VOLUME 3 EXCLUSIVE: FINANCIAL SERVICES MINISTER KELLY Oâ€™DWYER TALKS MONEY
The really simple guide to
TIPS + ADVICE FROM
Michael Klim Adam Liaw Michael Clarke
AT LAST THE BANKS ARE LISTENING!
JENNIFER HAWKINS: MY BEST INVESTMENTS
HOW MUCH SHOULD YOU TELL YOUR PARTNER ABOUT YOUR MONEY?
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1.Payingbankstafftohelpyou:You want bank staff to do the right thing by you, not focus on a sales bonus or commission. That’s why there’s an independent review of how banks pay and reward their staff and others who sell their products.
1.Goodcustomeroutcomesandsound bankingpractices: We’re explaining publicly how remuneration and incentives for all executives and employees align with good outcomes for customers and sound banking practices. This will be done by December 2017.
The findings of the review are due early April 2017. Banks will change or remove payments that could lead to poor outcomes for customers.
2.Protectingwhistleblowers:Australians working for banks play an important role in reporting any bad practices or poor conduct. That’s why banks have committed to having the highest standard of whistleblower protections, including zero tolerance of retaliation against whistleblowers. This will happen by July 2017.
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2.Supportingcustomersinneed:Banks offer financial hardship programs to support customers affected by illness, unemployment, relationship breakdown, domestic violence or natural disaster. It is in banks’ interests, as well as their customers’, to help people get back on their feet as soon as possible. That’s why we’re improving access to such programs. Banks are also working with financial counsellors to support the setup of a new debt repayment service to help people manage their debts. 3.Gettingproblemsfixed:We’re giving customers somewhere to turn if they’re having problems with their bank, so issues are resolved fairly and quickly. From step-by-step guides to escalating complaints, to ensuring every bank has a dedicated customer advocate by April 2017.
3.Betterqualifiedfinancialadvisers:Banks are changing the way they hire financial advisers, to better identify advisers who have not met the industry’s minimum legal and ethical standards. We’re also working with the Federal Government, financial planners and consumer groups to improve the professionalism of financial advisers. This includes higher entry and education qualifications, ongoing professional training, and mandated ethical standards.
4.Stoppingpoorconductmovingaroundthe industry: Banks are rightly criticised when employees who do the wrong thing simply move to another bank or financial institution. 4.Resolvingdisputes:If customers aren’t Building on our efforts with financial advisers, We know people want see improvements in Australian satisfied with how a bank resolves a complaint, we’reto implementing new processes so banks banking. we think it should be easier for them to can share more information about a potential changes the better. get help. We’re supporting theThat’s Federalwhy we’re making employee’s conduct for at previous jobs. This Government’s review into making external will better identify people who have broken products and services, to having the right culture dispute resolution simpler andFrom easierbetter for the law, or not met the expected standards of individual and small business in customers banks, our goal behaviour is to earn in your codes confidence of conduct. again. to access. We’re also supporting a new 5.RaisingstandardsthroughtheCodeof The strength of Australia’s banks is the envy of compensation scheme being established to and stability BankingPractice:We’re not only looking at help people who have been given financial thebad world. Our support and investment in the economy ensures whistleblower protection and how we pay our advice by an adviser who has gone out of a successful future for all Australians. employees, there’s an independent review of business. the Code of Banking Practice too. Banks will But it all starts with our customers. That’s why we’re listening 5.Helpingsmallbusinessesandfarmers: strengthen their commitments to customers Many small businesses and farmers rely by, for example: to your concerns, and taking action. on finance to keep things running smoothly • Introducing clear andbetter detailedat betterbanking.net.au through variable business cycles. See what we’re doing to make abanking commitment to fair and ethical behaviour. We’re improving how we work with small • Making financial hardship programs more business customers by making the loan accessible to customers experiencing application process and approval criteria financial difficulties. clearer, making it easier to apply for a loan. • Addressing concerns with how banks We’re also looking to improve the way banks’ deal with small businesses and farmers, relationships with small businesses and ensuring their vital contribution to the farmers are managed. economy is recognised and supported. This year, we will continue to push for a 6.Supportingastrongerregulator:Banks national approach to farm debt mediation to are contributing more money to help the help farmers in financial difficulty. regulator, ASIC, ensure better behaviour in the financial services industry. We’re also working with the Federal Government and ASIC on improving breach-reporting practices, so the regulator has better information to do its job. 1742010_3Ways_RSMG_2 Quote representative of in-depth customer research undertaken in 2016. 1742010_3Ways_RSMG_1
Australia’sleadingbanksareworking Australia’sleadingbanksareworking togethertomakebankingbetter. togethertomakebankingbetter. Betterproducts Betterservice Improving the performance, Delivering the kind of service Betterproducts Betterservice accessibility and value of you’d expect, with somewhere
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between Australian bank accounts. This will sales bonus or commission. That’s why 1.Real-timebanking:A new system is being on a1.Payingbankstafftohelpyou:You want startdeveloped being used late 2017. anstaff independent review of how banks sofrom payments can be processed faster there’s bank to do the right thing by you, notpay focus and reward their staff and others who sell between Australian bank accounts. on a sales bonus or commission. That’s why 2.Accountswitching:Bringing togetherThis the will their products. startGovernment, being used from late 2017. there’s an independent review of how banks pay Federal regulators, and consumer reward theirreview staff and who sell groups, we’ll work to make switching banks the Theand findings of the are others due early April 2.Accountswitching:Bringing together their products. easier, including helping customers better 2017. Banks will change or remove payments Federal Government, regulators, and consumer understand switch. thatThe could lead toofpoor outcomes groups, how we’llthey workcan to make switching banks findings the review are due early April for customers. easier, including helpingmaking customers 2017. Banks will change or remove payments 3.Feetransparency:We’re bankbetter fees understand how they can switch. that could lead to poor outcomes clearer, communicated more simply, and easier 2.Supportingcustomersinneed:Banks for customers. to avoid. offer financial hardship programs to support 3.Feetransparency:We’re making bank fees customers affected by illness, unemployment, clearer, communicated more simply, and 2.Supportingcustomersinneed:Banks 4.Affordablebanking:We’re committed to easier relationship breakdown, domestic violence or to avoid. offer financial hardship programs to support provide banking services for all Australians at a natural disaster. It is in banks’ interests, as well customers affected by illness, unemployment, fair price. Banks offer a range of products with 4.Affordablebanking:We’re committed to as their customers’, to help people getviolence back onor relationship breakdown, domestic low fees or fee-free on at a provide banking options servicesfor forcustomers all Australians theirnatural