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It’s a dilemma many of us face – are we better off directing extra money to our mortgage or super? As with most financial decisions, it’s not a one size fits all approach and here are some factors to consider in deciding what’s right for you. Key takeaways: There may be tax advantages when you contribute to super, especially if you salary sacrifice or you’re eligible to claim a tax deduction for personal super contributions. The power of compounding returns could mean that even small contributions to your super over many years could make the world of difference. By making extra mortgage repayments, coupled with any potential increase in the value of your property, you will build equity in your property at a faster rate than if you were to make just the minimum repayments. Building the case for super over mortgage You might think your super is already being taken care of – after all, that’s what your employer’s compulsory Superannuation Guarantee contributions are all about. But these contributions alone often aren’t enough to ensure you achieve the retirement lifestyle you want to live. Making extra contributions to your super is a great way to boost your retirement savings. As an investment vehicle, super is a very tax effective way to save for the future. The power of compounding returns Super is a long term investment, at least until you retire, and potentially much longer if you leave your money in super and draw a pension after you retire. This long investment term, coupled with the rate of tax on your super investment (generally 15%), means your money can add up and generate further investment returns on those returns. This is known as compound returns, or compounding. The expenses of daily life can be considerable. Thinking about directing money to super might not seem like a priority when we feel overwhelmed by the effort to save a deposit for a home, paying down debt, and the costs of raising a family. However, the benefit of compounding returns means that even small, frequent contributions can make a big difference down the track. It’s about striking a balance that is right for you today and remember, nothing has to be forever. As your life changes, you can simply adjust your contributions strategy to suit your needs. Building super early To maximise your retirement savings while allowing compounding returns to do the heavy lifting, the best approach is to start early. The longer compounding continues, the bigger your savings could be. Entering retirement debt free is an attractive prospect. It can be easy to think that you need to repay your debt before you can start thinking about saving for retirement. However, it doesn’t have to be one or the other. You can see the difference small, regular contributions could make to your final retirement income using the MoneySmart retirement planner calculator. Tax benefits of super From a tax point of view, super can be incredibly beneficial. Salary sacrificing some of your before-tax salary or making a voluntary after-tax contribution for which you can claim a tax deduction, can be effective ways to not only grow your retirement savings but also reduce your taxable income. One great benefit of investing in super is that concessional (before tax) contributions are taxed at a maximum rate of 15%. This can be higher though if you earn over $250,000. Mortgage repayments are usually made from your take home pay after you’ve paid tax at your marginal tax rate. Your marginal tax rate could be as high as 47%. So, depending on your circumstances, making a voluntary deductible contribution to super or salary sacrificing may result in an overall tax saving of up to 32%. There is a limit on the amount you can contribute into super every year. These are referred to as contribution caps. Currently, the annual concessional contributions cap is $27,500. If you’re eligible to use the catch-up concessional contributions rules, you may be able to carry forward any unused concessional contributions for up to 5 years. If you exceed these caps, you may be liable to pay more tax. Tax on super investment earnings The initial tax savings are only part of the story. The tax on earnings within the super environment are also low. The earnings generated by your super investments are taxed at a maximum rate of 15%, and eligible capital gains may be taxed as low as 10%. Once you retire and commence an income stream with your super savings, the investment earnings are exempt from tax, including capital gains. Also, when it comes time to access your super in retirement, if you’re aged 60 or over, amounts that you access as a lump sum are generally tax free. However, it’s important to remember that once contributions are made to your super, they become ‘preserved’. Generally, this means you can’t access these funds as a lump sum until you retire and reach your preservation age, between 55 and 60 depending on when you were born. Before you start adding extra into your super, it’s a good idea to think about your broader financial goals and how much you can afford to put away because with limited exceptions, you generally won’t be able to access the money in super until you retire. In contrast, many mortgages can be set up to allow you to redraw the extra payments you’ve made or access the amounts from an offset account. Building the case for reducing your mortgage over super For many people, paying off debt is the priority. Paying extra off your home loan now will reduce your monthly interest and help you pay off your loan sooner. If your home loan has a redraw or offset facility, you can still access the money if things get tight later. Depending on your home loan’s size and term, interest paid over the term of the loan can be considerable – for example, interest on a $500,000 loan over a 25-year term, at … Read more

