Tag Archives: money

6 ways to get the most out of a financial windfall

Received a large sum of money? Lucky you! By taking practical steps, you can ensure your newfound wealth goes much further…

Research has shown that on average, people who receive an inheritance spend about half of it.1  So how can you be that amazing and eminently sensible one who makes sure your windfall doesn’t just vanish but helps you build a secure financial future? Here are six smart ways.

1. Set money aside

To avoid the temptation of spending it impulsively, rashly and super quickly, you could put the money away temporarily in a deposit account or short-term investment. Leaving the sum aside for one or two months may give you more time to plan, have a think about what you’d like or to engage a professional financial adviser for guidance on using the money wisely.

2. Settle debts

Using a windfall to clear debts can put you on a better financial footing. Consider working with your financial adviser to create a budget that considers all your debt obligations, income and windfall. This can also be a good chance to discuss the opportunity to invest and grow your money.

3. Grow the emergency fund

Building up your emergency fund – or creating one if you haven’t got one – can be another way to make good use of the funds. By increasing the emergency stash to cover expenses for six months, you may be better positioned to handle unexpected events such as a job loss, illness or accidents.  Working out where best to put that can also be done with the assistance of an adviser.

4. Beef up retirement savings

Making extra contributions to your superannuation may help you optimise your windfall. Whether you make non-concessional contributions or, if you are employed, arrange to have a portion of your pre-tax salary paid to your super, increasing your retirement savings can help you secure your financial future.  And don’t get me started on how compound interest can help you out here over all those years to retirement too!

5. Fund your goals

Take the opportunity to build savings for some of your personal goals, such as higher education or travelling to places on your bucket list.  Maybe consider doing this only after you’ve paid off debt and built up that emergency stash!

6. Give to others

Receiving a large windfall can be a chance to help others in need. If you decide to give some money away to those less fortunate, consider donating it to an organisation that’s entitled to receive tax-deductible gifts, so you can claim a tax deduction.  Being philanthropic feels good too!  Websites now also have to tell you how much of the money actually gets to where it’s needed and what is spent on administrative purposes.

Chances are, your future self will be pretty chuffed with you doing such great ‘adulting!’

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1. The Ohio State University, 2012, ‘Most Americans Save Only about Half of their Inheritances, Study Finds’. Available at: https://news.osu.edu/most-americans-save-only-about-half-of-their-inheritances-study-finds—ohio-state-research-and-innovation-communications/.

Tips to manage your money when in a relationship

It may sound bleedingly obvious, but couples can reach their shared goals by keeping their finances healthy.

Whether saving for a house or holiday or seeking to grow or preserve wealth, couples can reach their common goals by managing money well. Here are some practical tips for managing your finances together.

Talk about it, talk about it, talk about it, yeh…

At the risk of sounding like a lyric, it’s important for couples to talk to each other about their finances and how to manage them, to avoid any potential conflict. Discuss your financial situation and goals, and any concerns you may have.  Chances are, you may have grown up with wildly different parenting styles when it comes to money, and your personal ideas about money are brought to the joint kitchen table. The American Psychological Association also suggests talking about your beliefs about money to help you better understand each other and set the stage for healthy conversations.[1]  You may hold the ideas your parents instilled, or have vastly different beliefs about money.

Set goals

Couples often have wide ranging and different priorities, but this doesn’t mean you can’t set common financial goals and work together to save for them. Keeping an open line of communication about your aspirations may help you adjust personal priorities to achieve shared goals.  Everything from big ticket household items, new cars, holidays and babies can be covered here.

Divvy up responsibilities

Sharing responsibilities for paying joint expenses and building savings may help ensure you and your partner are on the same page when it comes to finances. You can opt to split those responsibilities equally or put the main breadwinner in charge of most of them. Whatever you choose, it’s important both are happy with the decision.  Some enjoy maintaining their own personal accounts and contribute a set amount to a ‘family account’ to cover all joint expenses and debts.

Create a budget

A budget usually tracks your spending on a weekly or monthly basis, but often the very mention of the word can make eyes glaze over and you suddenly find that doing the ironing is actually more interesting. So, if a budget isn’t your thing, simply agree on how you will spend – and save – your money.

Build your funds

If you are married or in a de facto relationship, you may want to consider helping each other build retirement funds. You might explore contributing to your partner’s superannuation account if your partner is not working or earns a low income.

Before you make such an arrangement, it is wise to get professional advice on how it works. Your financial adviser may talk you through the rules of spouse contributions and the requirements to become eligible for a tax offset.

Bet we can help with some other stuff too!

 

[1] The American Psychological Association, ‘Happy couples: How to avoid money arguments’. Available at http://www.apa.org/helpcenter/money-conflict.aspx.

Ze Bank in Ze Wall

Many years ago, a gorgeous friend of mine, Dutch back ground, owed me $20.  I wasn’t terribly worried about it, but she really wanted to pay me back this particular day.  So, she suggested that we head to ‘ze bank in ze wall’ to get my cash out.

I think I looked at her blankly for a moment before realising she meant an ATM and I loved it, and the name stuck… for my family anyway!

