HOW NOT TO BLOW AN INHERITANCE

Flying Australian Dollar (isolated with clipping path)

Dealing with an inheritance is something that many Australians will do in their lifetime. So how do you best manage a lump sum that has come your way and use it to help you reach your financial goals?

1. Have a strategy

The first thing you can do with an inheritance is decide how you can use it to set up financial security for your future. So first up – have a strategy. This is important because: “Most people run through an inheritance in two years or less,” says Jason Flurry, the president of Legacy Partners Financial Group. In his experience, the first mistake people make is they “blow the money on stuff for themselves”.

2. Take stock of where you are at

If you’ve inherited money, you need to know what your financial situation is now so you can make a realistic plan. Your personal circumstances will influence how best to use your inheritance. Whether it’s better to put the money towards paying down debt, investing, your retirement or starting a business, are all going to depend on the amount of money you’ve inherited and what will serve you best financially. Get your financials together and see what the fiscal lay of the land is.

3. Get advice

It’s a very good idea at this point (if not before) to speak to your financial adviser, who can really help you plan how to use and grow your inheritance. Your adviser can also help you with any tax implications of your inheritance.

4. Don’t rush into action

If you’ve had a financial windfall, take your time before taking action. Flurry says, “The temptation is to feel like you have to do something, but you really don’t. Sit down and dream a little, then back into the numbers and ask, ‘How can we do this with the least amount of risk?’” Acting too hastily can lead to trouble. Paying off your mortgage without thinking about future income in your old age, for example, could leave you living debt-free but in poverty. “If your house is paid for but you run through everything else, you can’t use shingles to pay for groceries,” Flurry says. “Then what do you do?” “You don’t want to be in that situation.”

5. Watch out for high risk investments

When you’re given money, especially if you weren’t expecting it, it does not always have the same value as when you have earned it. The danger is that you may be tempted to put it on high risk investments or business ventures. A slow and steady approach to financial independence may not be as exciting as a get quick rich scheme, but it may serve you better in the long term.

6. Enjoy

While it’s good to use an inheritance wisely, this doesn’t mean you can’t enjoy some of it immediately. When you create your strategy, factor is some fun spending. It’s all about balance.

If you would like to find out more about how this might relate to your personal circumstances, please do not hesitate to contact us via email at info@ofm.com.au or by calling us on 1300 761 669.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

HOW TO MARRY FOR MONEY

The word ‘fiancé’ and the word ‘finance’ are very similar. Apart from an additional letter, they’re basically identical words, and rightly so, because before you walk down the aisle with someone it’s a very good idea that you are on the same page financially.

Richer and poorer 

Why? Well arguing about money is the top predictor of divorce according to a study by Sonya Britt, a US state university researcher. Interestingly this is regardless of a couple’s financial situation. So the insight seems to be, if your money saving and spending styles are radically different, or you can’t agree about them, your relationship might be on rocky ground.

What’s yours is mine

Plus, marriage is actually one of the biggest financial decisions you will make, because your joint earning capacity, what you each bring financially to the relationship and your joint financial goals are going to determine a great deal of your financial future. So before you commit, here are four important money issues to deal with.

1. Relationship debt

These days, most people carry some form of debt around with them and before you enter into a marriage or long-term commitment, it’s important to have an open and frank discussion about your situation. Will you share the burden of paying off the debt? Does one of you have a debt that will adversely affect the chances of securing a home loan? What measures do you have in place to ensure the debts are paid off?

While questions about debt might not seem very romantic, they’re an important tool in understanding your future spouse’s spending habits and attitude to money. Vanessa Tripodi from CreditCards.com recommends asking about a person’s total debt, as well as what the debt is from.

“This will tell you why your partner is in debt and whether they have bad financial habits, or their debt is due to a one-off emergency charge they haven’t been able to shift yet,” she writes.

2. Your financial roles 

Financial planner Gerry Linehan, also supports finding out what each other’s money habits are like.

“Who is the best money manager out of the two of you? Generally one is better than the other,” he says. “Consider the better half managing the money, especially if you plan to get a mortgage anytime soon.”

Belinda, 30, recently became engaged when her partner of 5 years, Matt, popped the question in Paris. She agrees wholeheartedly that each person should focus on their financial strengths.

“I am really good at preparing a budget and keeping track of our finances” she explains, “however I’m also quite good at spending too much as well, while Matt is better at saving but never knows exactly where we’re up to in our financial plans.”

3. To merge or not to merge?

Another important discussion to have before getting married concerns what will happen to your individual finances once you’ve said ‘I do’.

“We have kept our finances separate for the last five years of the relationship and will continue to do so going forward into marriage” says Belinda. “We both agree that keeping our financial independence is vital in keeping the dynamic of the relationship fair and strong. However once we start a family, we’ll have to restructure everything quite dramatically and join all our income and debts.”