feet asdisaster. soon as Itpossible. That’s why we’re is in banks’ interests, as well low incomes, including pensioners. fair price. Banks offer a range of products with improving access to such programs. Banks as their customers’, to help people get back on low fees or fee-free options for customers on are their also working withas financial counsellors 5.Fraudprotection:Banks play an active feet as soon possible. That’s whytowe’re incomes, includingabout pensioners. support the setup of atonew debt repayment role low in alerting customers suspicious improving access such programs. Banks service to help peoplewith manage their debts. activity. From security alerts andplay information are also working financial counsellors to 5.Fraudprotection:Banks an active about how to put incustomers place the right safeguards, support the setup of a new debt repayment role in alerting about suspicious 3.Gettingproblemsfixed:We’re giving to reimbursing customers who are innocent service somewhere to help people their debts. activity. From security alerts and information customers to manage turn if they’re victims of fraud, looking new about how towe’re put inalways place the rightfor safeguards, having problems with their bank, so 3.Gettingproblemsfixed:We’reissues giving are waystotoreimbursing help protectcustomers customers. who are innocent resolved fairly and quickly. From step-by-step customers somewhere to turn if they’re victims of fraud, we’re always looking for new guides to escalating complaints, to ensuring having problems with their bank, so issues are ways to help protect customers. every bank has a dedicated customer advocate resolved fairly and quickly. From step-by-step by April 2017. guides to escalating complaints, to ensuring every bank has a dedicated customer advocate 4.Resolvingdisputes:If customers aren’t by April 2017. satisfied with how a bank resolves a complaint,
how remuneration and incentives for all 1.Goodcustomeroutcomesandsound executives and employees align with good bankingpractices: We’re explaining publicly outcomes for customers and sound how remuneration and incentivesbanking for all practices. Thisand willemployees be done byalign December 2017. executives with good
Improving the performance, banking products. accessibility and value of 1.Real-timebanking:A new system is being banking products. developed so payments can be processed faster
a close look at at the bank the akind of service theTaking right thing starts top. to Delivering turn if there’s problem. culture, and making sure doing you’d expect, with somewhere 1.Goodcustomeroutcomesandsound 1.Payingbankstafftohelpyou:You want the right thing atpublicly the top. tostaff turn there’s a by problem. bankingpractices: We’restarts explaining bank to doifthe right thing you, not focus
outcomes for customers and sound banking 2.Protectingwhistleblowers:Australians practices. This will by December working for banks playbe andone important role in 2017. reporting any bad practices or poor conduct. 2.Protectingwhistleblowers:Australians That’s why banks haveplay committed to having working for banks an important role in thereporting highest standard whistleblower any bad of practices or poor conduct. protections, including zero tolerance of That’s why banks have committed to having retaliation against whistleblowers. This will the highest standard of whistleblower happen by July 2017. protections, including zero tolerance of retaliation against whistleblowers. This will 3.Betterqualifiedfinancialadvisers:Banks bythe Julyway 2017. arehappen changing they hire financial advisers, to better identify advisers who 3.Betterqualifiedfinancialadvisers:Banks have not met thethe industry’s minimum legal are changing way they hire financial andadvisers, ethical standards. We’re also working to better identify advisers who withhave the not Federal Government, met the industry’s financial minimum legal planners and consumer improve and ethical standards.groups We’re to also working thewith professionalism of financial advisers. the Federal Government, financial Thisplanners includesand higher entry and education consumer groups to improve qualifications, ongoing professional training, the professionalism of financial advisers. andThis mandated ethical standards. includes higher entry and education qualifications, ongoing professional training, 4.Stoppingpoorconductmovingaroundthe and mandated ethical standards. industry: Banks are rightly criticised when
employees who do the wrong thing simply 4.Stoppingpoorconductmovingaroundthe move to another bank financial institution. industry: Banks areorrightly criticised when Building on ourwho efforts with financial employees do the wrong thingadvisers, simply we’re implementing new processes banks move to another bank or financialso institution. we think it should be easier for them to aren’t canBuilding share more information about a potential 4.Resolvingdisputes:If customers on our efforts with financial advisers, get satisfied help. We’re supporting theresolves Federala complaint, employee’s with how a bank conduct at previous jobs. This we’re implementing new processes so banks Government’s review into making external we think it should be easier for them to willcan better identify who have broken share morepeople information about a potential dispute resolution andthe easier for get help. We’resimpler supporting Federal theemployee’s law, or not met the expected standards conduct at previous jobs. Thisof individual and small business customers Government’s review into making external behaviour in codes of people conduct. will better identify who have broken to access. also supporting a new disputeWe’re resolution simpler and easier for the law, or not met the expected standards of 5.RaisingstandardsthroughtheCodeof compensation scheme established to individual and smallbeing business customers behaviour in codes of conduct. BankingPractice:We’re not only looking at helptopeople who have been given bada financial access. We’re also supporting new whistleblower protection and how we pay our 5.RaisingstandardsthroughtheCodeof advice by an adviser who has gone out of compensation scheme being established to there’s an independent ofat BankingPractice:We’re not onlyreview looking business. help people who have been given bad financial employees, thewhistleblower Code of Banking Practiceand too.how Banks will our protection we pay advice by an adviser who has gone out of 5.Helpingsmallbusinessesandfarmers: strengthen theirthere’s commitments to customers employees, an independent review of business. Many small businesses and farmers rely by, the for example: Code of Banking Practice too. Banks will on finance to keep things running smoothly 5.Helpingsmallbusinessesandfarmers: strengthen their commitments to customers • Introducing a clear and detailed through business cycles. Manyvariable small businesses and farmers rely by, for example: commitment to fair and ethical behaviour. on finance to keep things running smoothly We’re improving how we work with small Introducing a clear and programs detailed more through variable business cycles. • •Making financial hardship business customers by making the loan commitment to fair and ethical behaviour. accessible to customers experiencing application process and We’re improving howapproval we workcriteria with small financial difficulties. • Making financial hardship programs more clearer, making it easierby to making apply forthe a loan. business customers loan accessible to customers experiencing • Addressing concerns with how banks We’re also looking to improve the waycriteria banks’ application process and approval difficulties. dealfinancial with small businesses and farmers, relationships with small businesses clearer, making it easier to apply and for a loan. their vital contribution tobanks the •ensuring Addressing concerns with how farmers managed. We’reare also looking to improve the way banks’ economy is recognised and supported. deal with small businesses and farmers, relationships with small businesses and Thisfarmers year, weare willmanaged. continue to push for a ensuring their vital contribution to the 6.Supportingastrongerregulator:Banks national approach to farm debt mediation to economy is recognised and supported. are contributing more money to help the helpThis farmers in financial difficulty. year, we will continue to push for a 6.Supportingastrongerregulator:Banks regulator, ASIC, ensure better behaviour in the national approach to farm debt mediation to are contributing more money help the financial services industry. We’reto also working help farmers in financial difficulty. ASIC, ensure better withregulator, the Federal Government and behaviour ASIC on in the financial services industry. We’re also improving breach-reporting practices, so working the with the Federal on regulator has betterGovernment information and to doASIC its job. improving breach-reporting practices, so the 1742010_3Ways_RSMG_2 regulator has better information to do its job. 1742010_3Ways_RSMG_2
