances. Before you do anything, talk to your licensed adviser to see if packaging is right for you.

It's easy Contact Us Here!

Sources:

ASIC’s MoneySmart website www.moneysmart.gov.au Salary packaging

Sam and Sally Smith have worked hard all their lives, paid their taxes and, now they have retired, they feel they are entitled to a full age pension.

Jan and Jim Jones have also worked hard and paid their taxes. However, concerned that Australia’s ageing population and ballooning pension bill will make it increasingly difficult to qualify for an age pension, they have sought to be as financially independent in retirement as possible. With diligent savings and smart use of superannuation they have built a significant nest egg.

While both couples have equally valid views, in one respect Jan and Jim have already been proven correct with changes to the assets test from 1 January 2017 reducing the number of people qualifying for a part pension and some losing it altogether.

What matters most?

This leaves would-be pensioners asking themselves: what matters most? Clawing back the tax paid over their working lives, or living the most comfortable lifestyle they can?

Several strategies can help boost the level of age pension, but these usually involve reducing the level of financial assets assessed by Centrelink which can deny pensioners both the income those assets could otherwise generate and capital withdrawals.

The Smiths might, for example spend up big on home improvements, give money away to their family within allowable limits, and take an expensive overseas holiday.

Once back home they might then qualify for a full age pension of $34,819 per annum[1]. That’s close to the amount ($34,687pa[2]) that the Association of Superannuation Funds of Australia (ASFA) calculates is sufficient for a “modest retirement” for a 65-year-old couple. That is, “only able to afford fairly basic activities.”

Things aren’t quite as bleak as that. The income test allows Sam and Sally to earn a combined $7,592 per year[3] and still receive a full pension, but that total of $42,411 pa leaves them quite a way short of being able to afford a “comfortable” lifestyle. ASFA defines this as one that “enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.” For a 65-year-old couple, this is estimated to cost $59,808 pa.

The self-funded alternative...

That’s more the kind of lifestyle the Joneses have in mind, even if it means not qualifying for any age pension. Freed from the need to watch every dollar and to report any changes in their circumstances to Centrelink, an inheritance, for example, they are also insulated from the impacts of any future changes to the age pension.

Start early and plan well

Unfortunately, many people retiring today don’t have a choice and, dependent on the age pension, they will be denied that comfortable retirement. The key is to start retirement planning as early as possible. Pensions and superannuation are complex areas, so it is essential to obtain detailed and personalised advice from a qualified financial adviser. Take control of your future now.

Contact Us and we can work with you on a retirement plan.

Sources:

The Association of Superannuation Funds of Australia Ltd - ASFA Retirement Standard http://www.superannuation.asn.au/resources/retirement-standard/

[1] As at March 2017.

[2] As at December 2016.

[3] As calculated under deeming rules. The actual cash amount may differ.

After Kylie completed university and had landed a well-paying job, her only plan was to enjoy her new financial freedom.

She had living to do...

the future was a long way off and would take care of itself ... wouldn’t it?

Kylie’s first purchases were a trendy new hatchback car and expensive clothes suitable for climbing the corporate ladder. Enjoying her exciting lifestyle, she regularly visited restaurants and bars, and took an overseas holiday each year.

According to research conducted by Impact Leaders, Kylie’s way of life is common with one third of 18–34 year olds having no savings and excessive debt.

It’s understandable, after all, when you’re in your twenties and early thirties, thoughts of saving for a home, much less retirement, are easily put aside. But time has a nasty habit of getting away from you – just ask your parents!

A survey by Leading Edge Trends, found that the majority of 18–24 year olds won’t own their own home by retirement, fostered by a ‘buy now, pay later’ mentality. The result is that many will be excluded from home ownership, while others will struggle with late-life mortgages and financial insecurity at retirement.

Back to Kylie.

A few weeks after returning from an African safari, Kylie was informed that her position at work had been made redundant. With no savings behind her, she borrowed from her parents to pay her rent and other regular bills.

Shortly after, Kylie was forced to sell her car and use her credit card to manage everyday expenses.

Fortunately, within six months Kylie found a new job, again with a good salary, but during her brief period of unemployment she’d racked up considerable debt. A large portion of the new salary would go towards her debts. It would take years to recover.

What can you do to ensure your story doesn’t end up like Kylie’s?

y from your wage quickly add up and can become a future home deposit or a safety net for emergencies.

Budget – sounds boring, but a realistic budget can help you to live within your means without relying on credit or feeling like you’re missing out.

Income protection – an insurance policy that pays an income if you’re injured or become too ill to work – perfect for young people starting out on a big career!

Get Advice –

You might not be interested in buying a house just yet, but how cool would it be if the money were available when you were ready?

You’ll probably be surprised at how inexpensive advice is.

Contact Us to find out how your future can gain a head start.

There has been much social and political debate since the federal government proposed pushing out the age at which Australians can access the age pension.

Although most occupations don't have a legislated retirement date, there is little doubt that our tax and social security systems do have a significant impact on when many of us retire and how we plan to do it.

Here are a few examples:

I'll retire when I can get the age pension

For some, this will be a necessity. They can't afford to retire unless the pension is there to support them. Currently, this means age 65 for men and between 63.5 and 65 for women, depending on date of birth. From 1 July 2017, the qualifying age for the age pension for both sexes will increase from 65 to 65½ years. It will then rise by six months every two years, reaching 67 by 1 July 2023. If the current government’s proposal is passed, this will increase to 70 by 2035.

If your retirement doesn't line up exactly with the relevant pension age, there may be some good alternatives to consider. If you leave work earlier, would you consider drawing on your retirement savings for a year or two before the pension begins? Alternatively, working for a couple of years past pension age could qualify you for the Work Bonus which financially rewards age pensioners who wish to continue working.

I'll stop work when I can get my hands on my superannuation

Generally, unless you die, become disabled or suffer financial hardship, the earliest time you can draw on your super is when you reach the so-called ’preservation age’. Again, this is different for people of different birth years: 55 if you were born before mid-1960 and rises gradually to 60 for those born after July 1964. There are also political rumblings that this too will be increased.

There are other options you may want to consider, such as drawing on non-super savings if you retire earlier.

I will wait until my super is tax-free

Waiting until after you reach 60 to access your super tax-free is a good option if you’re ready to retire at what is, these days, a relatively young age. The downside of retiring “early” at 60 is that your retirement savings must last the distance and given that Australians are living longer, this could be another two decades. However, with good advice, there will be many opportunities to structure a suitable tax-effective retirement plan no matter when you plan to leave the workforce.

The decision of when to hang up your boots for the last time can be a difficult one emotionally and financially. A licensed financial adviser can assist in ensuring that the date you choose puts you in an optimal financial position.

Sources:

Australian Government Human Services www.humanservices.gov.au Work Bonus Scheme