4. Get clear on your joint financial goals

If you are both saving and working towards the same goals then you are more likely to be successful. But if one of you wants to travel for a couple of years and the other wants to save for a house deposit, you might become unstuck. Really get clear what both of your hopes and dreams are and how you plan to get there before you tie the knot.

Finally if you are planning to get married, consider going to talk with a Financial Adviser. It could be the wisest start to your financial future happiness.

If you would like to find out more about how this might relate to your personal circumstances, please do not hesitate to contact us via email at info@ofm.com.au or by calling us on 1300 761 669.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

Which comes first – Saving or Investing?

As a nation, both our level of savings, as well as our level of investment, are higher than many other developed countries’1. But over the last five years there has been a shift in the relationship between how much we save and how much we invest. So what does this say about how we should approach saving and investing in the future to make the most of our dollars?

According to the Reserve Bank of Australia (RBA), the amount we save as a nation started to increase from the mid-2000s, after a period during which the amount we saved started to fall.1 accordingly, from 2000 to 2010 the ratio of national net saving to GDP rose by three percentage points, from 4.9% to 7.9%.2

Interestingly, and although it might seem counterintuitive, saving and investing are not mutually exclusive. Just because we’re now saving more than in the past doesn’t mean we’re investing less. In fact, the RBA has also noted our high levels of household, as well as corporate, savings have allowed Australia to fund substantial investment in the mining sector.

So how do you get the balance right between saving and investing to establish a firm financial foundation? First, let’s take a look at the principles of saving.

The key is to consistently set funds aside beyond what is needed to pay for bills, groceries, school fees and other payments. To do this, it’s important to understand the true cost of these commitments. Once you know how much you need to set aside to pay for your ongoing expenses, you can work out how much you have left available to save. A rule of thumb is to aim to save 10% to 15% of your after-tax income.

This is often more difficult at certain stages of your life – for instance when you start a family. When this happens you might find you don’t save as much as during other stages of your life. Don’t be too concerned – the idea is to develop a habit of saving throughout your whole life, rather than be too focused on the specifics of the amount.

So what’s an effective way to save? One of the most beneficial strategies is salary sacrificing into superannuation. This may allow you to make a tax-effective contribution to superannuation, subject to certain thresholds. It’s a way of increasing your nest egg, while also reducing the tax you pay.

Another saving strategy is paying your mortgage through an offset account. This allows you to use your savings account balance to reduce the amount you owe on your loan, which could lower the interest you pay on your mortgage.

These are just two ways you can help increase your savings. There are lots of other initiatives you can also put in place to help build up the value of your investments over time.

The idea is to work with your financial adviser to put together a comprehensive financial plan that incorporates the right savings and investment strategies to help you achieve your goals, taking account of your individual circumstances and life stage so you can make the most effective use of your financial resources. Contact your financial adviser today.

 

Sources
  1. Bishop, James & Cassidy, Natasha ‘Trends in National Saving and Investment’, RBA, 2012
  2. ‘Measure of Australia’s Progress, Australian Bureau of Statistics (ABS),2010
 Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

10 Steps to financial security in your 30s

Being 30 today is very different from what it may have looked like for our parents. While many baby boomers were married with children by the 25, people today are settling down later, taking time in their 20s to establish their careers and explore the world. This makes financial security potentially both easier and harder to achieve. While 30-somethings today have more time to establish themselves career-wise, they’re less likely to have stayed in the same job, or to be on the property ladder. We’ve put together 10 tips for becoming – and staying – financially secure in your 30s.

1. Get your super sorted

Your 30s is the time to get serious about your super. If you’re anything like the majority of people your age, you probably spent a much of your 20s switching jobs, and super is probably all over the place, accruing fees and getting lost. Consider putting it together and speak to a financial adviser about the best options for your future.

2. Advance your career

You’ve built the skills in your 20s, now put those skills into practice and start moving towards those career goals.

3. Save

Put as much as you can away for a sunny future. If you’re planning a family and don’t yet have one, your disposable income is probably at its highest so use it to your advantage and work out a savings plan.

4. Invest for the future

If you haven’t already, start thinking long-term. Do you have plans for a holiday house? Do you want to spend time travelling? When do you want to stop working? How much money will you need? It might seem like a long way off but the sooner you start the sweeter those margaritas on the beach will taste in holiday house and no longer need to work.

5. Make a budget

Once you have your goals more firmly set, you can figure out a budget that helps you live within your means and achieve the things you want to achieve. Be realistic, and be consistent.