Key points Inflation is in retreat thanks to improved supply and cooling demand. A further fall is likely this year. Australian inflation remains relatively high – but this mainly reflects lags rather than a more inflation prone economy. Profit gouging or wages were not the cause of high inflation. The main risks relate to the conflict in the Middle East escalating and adding to supply costs; a surprise rebound in economic activity and sticky services inflation; and floods, the port dispute and poor productivity in Australia. Lower inflation should be positive for investors via lower interest rates, although this benefit may come with a lag. The world is now a bit more inflation prone so don’t expect a return to near zero interest rates anytime soon. Introduction The surge in inflation coming out of the pandemic and its subsequent fall has been the dominant driver of investment markets over the last two years – first depressing shares and bonds in 2022 and then enabling them to rebound. But what’s driving the fall, what are the risks and what does it mean for interest rates and investors? This article looks at the key issues. Inflation is in retreat Inflation appears to be falling almost as quickly as it went up. In major developed countries it peaked around 8% to 11% in 2022 and has since fallen to around 3% to 4%. It’s also fallen in emerging countries. Source: Bloomberg, AMP What’s driving the fall in inflation? The rise in inflation got underway in 2021 and reflected a combination of massive monetary and fiscal stimulus that was pumped into economies to protect them through the pandemic lockdowns that was unleashed as spending (first on goods then services) at a time when supply chains were still disrupted. So it was a classic case of too much money (or demand) chasing too few goods and services. Its reversal since 2022 reflects the reversal of policy stimulus as pandemic support measures ended, pent up or excess savings has been run down by key spending groups, monetary policy has gone from easy to tight and supply chain pressures have eased. In particular, global money supply growth which surged in the pandemic has now collapsed. Why is Australian inflation higher than other countries? While there has been some angst about Australian inflation (at 4.3% year on year in November) being higher than that in the US (3.4%), Canada (3.1%), UK (3.9%) and Europe (2.9%), this mainly reflects the fact that it lagged on the way up and lagged by around 3 to 6 months at the top. The lag partly reflects the slower reopening from the pandemic in Australia and the slower pass through of higher electricity prices. So we saw inflation peak in December 2022, whereas the US, for instance, peaked in June 2022. But just as it lagged on the way up it’s still following other countries down with roughly the same lag. In fact, with a very high 1.5% month on month implied rise in the Monthly CPI Indicator to drop out from December last year, monthly CPI inflation is likely to have dropped to around 3.3% to 3.7% year on year in December last year, which is more in line with other countries. Source: Bloomberg, AMP What about profit gouging? There has been some concern that the surge in prices is due to “price gouging” with “billion dollar profits” cited as evidence. In fact, the Australian Government has set up an inquiry into supermarket pricing. There are several points to note in relation to this. First, it’s perfectly normal for any business to respond to an increase in demand relative to supply by raising prices. Even workers do this (e.g. asking for a pay rise and leaving if they don’t get one when they are getting lots of calls from headhunters). It’s the way the price mechanism works in allocating scarce resources. Second, national accounts data don’t show any underlying surge in the profit share of national income, outside of the mining sector. Finally, blaming either business or labour (with wages growth picking up) risks focusing on the symptoms of high inflation not the fundamental cause, which was the pandemic driven policy stimulus and supply disruption. This is not to say that corporate competition can’t be improved. Source: ABS, RBA, AMP What is the outlook for inflation? Our US and Australian Pipeline Inflation Indicators continue to point to a further fall in inflation ahead. Source: Bloomberg, AMP This is consistent with easing supply pressures, lower commodity prices and slowing demand. It’s not assuming recession, but it is a high risk and if that occurred it would likely result in inflation falling below central bank targets. Out of interest, the six month annualised rate of core private final consumption inflation in the US, which is what the Fed targets, has fallen below its 2% inflation target. In Australia, it’s expected that the quarterly CPI inflation to have fallen to around 3% year on year by year end. The return to the top of the 2% to 3% target is expected to come around one year ahead of the RBA’s latest forecasts. What are the risks? Of course, the decline in inflation is likely to be bumpy and some say that the “last mile” of returning it to target might be the hardest. There are five key risks to keep an eye on in terms of inflation: First, the escalating conflict in the Middle East has the potential to result in inflationary pressures. Disruption to Red Sea/Suez Canal shipping is already adding to container shipping rates due to extra time in travelling around Africa. So far this has seen only a partial reversal of the improvement in shipping costs seen since 2022 and commodity prices and the oil price remain down. The US and its allies are likely to secure the route relatively quickly such that any inflation boost is short lived. The real risk though, is if Iran is drawn directly into the … Read more