Tho these days, we don’t even need ‘ze bank in ze wall’ terribly often.  A few dollars out  to cover the rare occasions that I need cash is accomplished during a grocery shop.  According to some futurists, the ATM’s days are numbered… but others disagree.  So will it survive? or thrive?

And how the use of cold hard cash has changed over the years!  In the early 90’s I assisted in a payroll office for a large Gold Coast cafe and remember stuffing envelopes with the exact amount of cash required in each staff member’s particular packet.  Things then progressed to electronic transfers directly into our accounts, and then we had to withdraw what we needed to cover ourselves each week – especially for those using the ‘envelope system.’  Seems like a hassle now!

Today, it’s rare that I carry cash.  My sister tells me I’m classified as a vagrant as I don’t often have 40c for a phone call (do they still cost that?) but who needs 40c when I’ve got a mobile?  And seriously, if I can’t tap and go, you’re unlikely to get a coffee order from me.

So, our children have grown up as the Invisible Money Generation or Gen Z (born post 1995) or even Gen Alpha (the wee bairns.)  Well, my 2 have anyway… and what does the change mean for them?

We’ve understood the value of money all our lives.  We’ve seen it, touched it, saved it and spent it – the real stuff, that is.  But things can be a different story for those who’ve never understood the real value of cash and used the real McCoy.  Although the young these days are ‘digital natives’ many parents are too stressed to talk to them about money as they’re battling financial issues themselves.  And chances are, their parents never spoke to them about money either.

I remember a friend often being told by her son, ‘just put it on Visa, mum’ and I’m sure he had no concept that mum needed to repay Visa, with interest.

If you’d love to know more about the Invisible Money Gen, how to talk to kids about money, pocket money, work, find out your money personality and so much more, please feel free to download your copy of the FPA’s Share the Dream Report here.

You’re welcome!

Retirement Goals!

For some, retirement is a long way off!  For others, it seems to be creeping up a lot more quickly than expected.  The years have flown by and it’s time to start taking stock.

Many who visit me in their late 40’s to mid 50’s sometimes realise that they’ve put retirement on the back burner for a little too long.  With taking care of the Mortgage and the kids… retirement saving was a long way down the list!

But for those ready to hang up the boots, whether at 65, 70 or beyond… what can you expect?

Many advise that a new kind of balance is required, one that takes a bit more planning than expected.

It’s good to start thinking about your vision for your retired life and the values you have that may drive those goals.  Have you been planning travel? volunteering? hanging out with the grand kids? visiting more with elderly parents? taking up a hobby?

Strange tho it may seem, retirement and pure leisure hours only, can impact your health.  Everything you’ve ever known has suddenly stopped.  Routine, income and your network is no more which can have a big impact on mental health especially.  Choosing to be optimistic about your future options is incredibly important.

Family relationships can also come under scrutiny.  Suddenly spending 24/7 with your life partner may not be what either of you expect.  Learning how to communicate what both of you need, while maintaining some sense of independence is vital!

Are you looking to replace the hours you spent working with something else?  Some enjoy volunteering, others enjoy researching the family history or writing that book that you always put off, even learning a new skill or going back to school can be considered.  Travel plans also need consideration – those who’ve traveled extensively during their work life may not wish to venture so far from home, others can’t wait to become intrepid explorers!

Often, what to do with the family home also needs consideration.  Some empty-nesters love keeping their family home and it’s memories, others like to move on and downsize for less maintenance and possibly availing themselves of additional funds.  Moving interstate to be near the family or a group of friends also needs consideration but taking on too many things at once can be a little overwhelming… it’s good to learn to pace yourself.

Managing the finances also requires careful consideration.  Some find that their immediate spend in the first few years following retirement is much higher than they’d previously thought it might be.  Funding travel or new gadgets may be fun, but if they haven’t been budgeted for, can impact the long term value of savings.  Longevity risk is gaining a lot of exposure now, with many living well into their 90’s and hoping they don’t outlive their savings.

Who knew that ‘hanging up the boots’ could be so complicated?

It’s a great idea to sit down with your adviser and talk through your options.  What works for one, won’t work for all, so setting and achieving what’s important to you is vital.

Saving for retirement: Hacks for parents with dependents

You can build your retirement savings while supporting your dependants.

Providing for the kids doesn’t have to come at the expense of stashing funds for retirement. There are ways you can build a sufficient nest egg while supporting your children.  And chances are, you’ll be spending a lot longer in retirement than previous generations… who knew?

Saving for retirement

Forced saving can be your best ally in building your retirement fund. Making voluntary contributions to your super through salary sacrifice can seriously boost your nest egg.  You can make concessional super contributions of up to $25,000 each financial year (which includes your employer’s super guarantee contributions.) The government will tax your salary-sacrificed contributions at 15% which may be much lower than your marginal tax rate.

It may also be worth looking at how and where your super fund invests your money. Choosing a different investment option may help you earn better returns and grow your super.  Do you know what your Investor Risk Profile is?  Conservative?  Balanced?  Aggressive?

Super can be a difficult subject to get your head around. Have a chat with your adviser about how you can boost your super by making voluntary contributions or changing your investment options. Your adviser can also knows about retirement saving options beyond super.