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Big Splash Media Suite 3, Level 6, 2-10 Loftus St, Sydney 2000 bigsplashmedia.com.au Phone: +61 2 9251 2600 email@example.com
Editor in Chief Peter Lynch
Sub-editor Sandy McPhie
Contributing Editor Lachlan Colquhoun
Commercial Director Leisa Chell
Executive Editor Teresa Ooi Art Directors Kerry Alice, Shannon Dwyer
Digital Director Nick Barkl
Contributors Lachlan Colquhoun, Jacqueline Fox, Peter Lynch, Teresa Ooi, Lisa Weaver, Charles Badenach, Rod Bristow, Dianne Charman, Brad Fox Ages of Wealth team: Eleanor Dartnell of Dartnell Advisers; Glen James of Fortify Financial; Bill Bracey of Sydney Financial Planning. Thanks to Brad Fox and Karen Tinnelly of the Association of Financial Advisers (AFA) IMPORTANT INFORMATION: The Really Simple Guide to Money is copyright of Big Splash Media Pty Ltd. It has been prepared to provide you with general information only. It does not take the place of professional advice and you should not take action on specific issues in reliance of this information. Big Splash Media makes no warranties or representations of any kind concerning the accuracy or suitability of the information contained in this magazine for any purpose. The material provided is for research and information purposes only, and does not constitute advice or recommendations. The opinions and writings of all authors are merely an expression of the authors’ own thoughts, knowledge or information. Big Splash Media does not endorse such authors nor represent that their writings are accurate or suitable for any purpose whatsoever. In preparing this magazine, we could not take into account the investment objectives, financial or taxation situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances.
WHY YOUNG FAMILIES NEED HELP
lot has been said about Australia’s financial institutions of late. Much of it fair. Some of it not. Now, after months in which everything from insurance to banking seemed to take a battering in the media, our most important financial institutions have at last said: enough is enough. They are mounting campaigns to explain why the services they offer are essential. And why they deserve the public’s faith. Not a moment too soon, in our view. A young couple’s struggle to establish their finances so they can bring up a family and save for their old age has never been harder. Priced out of the property market, in an era of lower wage rises and longer hours, how do they manage to create the wealth they will need? There has never been a greater need for education and independent information about what’s good and what’s bad in financial products. Regular readers of The Really Simple Guide to Money know we are passionate about helping young Australian families understand their finances. A better-educated customer makes great decisions, so everyone is a winner. We have always supported
PETER LYNCH is an award-
winning editor and writer who has worked on some of the world’s leading brands, including The Times and The Daily Mail. He is a former news editor of The Australian Financial Review and group editor of The Sydney Morning Herald.
financial advisers and make no secret of the fact that we want more Australians to get help. We believe the government should consider ways in which good financial advice can be accessed easily and freely. The UK has considered vouchers. Perhaps we should do the same. We’re pleased this special edition has been adopted by Adviser Ratings (adviserratings.com.au), which helps readers to find the right mentor for their personal circumstances. You, our loyal readers, have done a tremendous job supporting us. We’ve sold amazing numbers of magazines, and many of you have made contact to thank us. But we’ve always known there was something missing. In this day and age, when your phone, laptop or tablet is an essential part of your daily life, we weren’t there. Now, we are. Our new website, reallysimplemoney.com.au, shares the same mission as our magazine: to help you handle your money. We now send out free weekly newsletters to keep you up to date. So go to reallysimplemoney.com.au and sign up today. We promise it will be a wise investment! Peter Lynch Publisher
TERESA OOI was a senior
business writer for The Australian newspaper for 17 years, including stints as property editor. She also worked for the Financial Times. She is the editor of The Really Simple Guide to Self Managed Super and the Asian Cruise Yearbook.
has written for some of the world’s best financial titles, including the Financial Times and The Australian Financial Review as well as three ABC Networks. He has edited Insto Magazine and The Really Simple Guide to Self Managed Super.
THE REALLY SIMPLE GUIDE TO MONEY Edition 4
WHY THE BANKS ARE
L VE BOMBING YOU! S
omething extraordinary happened in early November, 2016 – and it wasn’t just the election of Donald Trump to the US presidency. They’ve taken a lot of brickbats, but, finally, Australia’s banks have decided to hit back in a most peculiar way. Not with the lofty “what’s your problem, pal?” attitude they are often portrayed as having. But with a genuine attempt to woo back your trust. Westpac was first out of the blocks with a highly emotive campaign that, at first sight, seemed almost too good to be true. A pregnant woman is on her way to the maternity ward. The voiceover talks to her unborn baby. “You should know it’s not all sunshine and rainbows. People worry. Your parents worry. Will they be able to give you the best education? Will you be able to buy your own home? Only time will tell.” The Westpac Bump program deposits $200 into accounts opened on behalf of children born in 2017, accessible when they turn 16 in 2033. Free money? To borrow the catchphrase of that clever AAMI insurance ad, that’s not very “banksy”! Then came the idea of a no-frills credit card with lower interest rates. Smaller banks say they’ve already done this. But still – big banks looking to cut interest rates on their credit cards sounds like the beginnings of a customerfocussed culture to us. REALLY SIMPLE MONEY 2017
Now the Australian Bankers’ Association - with the active participation of 25 member banks in Australia - has launched a charm offensive. Not a moment too soon, in our view. “We Hear You” advertisements promise: “We know people want to see improvements in Australian banking. That’s why we’re making changes for the better.” The ads go on: “It all starts with our customers. That’s why we’re listening to your concerns and taking action.” A newspaper campaign, featuring full pages in papers from The Sunday Telegraph to
The Australian Financial Review, also promised “Australia’s leading banks are working together to make banking better.” Of course, there have been some cynics, but this can only be good news for you and me. If the banks really are looking for better products, better service and better culture, as these advertisements promise, perhaps we should be prepared to give them a second chance. They have set up a website – betterbanking.net.au – so you can see what is being done. Take a look. And tell us what you think at our website: reallysimplemoney.com.au.