A rally in the second half of the month helped global share markets generate solid gains in January, extending the rally from November and December. The latest indicators suggest economic conditions are holding up quite well in most regions, which augurs well for corporate earnings. With inflation still above central bank targets, investors pared back their expectations for interest rate cuts this year. At the beginning of January investors had been anticipating six rate cuts in the US this year, with the first expected in March. That timing now seems unlikely, with policy settings more likely to be eased a little later. It was a similar story elsewhere, with investors conceding that policy settings are unlikely to be loosened as much as previously thought in the near term. Bond yields rose against this background, which weighed on returns from fixed income markets. Geopolitical risk remained elevated, particularly in the Middle East. A series of attacks on commercial vessels in the Red Sea by Houthis – a Yemen-based group, backed by Iran – prompted some shipping companies to divert Asia-Europe traffic around the tip of Africa, instead of through the Suez Canal, increasing freight times and costs. In some cases, shipping costs have more than trebled over the past two months, which could feed through to consumer goods inflation and, in turn, make it less likely that central banks will lower interest rates. US GDP growth in the December quarter was stronger than anticipated. The economy grew 2.5% in 2023 as a whole, supported by robust consumer spending. Retailers enjoyed strong pre Christmas trading, according to the latest retail sales data. Discretionary spending appears to be holding up well despite higher borrowing costs, perhaps owing to the strong labour market and a good level of wage growth. The latest employment data suggested US firms remain quite optimistic about their future prospects. More than 200,000 new jobs were created in December, which was above forecasts. Most importantly of all, annualised inflation in December quickened from the prior month and was comfortably above consensus forecasts. Combined, these data led investors to question whether policymakers will be willing to lower interest rates in the near term. There had been speculation that the Federal Reserve would lower borrowing costs in March, but by month end traders were only pricing in a 35% likelihood of such a move. Australia All measures of inflation slowed sharply in the December quarter, which was consistent with previous guidance from Reserve Bank of Australia policymakers. At the headline level, consumer prices rose at an annual pace of 4.1%, down from 5.4% in the September quarter. Inflation remains significantly above the 2.0% to 3.0% target, but officials will nonetheless be happy with the direction of travel. The economy lost more than 65,000 jobs in December, which surprised economists and came after four months of gains. Combined with moderating inflation, any prolonged downturn in the labour market would likely increase the probability of interest rates being cut in the months ahead. The latest projections suggest official borrowing costs will be lowered in the second half of 2024 and by between 0.50% and 0.75% by the end of the year. New Zealand Inflation slowed to 4.7% year on year, which was in line with consensus forecasts. Business confidence levels improved, which prompted some observers to suggest policymakers might be hesitant to lower official borrowing costs as quickly as previously thought. At the beginning of January, a rate cut in May had been fully priced into the market. During the course of the month however, the probability fell to around 50%. Europe Inflation in France and Germany continued to ease, consistent with forecasts from European Central Bank officials. Nonetheless, policymakers poured cold water on investors’ expectations for interest rate cuts in the near term, indicating that official borrowing costs are unlikely to be lowered until the middle of the year at the earliest. This could disappoint manufacturers, which continue to struggle against a background of stalling demand. Industrial output in Germany shrank 2.0% in 2023, for example. Curiously, employment trends are holding up quite well despite the subdued economic backdrop. Unemployment has fallen to a record low of 6.4% in the Eurozone, which could feed through to wage demands and, in turn, further inflationary pressures. According to the European Central Bank, wages rose more than 5.0% in 2023. In the UK, inflation quickened in December for the first time in eleven months. Asia Q4 GDP growth data were released in China. Real GDP was reported at 5.2% for the full 2023 year, while nominal GDP came in at 4.2% owing to the deflation seen last year. Apart from COVID-affected 2020, this was the slowest annual growth rate in the world’s second largest economy since the mid 1970s. Home sales remain subdued and a downturn in import volumes suggests households and business are cutting back on discretionary expenditure. Authorities appear concerned about the outlook for the year ahead too and responded by lowering the reserve requirement ratio, which determines how much cash banks need to keep in reserve. The policy change is designed to make more cash available for lending, in turn boosting spending and supporting overall economic activity levels. In Japan, comments from central bank officials