6. Start climbing the property ladder

If buying property is important to you, then your 30s are a good time to do it. Be realistic about what you can afford to pay on a mortgage, do your research and consider taking advice from a financial adviser. Even if the property is purely for investment purposes in a place you never plan to live, it will get you started and may give you the equity and standing to buy your dream home further down the track.

7. Protect your most valuable asset

Life insurance might not seem the most fun way to spend your money, but it’s important. If you’re in a long-term relationship then it can take the burden off your significant other and children should something happen to you, and if you’re single it can provide injury insurance in the event that serious illness prevents you from working and meeting your financial obligations. It’s a way that helps you keep affording the life you plan for.

8. Pay down debt

It’s time to get serious and pay down that debt you accrued in your 20s. Whether it’s paying off your HECS debt or finally knocking that debt from the gap year you took after university, your 30s are the perfect time to focus on getting out of debt. Also watch the credit cards. Keep them in check and try to pay them fully every month.

9. Learn to be your own advocate

Whether it’s with your accountant, your employer or business partners, use the confidence and skills that come with having worked your way up in your 20s. Advocate for yourself and negotiate a raise, a good deal or a better rate – take matters into your own hands and see how empowering it can be.

10. Have a plan

It doesn’t have to be the plan you had when you graduated university, nor does it have to be the plan your family or society has for you – but it’s a good idea to have one. Financially, your 30s can be the power years for making your dreams come true, but you need to be organised in order to make the most of them.

Contact us today to find out how we can help you make your dreams come true!

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

Are you financially literate?

On August 1st, ASIC launched its National Financial Literacy Strategy for 2014. See press release

According to the article, financial literacy is about having the knowledge, skills, attitudes and behaviours necessary to make sound financial decisions, based on personal circumstances, to improve financial wellbeing. It is considered by many as a ‘core life skill for participating in modern society.’

I personally think it is a fantastic move that, if implemented correctly, will have huge future benefits for not only the individuals that embrace the education, but for the prosperity of our nation as a whole.

‘With almost every Australian owning one or more financial products, improved financial literacy can benefit anyone, regardless of age or income, in term of having greater understanding of financial matter and the ability to meet financial goals for the future.’
ASIC’s strategy is being deployed using all the latest technology. They have a dedicated website with loads of useful tools and calculators.

Odyssey is also at the forefront of money management having recently released its Odyssey Smart Money offering using cutting edge Moneysoft software. We take a step further from ASIC’s initiative, by helping you manage your money in real-time, with automatic bank feeds and pro-active tracking processes. Managing your household finances has never been so easy – or accurate! Check it out here

I truly believe that good money management will beat any ‘get rich quick’ scheme over the long run and I look forward to seeing the results pan out in this space!

Written by Silke Poortman – Sales & Marketing Manager, Odyssey Financial Management

 

SAVING FOR YOUR CHILDREN’S EDUCATION

If you haven’t got a plan to pay for your children’s education, it’s probably time to get started.

The first step is to work out how much you will need to fund education expenses. The table below gives you an idea of the costs of the different options for primary and high school.

Metropolitan Australia school fees in 2012

 
Government
Government (including extras)
Systemic
Systemic (including extras)
Private
Private (including extras)
Primary
$454
$2,990
$3,043
$5,954
$9,516
$12,963
Secondary
$878
$4,151
$7,973
$11,429
$16,246
$20,457
Source: Australian Scholarships Group (ASG). Please note that this is a guide only. Figures have been rounded and represent the upper ranges that parents can reasonably expect to pay. Fees vary across states, child age and individual schools, sometimes significantly. “Extras” includes extracurricular activities, uniforms, necessities (eg stationery, books and bags), travel and computer.

 

The second step is to work out how much you can afford to put aside for savings. Budget calculators are an excellent way to work this out and only take around 40 minutes to complete. They are available widely on the internet (e.g. www.moneysmart.gov.au).

To get the most out of your savings, you’ll need a strategy. The best way to find the right strategy for you is to speak with a financial planner. Below are some ideas to start your thinking:

  • Insurance or education bonds – These are great if you and your partner earn more than $37,000 per year as they are only taxed at 30% if you keep them for 10 years and contribute no more than 125% of last year’s contribution each year. Education bonds offer additional tax savings but work best for university students over 18.
  • Mortgage redraw – This involves saving for education by paying down your mortgage and then using a re-draw facility or offset account to pay education expenses. That could give you an equivalent return of over 10% per annum depending on your marginal tax rate and mortgage interest rate.
  • Managed funds, shares, term deposits – These can be particularly powerful if you have a long-term investment horizon and you or your partner is on a low marginal tax rate.

 

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

Discover how the inner circle can help you. Contact us today for a financial consultation.

This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs.
Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.
Odyssey Financial Management is an authorised representative of Total Financial Solutions Australia Limited.