7 COVER PIC: Brittan Campion / NewspixCOPYRIGHT: © NEWS LTD
WE ASKED YOU WHAT YOU WANTED AND THIS IS WHAT YOU SAID Like the banks, we’re listening. We recently ran a survey of our database to ask: where do you need help with your money? We got a great response. And the answers, while not a real surprise, were nonetheless an indicator of the concerns every Australian family has with handling their family budgets. What’s your major concern? Finding ways to save money, said the vast majority. Keeping up with news and tips and budgeting came next. So our newsletter now carries regular consumer updates. What kind of stories do you like? Money-saving tips and tricks, you told us. Information about managing your money and guides to making the most of it. You were also keen to read lifestyle stories about how to spend your money wisely. And you wanted to read more about travel, health and food. So thanks for the feedback. We’ll be taking it on board. Sign up for our newsletter at reallysimplemoney.com.au and let us know what YOU think! We’ve admonished bank culture in the past. However, the promises made in the latest campaign could be the beginning of a realisation that great service is vital in a service industry. If that’s what this is about, we’re happy to support it. We’ve decided to give the banks the benefit of the doubt. And we’d love to hear your stories of how things are changing at the front line: in the queue, at the teller’s window and when you apply for loans and help. We’re hoping we can start to report the first green shoots of positive change. Peter Lynch, Publisher
CONTENTS 8 Mr & Mrs Australia Our life in numbers
10 It’s never too late to learn about money Kelly O’Dwyer on financial standards and money advice
13 5 ways to save $10,000
A little effort can result in big savings
16 Is your bank right for you? Questions to ask to get the best deal from your bank
18 Download your own financial assistant A new app brings all your finances together under one umbrella
20 Model investor Jennifer Hawkins is more than
just a pretty face
21 Super Report Bringing you up to date on all you need to know about superannuation
29 One number could change your life Why your credit score matters
33 An industry game changer A new digital financial advice platform is set to change the industry
36 Money buys security Adam Liaw is building a secure financial future for his family
MONEY ESSENTIALS 56 What kind of money personality do you have? Take our quiz to find out
60 What are your goals… And how soon can you reach them?
62 Calling in the experts When you need an adviser… and how to find one
64 5 Questions you should ask a financial adviser Make your first meeting count
66 How to invest in advice Making sure you get value for money
68 What happens if things go wrong What are your rights in a dispute with your adviser?
70 New money on old technology Collecting retro tech
72 Beat the tax man and still be his friend Ways to reduce your annual tax bill
74 The A-Z of money speak Learn a little of the lingo
80 The last word Should couples share everything?
38 Top of his game Michael Clarke on
success in sports and business
39 6 Ages of wealth Our panel of experts tells you how to plan for each decade of your life
52 There is opportunity out there Olympian Michael Klim discusses his financial wins reallysimplemoney.com.au
What You Are Worth?
MR AND MRS AUSTRALIA
STILL THE LUCKY COUNTRY Australians live in one of the richest countries in the world. According to the International Monetary Fund, we are ranked 13th on the world ladder for gross domestic product. Each Australian household has a net worth of $809,000, according to 2013-14 figures from the Australian Bureau of Statistics. This is our life, in numbers. Assets (property, car, house contents etc) $954,800
$14.1BN on alcohol
ANNUALLY WE SPEND
Liabilities (mortgage and other credit, loans) $245,500
Household net worth $809,900
$20BN on gambling
Savings $99 per week Credit card debt $4,324 Weekly earnings $1,516 Disposable income $998
$9.5BN on gadgets and computers
$1.1BN on tea and coffee
Hours worked 32
$8.0BN on beauty products and treatments $5.1BN on fashion
Average superannuation per household $159,900 Couples aged 55-64 have the most at $488,000 REALLY SIMPLE MONEY 2017
Average gambling losses per adult in Australia are the highest in the world at $1279
What You Are Worth?
WEEKLY EXPENSES, AVERAGE FAMILY
Australians lost $229 million on scams in 2015
Housing $325 Fuel & power $43 Food & drink $279 Clothes & footwear $64
80.4 (him)/84.5 (her) average life expectancy 1.9 average kids per family
Transport $254 Recreation $208 Alcohol $31 Health $77
Sources: International Monetary Fund, Australian Bureau of Statistics, ASIC, OECD, AMP.NATSEM, Suncorp; figures are national averages.
IT IS NEVER TOO LATE
TO LEARN ABOUT MONEY s Minister for Revenue and Financial Services, Kelly O’Dwyer is one of Australia’s most powerful financial movers and shakers. She is set to oversee the introduction of an independent standards body to govern professional standards for financial advisers, an industry that is very aware it needs to win back trust. What is the plan to improve standards for financial advisers? The government will “turbocharge” financial planning industry [standards] so that over the next few years everyone who practises as a financial adviser will have a degree or equivalent status. In addition, all advisers will be bound by a code of ethics, will sit an exam that will represent a common benchmark across the industry, and will have professional development obligations. A national standard will go a long way toward lifting the profession’s standing in the sector. Only 20 per cent of Australians get financial advice. Should it be more? A good financial plan is like a road map. It shows a person where they are today, and the route they need to follow to get to where they want to be. Consumers who want advice should be confident that the advice REALLY SIMPLE MONEY 2017
they receive is suitable for them, and that it has been provided by a suitably qualified professional. Tell us about the government’s new financial literacy campaign. With our National Financial Literacy Strategy now in its second phase and financial literacy embedded in schools, the strategic approach taken by the Australian Government makes us an international leader.