were closely scrutinised, as investors believed policymakers were preparing to raise interest rates for the first time since 2007. Inflation remains significantly above the long term average, questioning the rationale for persevering with negative rates. Australian dollar The AUD weakened by 3.6% against the US dollar in January. This primarily reflected broad based strength in the USD, rather than any local influences affecting the ‘Aussie’. The USD strengthened against most major currencies, following strong employment data and higher than expected inflation. That said, the AUD weakened against other majors too, depreciating by 1.9% against a trade-weighted basket of international currencies. Australian equities Australian equities closed January at an all time high, surpassing levels not seen since August 2021. The market was buoyed by cooler than expected local … Read more

Australian household wealth Is high Australian household wealth a source of support for consumers? Key points Australia ranked as having one of the lowest rates of disposable income growth per capita amongst OECD countries in mid 2023. An increasing income tax burden and mortgage repayments have weighed on income growth, despite solid wages and salaries. But, household balance sheets in Australia look stronger compared to incomes. Household wealth increased in 2023, as home prices rose. However, growth in household wealth will decline in 2024 as home prices are expected to fall. Household incomes will also be under pressure as earnings growth slows from a softening labour market. As a result, high household wealth holdings will not be enough to offset a challenging environment for households in 2024, despite some easing in cost of living challenges. Introduction Household income data from the OECD showed that Australia had one of the lowest rates of annual real household disposable income per person compared to its OECD peers (see the chart below). Over the year to June 2023, Australia’s real per capita household disposable income was down by 5.1%, compared to a 2.6% rise across OECD countries. Source: AMP, Macrobond This occurred despite very healthy labour market conditions in Australia which saw employment growth running above 3.0% per annum all year, the unemployment rate remaining below 3.9% and underemployment continuing to be low, all of which boosted wages growth. Despite this positive earnings backdrop, the income tax burden increased in 2023 as households have been moving into higher income tax brackets (otherwise known as “bracket creep”), as well as the end of income tax concessions. Mortgage interest repayments are also an increasing drag on incomes (see the chart below) as the cash rate has been increased by 425 basis points since May 2022. Australia’s very high population growth in 2023 (running at 2.4% over the year to June 2023) also masked a fall in household disposable income growth per person, relative to other OECD countries. Source: ABS, AMP Just looking at household income accounts does not show everything about the position of households. In a country like Australia where home ownership rates are high (66% of Australian households own their home, with or without a mortgage), looking at household wealth is also important. Household wealth in Australia The Australian Bureau of Statistics estimates the value of a household’s assets, liabilities and therefore wealth. Net worth or wealth is calculated as a household’s total assets minus its liabilities. Total wealth is close to 11 times the size of household disposable income (or 1083%) and net wealth is 896% of income. The latest data for the year to June 2023 showed a slight fall in wealth as a share of income, after it reached a record high in 2022 – see the chart below. Non financial wealth is worth 647% of income, larger than financial wealth at 436% and well surpassing household debt, which is 187% of income. Source: RBA, AMP Around 70% of Australian household wealth is tied to the value of homes (which is made up of land and dwellings) and moves closely in line with home prices (see the chart below). Household wealth rose throughout 2023, in line with solid growth in home prices. Source: ABS, AMP Other components of household wealth are shown in the chart below. Assets include superannuation, shares and currency and deposits. Loans which are mostly for housing are the source of household liabilities. Source: ABS, AMP How does household wealth compare around the world? Australian household wealth, as a share of household disposable income, is at the top end of its OECD peers (see the chart below). Source: OECD, AMP High holdings of wealth could be considered a source of support for households, especially against record levels of household debt in Australia. This is a concept known as the “wealth effect”. When household wealth increases, households feel more secure with their financial position and household savings tend to decrease which lifts consumer spending. When wealth decreases, households feel less secure which leads to an increase in savings and decline in spending. However, this relationship does not always work. Most recently in the pandemic, household wealth rose in 2021/22 alongside the lift in home prices but the savings ratio also surged thanks to government driven stimulus cheques. Since then, the household savings ratio has been falling but growth in total consumer spending has been low. We expect that the household savings rate will continue to fall in 2024 as it normalises after the pandemic but growth in consumer spending will still be low. Implications for investors Households dealt with a cost of living challenge in 2023 because of high inflation and rising