Protecting your income

While you’re building your fund for retirement and still supporting those eating you out of house and home, it’s important to protect your current income in case you’re unable to work due to an illness or injury. Taking out income protection insurance is an incredibly wise precaution against any event that can prevent you from working. This policy may provide a monthly income to support you and your family during your recovery and help you stay on track with your financial commitments.  Premiums are tax deductible.  And if you think about it, why wouldn’t you insure your most important asset? – the ability to earn an income!

It’s also crucial to ensure your dependants are looked after if you die or became seriously ill or disabled. Having life insurance, total and permanent disability cover, and trauma insurance can help you protect what’s important to you.

Get advice

Balancing your need to prepare for retirement and your responsibility to your partner and kids can be tough, but keep in mind that help is always available. Speak to your adviser about how you can provide for your dependants while building a nest egg for a comfortable retirement.

Your future self will thank you for it!

What’s the deal with Financial Infidelity?

Cheating on your partner with money is a thing.  And for many, can be just as emotionally destructive as finding out about the sexual kind of infidelity.

Many admit to having lied to their partners about how much they earn, have spent, have borrowed or lent, especially to family members and friends.  It’s just a little lie right?

And although you may not feel the need to share every decision you make with your partner, little lies can lead to big ones.  Covering your tracks takes serious time and effort and if and when your partner discovers the extent of the cover-ups, things can get seriously out of hand.

Being upfront about your finances is about trust.  It’s much easier to achieve your joint financial goals when family funds are pooled and work together for the common good.

Others choose to keep their finances completely separate and private, but pool equal or set amounts into a joint fund to cover family expenses or goals such as combined holidays.  Either way, being upfront and honest about your financial commitments and obligations is paramount.

There’s plenty of reasons people don’t want to share, or won’t.  If you’ve been in a relationship before and have moved on, you may not want your new partner to know all the gory and intimate details of your financial life.  Others are just as happy to share.  It’s setting the expectations early and having regular money talks that can prevent massive issues down the track.

For those who’ve been in financially abusive relationships, there’s likely to be massive trust issues with sharing.  Financial abuse is rarely discussed, yet a widespread problem globally.  And I’m not talking about having a low budget for the groceries.  Financial abuse is about someone using money to exercise power and control in a relationship.

It covers everything from running up debts, defaulting on joint loans, putting a partner under inordinate amounts of pressure to reduce, limit or stop spending, even banning access to accounts.  No wonder those who’ve ‘been there before’ believe in maintaining some form of independence, including a completely hidden and private stash.

If you’d like to know more or think you may be experiencing financial abuse in your relationship, you can visit ASIC’s MoneySmart website to find out more.  Thankfully, there’s lots of options on where to turn if you think you’re a victim of financial abuse, or believe someone you know may be experiencing this kind of crisis.

Managing the cost of Insurance

You don’t have to cut corners on your insurance or sacrifice the adequacy of your cover to make your policy more affordable.

A necessary evil?  A must have?  Love it or hate it, you’re likely to need insurance in your life!  But how do you get the most bang for your buck?  This article deals with options available for personal insurances like Life and Total & Permanent Disability, Trauma Insurance and Income Protection cover.

Choosing a payment structure

Choosing stepped premiums in the first few years of your life insurance policy may help you keep the cost of cover low in the beginning. Stepped premiums allow you to start paying your insurance at a lower rate, which then rises as you grow older. Your insurer calculates your premiums on each policy anniversary based on your age, and sometimes with CPI too.

You may consider moving to level premiums as you become more capable of paying your insurance. Although they’re more expensive in the beginning than the stepped structure, level premiums generally offer a good long-term savings because premiums are calculated based on your age when you first take out level premiums.

Using your super

Taking out life insurance through your superannuation fund may lower the cost of insurance because premiums may be paid using concessionally taxed contributions paid from your employer or sacrifices into your super. Premiums can be cheaper because super funds bulk buy insurance policies and can negotiate discounts (group insurance.)  Individually, some offer a 15% discount or rebate off premiums due to the concessionally taxed structure of Superannuation.

But keep in mind that super funds may offer limited cover. Talk to your adviser on how to ensure you have enough cover.  And make sure you don’t constantly erode the value of your retirement savings with large premiums.

Waiting for a longer period

When taking out income protection insurance, you can choose a waiting period. The longer you wait before receiving income benefit payments, the lower your premiums.  Make sure you have enough in savings or an offset account to tide you over – and remember, payments are made 30 days in arrears – so a 30 day waiting period may still mean 60 days before you get paid!

You can also choose between an indemnity policy and an agreed value policy. Taking out indemnity cover may help you keep the costs down because premiums are generally lower than those for agreed value cover.

Income protection premiums are usually tax deductible if you fund your cover outside super, helping make this policy affordable. If you pay your insurance through your super, premiums are generally tax deductible to the super fund.

Getting advice

With so much to consider, seeking advice from a professional financial adviser is important to help make insurance affordable – and manageable – for you and your circumstances.  Give us a call if you’d like some help.  07 5593 0855.