“A good financial plan shows a person where they are, and the route they need to follow to where they want to be.” The government recently launched ASIC’s MoneySmart Simple Money Manager, designed to give more Australians the ability to develop their financial skills. As a free online budgeting tool, it is aimed at helping Australians to take control of their daily finances. What’s the best piece of financial advice you were ever given? It’s wisdom immortalised by [Charles Dickens’] Mr Micawber: “Annual income 20 pounds,
annual expenditure 19 [pounds] 19 [shillings] and six [pence], result happiness. Annual income 20 pounds, annual expenditure 20 pounds ought and six, result misery.” My old boss, Peter Costello, said it more simply: “Don’t spend more than you earn.” What is the most important financial lesson you’ve learned? When I was young, I had to earn my pocket money by reading books. The bigger the book, the more I was paid. This taught me the value of learning and to love books, but also that it is never too late (or early) to learn about money and savings. The second lesson came when my husband, Jon, and I bought our first home. We did a “stress test” on our mortgage payments by running models of what the repayments might be if interest rates suddenly went up or if one of us was out of work for a period. This made us borrow a little more conservatively. Do you have any final advice? The important thing for anyone borrowing money or investing savings is to have the confidence to ask questions. This isn’t easy for everyone, but it is important to ask questions of banks and financial advisers to know exactly what you are paying for.
PIC: Ray Strange / NewspixCOPYRIGHT: © NEWS LTD
Kelly O’Dwyer, Federal Minister for Revenue and Financial Services, spoke with Teresa Ooi about financial standards – and her own money tips.
“My old boss, Peter Costello, said: “Don’t spend more than you earn.”
WORRIED ABOUT YOUR MONEY?
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ReallySimple.com.au M ney REALLY SIMPLE MONEY 2016
we show you how
5 WAYS TO SAVE $10,000
You’ll be surprised how much you can save in a year with a little extra effort. Lisa Weaver has these suggestions.
ulling together a chunk of change like $10,000 is often easier said than done. But if you put your mind to it, it’s a goal that isn’t as hard to achieve as you may think. To get your savings “bucket” to fill up, you need to eliminate leakage and ensure money is flowing in faster than it is flowing out. Here are some tips to prompt you to plug any holes and increase the inflow.
CHECK YOUR AUTOMATIC DEBITS We’re all time poor and possibly don’t pay enough attention to our bank and credit card statements. However, by spending half
an hour looking at your automatic payments, you may be horrified by what you find. Do you have a subscription or membership to something you’re not using anymore but continue to be charged for? The obvious one is membership to a gym that you keep promising yourself you’ll go back to – but will you really? Another is subscription TV, such as Foxtel. Are you getting value from it? Could you get a cheaper version, such as Netflix, and still get the same level of enjoyment? Another example is less obvious, but are you paying monthly insurance on a car you’ve sold? Or have your purchased something from a late night TV shopping network deal and not realised you have to pay a regular amount until you call them to cancel? This could be from a downloaded app on your phone as well. I have fallen into all of these traps and once I plugged these leakage points, I saw an additional $300 a month in savings. So that’s your first $3,600 in one year. reallysimplemoney.com.au
EXERCISE WHILE YOU SAVE As a time-poor population, we are increasingly outsourcing manual tasks, which is negatively impacting our waist lines and our bank balances. Instead of paying to go to a gym and paying someone else to wash your car or mow your lawn, why not these jobs yourself and kill two birds with one stone? The average hand car wash costs about $50, and getting your lawn mown costs about the same. So if you do both a couple of times a month, that’s $200 a month in savings – and you work off 300 calories for each hour of these activities, about the same as going to the gym. That adds another $2,400 to your savings bucket in a year.
CLEAN OUT & “CLEAN UP” Being a nation of consumers, our houses are often filled with clothes, equipment, gadgets and furniture we no longer use. Take time on a Saturday to go around your house and take photos of items you haven’t used in the past year. This is stuff that can be converted into cash. There are many websites you can advertise these goods on such as Gumtree or eBay. There are also Facebook pages run for local areas specifically facilitating the buying and selling of second-hand items. Do a search on Facebook for your local “Buy, Sell, Swap and Giveaway” page. The last time I did this, I got rid of a table tennis table, some old Xbox games, some riding boots that my kids had grown out of and a rocking chair. I cleaned up and made $400. Add this amount to your savings bucket and you’re already up to $6,400 in a year.
REALLY SIMPLE MONEY 2017
INCREASE YOUR INCOME
If you’re not into cutting your spending, but you want to save more, look into ways to earn more. Are you able to do overtime at work to increase your income? It might be worth asking your boss. How about a second job such as tutoring school kids or English as a second language students? Perhaps consider being an Uber driver. Remember, if you’re earning money, you aren’t out spending it. Tutoring school kids can earn you up to $75 an hour and Uber drivers earn, on average, a net amount of $30 an hour. So five hours’ tutoring or 10 hours “Ubering” a month could earn you at least $300 extra a month. Throw that into the bucket and it brings your cumulative total to $10,000 in one year.
RENT OUT YOUR HOME OVER THE HOLIDAYS Doing these first four things has saved you $10,000 in one year. Now you deserve a holiday! But you don’t want to blow all your savings, so you need to go the extra mile and mitigate the cost of your holiday.
There is good money to be made by renting out your home while you’re away. If you own your home or your lease allows subletting, list your home on airbnb. com.au for a time you know you’re going to be away and the rent you earn may pay for a large amount your holiday. It might be daunting to have someone come into your home, however becoming an Airbnb host is easy because Airbnb enables you to set and control the availability and the house rules for your listing. Then Airbnb finds suitable guests and handles all the payments. It even offers protection through its Host Guarantee, which insures your home and contents against accidental damage. Every host with a listing on Airbnb is eligible for coverage at no additional cost. The amount you earn from Airbnb will depend on the location and size of your home. On average in Australia, the price is $175 a night. So renting out your home for a week could pay $1,225 towards your holiday. If you have a spare bedroom and bathroom, you could even consider listing it on Airbnb to bring in extra income when you’re not away. The moral of this story is that to achieve a savings goal of $10,000, you just need to be vigilant in checking your outgoings and maximise your income through a little extra work. Be smart about it and you will reap the rewards.
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IS YOUR BANK RIGHT FOR YOU?
Bullies or benefactors? Our banks are the bad boys of finance, at least as far as the media is concerned. So what should you ask a manager before opening an account? Lachlan Colquhoun has some suggestions.
ecent appearances before Federal Parliamentary committees have highlighted the approaches of the Big Four banks – NAB, CBA, ANZ and Westpac – and their attitudes to customers. Amid calls for a Royal Commission into the banking system, the issue is very much at the fore of the public mind. Some key questions that have emerged revolve around the major banks’ “duty of care” to their customers. The Big Four make combined annual profits in excess of $30 billion, and while that has some financial benefits if you are a bank shareholder, many bank customers are left wondering about what’s in it for them. Given that it is the fees and interest charges paid by customers that provide the bulk of those profits, this is an entirely reasonable question. Bank “churn” – customers changing banks, is very low in Australia and banks rely on a degree of customer loyalty. They also rely on the fact that, especially where mortgages are concerned, changing banks is quite an involved process, which puts a lot of people off. At the same time, it’s often said that the Big Four are pretty REALLY SIMPLE MONEY 2017
much alike, so changing from one to another won’t make much difference. However, there is both choice and competition in Australian banking, and it is offered by credit unions, smaller regional banks, building societies, and a number of foreign banks, some of which have very different banking models.