interest rates. Inflation is expected to slow in 2024 and we expect the RBA to start cutting interest rates by mid year which should ease the repayment burden for households with a mortgage, as mortgage interest repayments as a share of income are rising to a record high (see the chart below). Source: ABS, AMP So, while cost of living issues should improve for consumers, household wealth will come under pressure in 2024 as we expect home prices will decline by 3.0% to 5%. This is likely to occur alongside a slowing in household incomes as the labour market weakens and the unemployment rate increases. This environment is expected to be negative for consumer spending and GDP growth. We see GDP growth rising by 1.2% over the year to June 2024, below the RBA’s forecast of 1.8% and anticipate the unemployment rate to increase to 4.5% by mid year. This should see the RBA cutting interest rates by June and we expect a total of 3 rate cuts in 2024. Wealth inequality between households is also an issue in Australia. The top 20% of households (by income quintile) owned 63% of total household wealth in 2019-20 but the bottom income quintile (the bottom 20%) owned less than 1.0% of all household wealth. In Australia, there is … Read more

As scams continue to evolve, it’s important to stay on top of the latest information. Here are some tips for staying protected against some of the most common scams impacting Australians today and red flags to watch out for. What can you do to stay protected? Anyone can fall victim to a scam. As well as learning more about the different types of scams and how to spot them, start a conversation with family members or friends. You might know the red flags to watch out for, but do your loved ones? Raising awareness and educating yourself and others are important steps to help combat scams and even prevent them from happening in the first place. Three scams to watch out for Impersonation scams Have you ever received a call and it just didn’t feel right? It may have been part of an impersonation scam, which is when a scammer impersonates a bank or other service company by phone or SMS, asking you to authorise transactions, make a payment, or provide personal information. According to the Australian Government’s Anti-Scam Centre, three in four reported scams include some form of impersonation of a legitimate entity1. So how can you be sure next time that person calling you is really from where they say they’re from? Here’s a few things to remember: most financial institutions will never ask you to transfer funds to another account never share passwords with anyone avoid using phone numbers or links from text messages check contact information using a trusted source such as the company’s website. Investment scams As of 9 November 2023, Australians have lost $240 million to investment scams2. Investment scams are often sophisticated which means they can be hard to spot. Investment opportunities offering fast results and big returns can have the potential makings of a scam. Common investment scams include: unsolicited investment offers such as cryptocurrency, fake corporate or treasury bonds, and fake share IPOs (Initial Public Offerings), claiming to be from reputable businesses fake endorsement of an investment or other business opportunities from celebrities early access to superannuation with a fee. Buyer/seller scams Buying or selling on an online selling platform is great when it’s quick and hassle-free. But scammers are popping up everywhere, so it’s harder to stay safe online. Here are five red flags to look out for: being approached by someone who has no profile photo the price seems too good to be true a request for personal information such as your phone number or email the buyer overpays for an item and wants you to refund the excess amount the buyer wants to pay using a gift card or wants to send a prepaid shipping label.   1scamwatch.gov.au 2scamwatch.gov.au as at 9 November 2023   Source: Macquarie

Setting up your SMSF is just the beginning. Make sure you’re aware of your obligations as an SMSF trustee and get the most out of your fund with this quick guide. While the list of SMSF administrative tasks and responsibilities may seem daunting, it’s there for a good reason: to ensure your fund’s decisions protect your retirement savings and provide financial security for your SMSF members in the future. If you need guidance with any of the following, your SMSF administrator, accountant or financial adviser will be able to help. Here are five tips that can help you build a foundation for managing your SMSF. Know your responsibilities as a trustee Ongoing administrative tasks include, but are not limited to: Accepting and allocating super guarantee contributions in line with required standards. Valuing fund assets to complete the SMSF’s financial statements and annual return, as well as member benefits reports. The annual reporting date is typically 30 June. Engaging an approved auditor for the annual audit. Lodging your SMSF annual return with the ATO. Reporting certain events within the required time frame (such as commencement of a pension within 28 days of the end of the relevant quarter). Notifying the ATO of any change in fund details, such as contact details, name, address, membership and trustees, within 28 days of the change. Keeping proper and accurate tax and superannuation records to manage the fund effectively and efficiently. Transferring part of or all benefits to another superannuation fund (a rollover) if required by the member. The rollover must be performed via SuperStream and generally initiated within three business days of receiving the completed request. Making benefit