We love new years. They are a wonderful opportunity to focus our mind on sorting out our finances once and for all. No one enjoys life if they are troubled by money. So, here are some things that you should be looking at straight away to make sure the 2019 is truly a happy financial year.
One of the most boring things ever invented, superannuation is also one of the most important. Make 2019 the year you sort out your super once and for all.
The benefits of super are almost endless. Tax advantaged, often protected from creditors (in strictness, you do not own your own super), necessarily long-term and, for many people, a form of compulsory saving. But not all super is ‘super.’ So, make sure that you are thinking hard about each of the following:
Maximising your concessional contributions. You and/or your employer can make up to $25,000 worth of concessional contributions into super each financial year. These contributions are taxed at just 15% in the hands of the super fund. Provided your personal income tax rate is higher than this, this means that you will keep more after-tax if you direct money into super.
Consider non-concessional contributions. Got a lump sum that you need to invest? Maybe an inheritance, or proceeds from the sale of a business? Once again, super can be a great place to invest that money. A non-concessional contribution is one for which you don’t claim a tax deduction. Non-concessional contributions are not taxed in the hands of a super fund. Basically, you use ‘after-tax’ money to make a non-concessional contribution. Why would you do that? Well, earnings on money invested within super are taxed at just 15%, falling to 10% for capital gains on assets held for more than 12 months. That means most people pay less tax on investment returns within super. That makes your super fund a great place to let a lump sum grow in value over time. The amount that you can contribute is capped – but the caps are quite generous and you can ‘smooth’ your contributions over several years.
Consolidating funds. Many people have benefits in more than one super fund. Typically, super funds charge fees in two ways. The first is a flat administrative fee that you pay regardless of the balance in your account. The second is an investment fee that is usually calculated as a percentage of your balance. If you have more than one fund, you are probably paying more than one administrative fee. So, consolidating your benefits into fewer funds, perhaps even just one, often reduces the total administrative fee that you pay. This makes consolidation well worth thinking about – although you must do your homework, because there are some other benefits that you might lose if you close a super fund.
This is such a simple proposition. If you or someone else depends on your good health to fund their lifestyle, you should consider taking out life insurance. How much and what type depends on your circumstances. If you’re a single person you might not need death cover (depending on your circumstances). But you probably do need income protection cover, especially if you have ongoing commitments such as mortgages, rent, etc, that need to be met from your employment income.
This is just one example of how different people need different insurances. There is no ‘one size fits all’ for life insurance. It really pays to talk to a qualified adviser to make sure that you arrange the right cover at the right price.
Don’t start the New Year with a millstone around your neck. If you have debt, make sure you are doing everything you can to reduce it as quickly as possible.
We often divide debt into two types: ‘good debt’ and ‘bad debt.’ Good debt is where we borrow money to buy things that either save or make money for us, such as a home loan that means we can stop paying rent, or any asset that we expect will increase in value by more than the interest on our debt (which has again been the common experience for people who take out home loans).
Bad debt is where we borrow money to pay for expenses. Usually, credit cards are a culprit here, although personal loans can also be misused for this purpose. Interest on that bad debt makes the expense even more expensive. So, if you are carrying bad debt, talk to us straightaway. We will be able to help you minimise the cost of that bad debt and set a strategy for eradicating it as quickly as possible.
Yes, much of Australia spent much of 2018 in drought. But rainy days will come, so save for it. It is a wonderfully liberating feeling to be able to meet an unexpected financial challenge with money in the bank. Some people save easily; for others it’s a real challenge. Either way, getting the advice of a qualified adviser can make saving easier and more rewarding.