Banks rely on the fact that changing banks is quite an involved process, which puts a lot of people off Imagine you have the opportunity to sit down with the chief executives of every bank in Australia, and they’re all desperately pitching for your business. Here are five questions you could ask to inform your decision on who to bank with.
HOW WILL YOU REWARD ME FOR MY BUSINESS AND LOYALTY? You pay fees and interest rates, which drive profits for the bank. If you are a loyal customer and do all
your banking with the one bank, what can they offer you in return? We are talking about your daily transaction bank account, where your salary gets paid, plus your mortgage, credit card, maybe your superannuation and investments, and potentially insurance. Does the bank have the ability, and the appetite, to look at you on a holistic basis and give you some kind of reward if you pledge your loyalty to them? Can they bundle a package and make it easier and cheaper for you? The reality is that most banks have a “silo” approach, meaning limited internal communication, so they won’t even know that you have multiple products with them. They say they are getting better at this, but are they?
WHY ARE YOU CHARGING ME SO MUCH ON MY CREDIT CARD? Credit card charges are totally out of sync with the rest of the interest-rate cycle, but the banks don’t seem to care. They charge an average rate of 17 per cent, just because they can. In reality, this punishes lowincome earners, who need the extended credit and can’t pay down their balances each month,
while wealthier people who can pay their balances down avoid the interest rates and pick up the loyalty rewards. One of the bank chiefs told a parliamentary committee he would look at decreasing card rates, but don’t expect that to happen soon. You should be asking why the rates are so high, and if they can give you a lower one.
WHAT’S THE MOST COMPETITIVE MORTGAGE RATE YOU CAN GIVE ME? Mortgages are a huge commitment and the biggest debt most people will ever have, so by nature it’s also the most important. The reality is that a mortgage is the cheapest debt on the market, largely because it’s secured against bricks and mortar, but the mortgage market is highly competitive. There is a 2 per cent differential between the highest and lowest mortgage rates and it’s worth asking why. If the bank wants your business so badly, how about designing your mortgage with all the features you want and need, such as a low interest rate, a mixture of fixed and variable, a holiday mortgage rate and redraw facilities?
WHY ARE YOU CHARGING ME ALL THESE FEES, AND CAN YOU WAIVE THEM? If you examine your statements, there is probably a whole range of fees that appear and these add up. There are fees if you go over a certain number of withdrawals, fees for account administration and so on.
When you look at the statement you can almost admire the banks for their ingenuity and audacity in inventing fees. Of course, you have agreed to the terms and conditions, but most of us can’t remember seeing them in the fine print. When you talk to the bank, how about negotiating unlimited withdrawals and a safety-net facility for your account?
WHAT’S YOUR PLAN TO HELP ME BUILD MY WEALTH? Australian banks all have wealth management businesses and alliances with superannuation
providers. There has been a lot of bad press about bank-based financial advisers in the last few years, so ask them to prove their integrity, their independence and their competence. Can they assure you that they are not recommending a product to you because it suits them and their bonuses rather than being what you really need? Is the bank prepared to create a genuine partnership with a commitment from their side that they’ll help you through with your financial journey? After all, a banking relationship should be a two-way street.
DOWNLOAD YOUR OWN
FINANCIAL ASSISTANT A new app brings personal finances together under a single digital umbrella.
veryone, regardless of how much they earn, wastes money. Peter Lord, the founder of finance-simplifying app MoneyBrilliant, says the reason most people waste money – to the tune of an average $1,226 a year – is because they simply lose track. They are effectively leaking money because they don’t know how much or what they are spending on. “I’m sure everyone would want to have that $1,200 back so they could do something really good with it,” says Lord. His solution has been to create a comprehensive and sophisticated app for smartphones called MoneyBrilliant. The app brings personal finances together under one digital umbrella and delivers a 360-degree view of finances, available on demand. It aggregates all outgoings and incoming funds and allows people to set budgets, the performance of which is measured by the app. The idea is that through tracking money, people can begin to control it better, make wiser decisions and make the most of their funds. “When people’s finances are better organised, they make better decisions about their money,” says Lord. “In terms of spending money there are fewer and fewer barriers. We have debit cards REALLY SIMPLE MONEY 2017
with PayWave, credit cards with PayWave, so it’s so much easier for us to actually spend. But when
“When people’s finances are better organised, they make better decisions about their money.”
it comes to controlling that spending, there is very little out there.” Lord uses the analogy of bags of corn chips. Research shows that if someone gives you a one-kilogram bag of corn chips, you are likely to start eating it and there is no real place to stop. But if someone gives you the
SMART ALTERNATIVES A home deposit may be a pipedream, and you might not trust the sharemarket, but there are alternatives. Here’s a selection of innovative investment products. same amount of corn chips in four 250-gram bags, you’ll probably eat one bag, decide you have had enough and keep the rest for later. “If you have the whole bag, or the whole amount of money, there is very little in the way of an incentive or a barrier to stop,” says Lord. His journey to create MoneyBrilliant was inspired by watching his mother struggle with financial issues as she neared retirement. Despite owning her home with no mortgage and working full time, she lacked the confidence to follow up advice to see a financial adviser and to borrow $50,000 on the equity in her home to invest. That lack of confidence, Lord says, cost his mother a more comfortable retirement. Now she worries about $8 bank fees while her ex-husband worries about where to go for his next holiday. While MoneyBrilliant was originally inspired to help women like his mother, Lord soon learnt that he could help millions of Australians make better decisions with their money. The concept has been expanded and it is now designed to help anyone who wants to gain more financial control.