payments as a lump sum or income stream. Withholding Pay As You Go (PAYG) tax if a taxable benefit is paid to a member (such as when the member is under age 60). For more information on your obligations, visit the ATO website. Supercharge your SMSF cash hub Your SMSF bank account manages the full lifecycle of your fund. It’s important to make sure you have enough cash on hand for SMSF expenses – such as life insurance premiums, advice fees or tax. You can also hold some of your cash in a higher interest account. Once a member retires, that cash account can also be linked to an everyday transaction account to receive pension payments. Your SMSF cash account is your one stop shop for making investments, receiving distributions and paying expenses. Then when you retire, you can start drawing that cash out as your pension. Scenario 1: Getting started with your SMSF bank account Brian and Kathryn recently established an SMSF and now need a bank account within their SMSF to manage a number of transactions, including: accept the rollover of superannuation benefits from Kathryn and Brian’s existing super funds accept personal contributions from Kathryn, so she can claim a tax deduction to offset some of her self-employment income accept employer contributions from Brian’s employer receive investment income from the planned investment portfolio set up regular investment from surplus inflows pay fees and expenses. As their SMSF trustee has decided not to allocate specific assets to Brian and Kathryn’s member accounts, multiple bank accounts are not required. That means the SMSF can use one bank account. Brian and Kathryn have taken the steps for their SMSF to comply with the requirement to accept rollovers and employer contributions electronically via SuperStream, and documented an investment strategy for their SMSF. Their SMSF bank account will help them meet the investment strategy’s requirements, including: risk and likely return of the fund’s investments investment composition and diversification liquidity to meet expected cash flow requirements, and ability to pay benefits such as pension payments and lump sums after retirement. Regularly review your investment strategy The ATO expects SMSF trustees to review their investment strategy at least once a year to ensure it remains appropriate. When a new member joins or leaves the fund, or if a member transitions to pension phase, you will also need to review and potentially reallocate funds. It is possible to manage different investment goals for each member by apportioning the fund’s investments to suit their needs. For example, you could invite your adult children to join your SMSF as members while also managing the retirement of a member. SMSFs are very flexible, and it’s common to have one member in pension phase while others are still accumulating. Scenario 2: Making sure your SMSF cash account is retirement ready Brian is now ready to retire and wants to set up an account based pension. Kathryn is still working and wants to maximise her super over the last decade of her career. Once the documentation is completed, Brian can access his accumulated benefits. The SMSF will not pay any tax on earnings related to Brian’s account based pension, where previously earnings were taxed at 15%. Brian and Kathryn know that the SMSF must pay at least the minimum pension from Brian’s account-based pension each year, based on his age. Pension payments must also be made by cash payment, not by transferring an asset from the SMSF. The SMSF makes the required pension by regular monthly payments from its existing SMSF bank account to Brian’s personal transaction account outside the SMSF. Each financial year, the minimum annual pension requirement from Brian’s account based pension may change, so Brian and Kathryn have diarised to confirm the monthly payment each year. They have also diarised to check towards the end of each financial year to ensure the minimum pension will be paid by 30 June of that year. This may mean topping up the SMSF’s bank account by selling an asset within the SMSF to ensure they have sufficient liquidity to meet the ongoing pension payments. By taking these steps to pay the minimum pension each year, Brian and Kathryn can receive tax free income from Brian’s account based pension. Understand the potential tax advantages available The superannuation environment is typically more tax effective than investing outside super. … Read more

Want to invest but don’t know where to start? Here are five basic steps for investing. Define your goals Taking the first step on your investment journey may feel daunting. However, setting clear goals with achievable targets can be a good place to start in the planning process. ‘I want to retire at 60 with an after-tax income of $50,000 which will last at least 25 years’ is one example of a goal. Understand the investment basics Some of the main things you need to understand include the different asset classes (for example, cash, Australian and global shares, property and fixed interest), how they perform, their relationship between risk and return, and why diversifying your investments (that is, spreading your money across different asset classes to help manage investment risk) is something you should consider. Check your investments strategy options There are quite a few investment strategies (or styles) that you can use to invest, build wealth and achieve your financial goals faster. But starting a regular investment plan by investing small amounts over time and re-investing distributions back into your investment funds are some simple examples. Decide if you need help from a financial adviser Strategising, keeping up with changes to tax and superannuation regulations, as well as watching market movements and tracking investment performance can all seem like a bit of a minefield. However, working with a professional, such as financial adviser, can help you navigate the complexities of investing as you work towards achieving your financial goals. Start investing No matter how much time you spend considering your strategies, watching the share markets or planning which funds to put your money into, until you place those investments, they can’t start working for you. While it’s often said that starting earlier on in life can be beneficial, making a start in investing and allowing yourself as much time to invest as possible can still be helpful. Source: Colonial First State

How healthy are your finances? Isn’t it time you put your own financial wellbeing front and centre? You can take control of your financial future quickly and easily, with a simple financial health check. Just like your physical health, it’s worth giving your finances a checkup once in a while. Over time, unhealthy spending habits can creep in, threatening to derail your progress. Here’s how to give your finances a health check and find out where you can make some healthy gains. Step 1: Take your financial pulse Understanding where you stand with your finances is the first and most important step. It’s also the one many people struggle with! Taking a close look at your financial situation can be uncomfortable, but it’s a lot easier than you might think, and, essential, if you want to achieve your goals. Here’s how to analyse your spending and put a budget in place: Use a spreadsheet or online budgeting tool to record all of your essential and non-essential expenses. Fill out each category using figures collected from your invoices and bills. Using real figures will give you a more accurate idea of your spending. Check how your expenses add up against your income. Are you overspending? Look for areas where you can cut back. Underspending? Great, you’ll have some wiggle room to put towards your financial goals. Step 2: Get the basics working for you Once you’ve got your spending into shape, take a look at these financial fundamentals. Do you need to work off any debt or gain some healthy savings? Debt – Like carrying a few extra kilos, debt can creep up and become a burden before you know it. Put a repayment plan in place and stick to it. Be specific about the amounts and timeframes. Emergency fund – Like health insurance for your finances, an emergency fund gives you a buffer against the unexpected. Aim to build up enough funds in a separate account to cover six months’ worth of living expenses. Superannuation – If you want to stay financially fit and healthy into old age, you need to lay the groundwork now. You can use the Moneysmart retirement planner to work out how much super you’ll have when you retire. If you need to top up your super, you can do so by salary sacrificing or making after-tax payments to your super. Insurance – It’s important to protect your earning ability and assets in case of the unexpected. Make sure you have enough total and permanent disability, income protection and life insurance cover to protect you and your family. Step 3: Set yourself some healthy goals Once your finances are on the path to good health, you can set yourself some bigger goals. This is the fun part, where you get to dream about all the things you’d like to do, have or experience. Your financial goals could range from the more practical, like buying a house, setting up an investment portfolio or paying off debt, to the enjoyable, like taking a holiday or moving to the beach. Whatever it is you want to do, this is your opportunity to envision it. Try brainstorming as many goals as you can. Write down each one of your ideas on a post-it note. Give yourself a set amount of time to generate a stack of ideas, then prioritise them using the post-it notes. Select the top two or three to work towards and use them to motivate you. Step 4: Put your financial fitness plan in place The best goals are ones that are supported by a plan. Now that you’ve detoxed your finances and identified your goals, you need to work out how to get there. Depending on your goals and your timeframe, saving alone may not be enough. You might need to consider other ways, like investing, to grow your income. This is where a financial planning professional can help. A financial expert can advise you on strategies to achieve your financial goals.   Source: Money & Life

Saving money doesn’t come naturally to everyone. Some people are wired to save – for others it takes a bit more discipline. But developing good savings habits can do so much for both your financial wellbeing and your future security. Just like money compounds over time, so do our habits. The more we see progress, the more progress we make, but often it’s getting started that’s the hardest part. We share seven habits that can shake up your saving – and if you think you’ve heard them all before, read on for a new take that could see you start to change your ways. Lessons from Japan The Japanese are well known for their ability to master the art of minimal living. Decluttering (or Marie Kondo-ing) the home turned into a global craze as people caught on to the benefits of going back to basics. When it comes to budgeting and savings, the Japanese have nailed that too, with a super simple yet effective journaling method called Kakeibo – pronounced “Kah-keh-boh”. The power in Kakeibo comes from being mindful with your spending and saving – sitting down at the beginning of each month and reflecting on what you want to achieve and how you plan to get there. The process focuses on