BRICKX Sick of being locked out of the housing market? Brickx gives you the opportunity to start an investment property portfolio with an initial investment of less than $100. Brickx buys a house or apartment and then divides it into 10,000 brickx, which can be purchased on their website. Brickx in a Sydney apartment in Double Bay were priced recently at $95 each. No-one can buy more than 5 per cent of one property. Investors receive a monthly income stream from the rent, based on the percentage they own, and they can sell their bricks any time via the website. A transaction fee of 1.75 per cent is charge on each purchase and sale. The properties are valued every six months. brickx.com
CAR PARKS If you don’t have enough to buy a house in a capital city, there are always car parks. Parkhound (parkhound.com.au) is an online marketplace for car parking spaces, which connects property owners and drivers. In Sydney, private car park landlords can earn an average of $4,305 per year, while the going rate in the cheapest capital, Hobart, is $2,240. Another website, findacarpark.com.au recently had car parks in Brisbane for sale for $48,000, while the most expensive was a two-car space in Sydney’s CBD on offer for a whopping $400,000. If that’s too expensive, one can be had for $12,000 in St Kilda in Melbourne. In the words of one property expert, car parks are a new asset class.
ACORNS Acorns takes all your spare change from everyday transactions and invests the money bit by bit into a diversified share portfolio. Functioning as an app and using a system called “round ups”, Acorns connects to your debit and credit cards. Every purchase made is rounded up to the next dollar, and the difference is invested in a range of Exchange Traded Funds of your choosing. For example, if you spend $5.50 on lunch, that is taken up to $6 and 50 cents is invested. The service costs $1.25 per month for accounts under $5,000 and 0.275 per cent a year for larger accounts. Acorns is being pitched at young people, for whom compound interest and time in the market can deliver the best results. After all, from little things big things grow. acornsau.com.au
PEER-TO-PEER LENDING Most of us have heard about the rise of peer-to-peer (P2P) lending, but probably only as potential borrowers. Where do you think these P2P sites get the money they lend to people? The answer is from people like you, the very same type of people who borrow the money. That’s why its called peer-to-peer. In a world where investors are struggling for decent returns, some P2P lending platforms have been offering investors returns of up to 10 per cent. There are several P2P players in the market currently. Not all of them accept retail investments, but the trend is growing. Those that do compare to investing with a bank term deposit, but at a much better interest rate. You should do your homework, however, and ASIC has a guide to P2P investment on its website moneysmart.gov.au.
If you are concerned about any of these options, we suggest you seek financial advice before making an investment.
JENNY FROM THE BLOCK
She may have won Miss Universe, but model-turned-mogul Jennifer Hawkins isn’t resting on her laurels, writes Teresa Ooi.
ennifer Hawkins, the Newcastle girl who shot to stardom when she won Miss Universe more than a decade ago, has always believed in brick-and-mortar investments. In fact, she made her first property investment in Newcastle when she was still in her early twenties. “I come from a humble home and my parents instilled in me oldschool values like saving. It does seem strange today, but I love to save,” Jen tells The Really Simple Guide to Money. “I started young and invested in my first property in Newcastle when I was in my twenties. I then got the bug.” Now, at 33, Jen has made quite the leap from model to businesswoman. She and her builder husband Jake Wall own a property development company, J Group Projects, and over the years they have developed a property empire – buying, developing and selling several multi-million REALLY SIMPLE MONEY 2017
dollar houses around Sydney and Newcastle. Most recently, in early November they sold their fivebedroom seaside property in North Curl Curl in Sydney’s northern beaches for a reported $5 million. The couple plans to relocate to a large waterfront home in Newport Beach that they’ve developed themselves.
“I come from a humble home and my parents instilled in me old-school values like saving.” Jen’s blonde, blue-eyed good looks disguise a razor-sharp business mind. She attributes her financial prowess to simple values like saving for a rainy day. “I know it may sound strange but I do save a lot of what I earn,” she admits. After winning her Miss Universe crown in 2004, she immediately
established her own company, Universal Strategies, of which she remains the sole director. Today, Jen’s business empire spans lucrative endorsement deals with some of Australia’s biggest companies including department store Myer, Lovable lingerie and Mount Franklin Water. She’s also inked television agreements, first with Seven Network then with Nine Network, and sealed a deal to host Australia’s Next Top Model. Then there are the trademarked brands which she owns in her own right, including swimwear COZI by Jennifer Hawkins and JBronze, a range of self-tanning products. She is also a “friend” of the luxury watch brand Hublot. “My husband is obsessed with Hublot and introduced me to the brand. I think it is very sexy and is a good investment as it is trendy and classy,” she says. With all that under her belt, it’s clear Jennifer is more than just a pretty face.
THE REAL DILEMMA Superannuation rules have changed, but the real challenge for most Australians remains the same – how to save enough to fund a comfortable retirement, writes Peter Lynch.
uperannuation has been in the news for many months, and now at last we know what to expect. But the changes really are a whimper rather than a bang. And at the end of all of that angst, there will be a minimal impact on average Australians. Some lower income earners will benefit. Three million workers earning up to $37,000 a year will be spared extra taxes on their super contributions, and will get a $500 rebate. The big change is the $1.6 million per person lifetime cap on the amount that can be transferred to a tax-free pension. Could you live comfortably with $1.6 million in super? Most people could. Also, there’s the $25,000 annual
cap on concessional (before-tax) contributions (down from the current $30,000 and $35,000 caps), which many in the adviser community say is the worst change. They say it doesn’t take into account how many people in their 50s are striving to play catch-up with their super. The government is also clawing back $3 billion or so by hiking the tax on concessional super contributions for those earning $250,000 or more a year. They will pay 30 per cent, not 15 per cent. Just as we are set to get used to these changes, the Labor Party – which says it will pass the changes this time around – plans to take its own changes to the next election. But there is a far bigger dilemma than politics.
Only half Australia’s working population is financially prepared for retirement – and the numbers are worse for women. A retirement-readiness index compiled by financial advisory company Mercer after looking at 18 different funds, suggests Baby Boomers are the least prepared generation in terms of super. The much-maligned Millennials are not doing so well either. The study, released at the Association of Superannuation Funds of Australia Conference on the Gold Coast, finds that just 41 per cent of women and 53 per cent of men in Australia are heading for a comfortable retirement. The rest are not. Our seven-page report will set you on the right track…
“When you start staring down the barrel of retirement, the ‘super gene’ starts to kick in.”