four key areas: How much do you have to spend? How much would you like to save? How much money are you spending? How can you improve next month? If Kakeibo sounds like something you could work with, you can free-wheel it by digging out a notebook and jotting down your thoughts on the four questions each month. Taking time to check in on your spending and saving priorities is a great first step towards behaviour change. Mapping out your milestones As humans, we like making progress and it gives us the confidence and motivation to keep going. That’s why taking on too much and trying to get from 0 to 100 overnight is never a good idea. Just like building up your fitness, building your savings stamina takes time and training. Creating new habits and reaching any kind of goal is about making that next step achievable. If your goal is to run five km, starting with a one km run and building from there is a realistic first step. The same principle applies to your finances. Get a big piece of butcher’s paper, a wall calendar, or a fridge planner, and map out all the smaller savings milestones you need to get to your end goal. And take it step by step. The beauty of having your goals and milestones mapped out is that you can stop to look at your plans before you make a sudden spending choice. It helps you keep the big picture in mind. And if you happen to fall ‘off the wagon’, you have a roadmap to get you back on track. When it comes to setting money goals, being kind to yourself is also super important. No one wants to feel like a failure. Goals that are kind and realistic are more likely to bring you success. Going too hard and denying yourself too much is just not sustainable in the long term. Creating your money mantra  Self talk is an extremely powerful tool and it can work for or against us. Repeating a mantra to yourself when thinking about a purchase, and intermittently throughout the day, can help keep you focused and in control of your spending. Here are some examples of what a money mantra could look like: “I spend wisely and with purpose” “I am in control of my spending at all times” “I make good money decisions every day” Interrupting the click and repeat cycle  Living in a world where services are subscription based or on repeat does make life convenient. But it can take away some of our control over what we’re spending because we’re not actively deciding to spend the money – it just happens over and over again. Many subscriptions, such as Netflix, don’t offer an alternative, but that doesn’t mean you should ignore just how much these regular expenses can add up. Make a habit of putting your monthly subscriptions under the microscope and think about whether you really need them or if you can get a better deal. Don’t underestimate your power as a consumer. With so many options, you’re in a good position to push your existing providers for a better rate. Fixed expenses such as your rent or home loan, energy bills and mobile phone are often the bulk of your outgoings. Pick up the phone and ask them about the fees you’re paying. Avoid ‘urge surfing’ by taking the one-week test  Sometimes it’s hard to know what we really need, and what we can do without. Rather than spending too long thinking about it, or just giving in to every impulse buy, use the one-week test as your filter. For your next online purchase, add to the cart but don’t buy. Instead, wait a week and see if you still want the item. In most cases, you’ll never go back to the shopping cart because you don’t really need to buy it. If you find yourself thinking about it all week, it might be because you actually do need it. Pay yourself first each month  It might sound counter-intuitive but rewarding yourself for your efforts can be a great way to keep you motivated. Let’s say you pay yourself 10% of your income each month for spending on whatever you like. If the 90% leftover, is enough to cover your monthly expenses you can feel pretty good about splurging with that 10%. And if that 90% of your income still leaves you short, maybe it’s time to find out if you can save on those fixed costs like rent, subscriptions and bills. Modern day tools in your savings toolkit If manually tracking your spending sounds like hard work, there’s plenty of tech available to help you. Apps … Read more

Your super balance will most likely play a big part in how comfortably you live in retirement. But depending on how far off retirement is for you, it might be difficult to gauge whether your super is on track, or if you might need a bit more saved up to live the lifestyle you want after you finish working. In fact, almost half of working Australians don’t know how much they will need to have saved for retirement, according to the AMP 2022 Financial Wellness report1. Retirement stress is increasing The report highlights that financial stress ahead of retirement has been creeping up in recent years. More people expect to have a financially difficult retirement than in the previous 2020 report, particularly older Australians and people who haven’t set clear goals. In total, 21% of working Australians are not confident they’ll be able to achieve their desired standard of living in retirement – up from 17% in 2020 – and only 9% are very confident, down from 14%. Staying on top of your super balance and having a plan if you’re behind on your retirement savings can help ease your stress levels. How does your super stack up? If you’re curious to know how your super shapes up against others your age, here’s the average super balance for employed men and women of different age groups across Australia, according to the Australian Taxation Office’s statistics from the 2020-21 financial year2.