REALLY SIMPLE MONEY 2017
IS RIGHT FOR YOU? When it comes to superannuation, there’s a different product for every stage of your life. Jacqueline Fox helps you choose.
ou could be forgiven for being bamboozled by the variety of choice in superannuation products. This is one consequence of having an industry grow to the point that it has a total retirement savings pool of just over $2 trillion. That has built scale and competition, which in turn has created a diversity of products and funds. The point is, and most financial advisers will agree with this, that different kinds of super products suit different people at different points in their lives. When you are in your 20s, for example, you are too busy living and having fun to think about anything as dull as superannuation, you just want it ticking away in the background, accumulating money for you. When you get a bit older and start staring down the barrel of
retirement, the “super gene” starts to kick in and, all of a sudden, your super becomes vitally important and is your key financial priority. Superannuation funds can be divided into three categories: industry super, retail super and self managed. If you are a public servant, you will automatically have an account in a public sector fund, but for the rest of us there are three main choices.
INDUSTRY FUNDS These are member-based funds which had their origin in the union movement of the 1980s, when they were formed to look after workers in particular professions. Today, just about all industry funds are “open offer” and anyone can join. Industry funds are the third-largest segment in the super industry, with total assets of $466 billion as at September
2016. Their appeal is their member focus, usually low fees and costs, and also – in many cases – their performance.
RETAIL FUNDS The second-largest super segment, with assets of $545 billion, these are super funds offered by banks and wealthmanagement businesses. The Big Four banks offer retail funds, but under different brand names such as BT (Westpac), Colonial First State (CBA), MLC (NAB) and OnePath (ANZ). Retail funds offer a wide range of options, with funds numbering in the hundreds. This segment has moved to a lower fee structure in recent years.
SELF-MANAGED FUNDS This segment has come from a low base to be the most popular, with total assets of $624 billion. SMSFs can have up to four
members, and appeal to people who want to feel more in control of their retirement savings. Because SMSFs have oneoff set-up fees and require ongoing administration, many advisers believe that a minimum seeding balance in the range of $250,000 to $350,000 is generally advisable.
What is my risk appetite? In many cases this will depend on what life stage you are at. You can afford to be more aggressive and take on more risk with investments in your 30s and 40s, for example, than you can in your 50s, when it will be more about preserving capital. Both industry and retail funds offer products with different
HOW TO CHOOSE In choosing a super fund, there are a few questions you should be asking yourself. Of course, if you go to a financial adviser, they will give you advice particular for your situation and life stage, but let’s make a start with some basic questions.
“Many people who are in industry funds for their working lives set up an SMSF to manage their money in retirement.” risk settings that acknowledge this major difference. How much control do I want to have? If you are a control freak and love investing, an SMSF could be perfect for you, because you get to make all the investment decisions yourself. In an industry or retail
REALLY SIMPLE MONEY 2017
fund, these decisions will be made on your behalf by a fund manager. However, in recent years industry funds have responded to this by offering new products. For example, you can select and manage your own portfolio of Australian shares within some industry super accounts. Do I want to “set and forget” my super? If the answer is yes, you can put your trust in either a retail or an industry fund, and you’ll simply get your annual statements. What could be easier than that? Are you self employed or a small business owner? If so, there are some good opportunities and advantages in the self-managed structure. It might be a good idea to have a conversation with an adviser about whether it might be suitable for you. The other point about selecting a fund is that it is possible to have multiple accounts, and change strategy as you get older. Many people who are in industry funds for the duration of their working lives set up an SMSF to manage their money in retirement. Or there might be a particular retail fund that is shooting the lights out in terms of performance, and it’s easy enough to allocate some funds to this investment, while keeping your others as well.
10 WAYS TO SUPERCHARGE YOUR SUPER 8
A Really Simple Money survey found more than 80 per cent of workers are worried they won’t have enough savings to fund the retirement they desire. Here are a few tips for boosting your retirement savings.
Focus longer-term investment efforts on super for two reasons: - Tax benefits (of salary sacrifice and lower tax on super earnings) - The difficulty of accessing your super savings prior to retirement – it’s too easy to dip into normal savings.
Consolidate your super accounts to eliminate duplicate fees. Use the ATO’s tools to find any lost super.
Check what super fees you are paying. Shop around and perhaps consider moving your super. But remember to compare returns as well – some high-fee super funds have great dividends.
Think about salary sacrificing to top up your superannuation guarantee contribution – currently
at 9.5 per cent – to take it to 12 per cent per annum. This is the level initially intended – and considered by some to be sufficient to cater for a comfortable retirement. Currently (unless the timetable is moved again) the guarantee level is due to rise to 10 per cent in 2021 then gradually increase to 12 per cent by 2025.
Make enough of an extra aftertax super contribution to receive a Government Co-contribution (for those earning less than $51,021).
Consider contributing all or part of your next pay rise or bonus as a tax-effective salary-sacrifice or concessional super contribution. Concessional contributions of up to $30,000 ($35,000 if you are over 49 years of age) will receive tax concessions for 2016/17 – after that it will drop to $25,000 a year.
Contribute up to $3,000 to your spouse’s super, if they earn less than $13,800, to receive a rebate of up to $540.
Check that your investment strategy matches your age. The further from retirement you are, the greater the risk you should be prepared to tolerate (because shortterm market fluctuations will be less relevant), potentially boosting your overall returns and final balance.
If you are over the age of 55, consider a “transition to retirement” strategy, whereby you make greater super contributions, offsetting the lower income by drawing from your super fund – potentially saving thousands in tax. See next page for more on this.
Make sure your super fund has your tax file number. This will maximise the tax effectiveness of contributions to your account. It will also make it easier to track multiple super accounts. Remember, superannuation, pension and tax laws are complex, so before making any changes to your superannuation arrangements, we recommend you seek advice from a financial adviser.
THE GOOD NEWS
ABOUT GROWING OLDER If you are in your mid-50s or older, there’s plenty to be happy about.
o you’ve worked hard and saved sensibly. Now’s your chance to enjoy the fruits of your labour. Transition to retirement rules allow you to draw from your super while you are still working, so you can save tax, grow your super, and/or reduce your working hours. You have unrestricted access to your super from the age of 65, whether you continue to work or not. If you are between your “preservation age” (see table below) and 65, you have access if you permanently retire, or if you choose to transfer all or part of your super to an account-based (allocated) pension. You have to draw an annual income of at least 4 per cent and no more than 10 per cent of the account balance. For a short time, the earnings of the assets underlying your accountbased pension are tax free. Sadly, that won’t last. Changes that will take effect from July 1, 2017, will reduce the tax benefits of transition to retirement strategies for many Australians. Income from assets supporting transition to retirement income will be taxed at 15 per cent. This change will apply regardless of when the income stream commenced. Most people use the transition to retirement provisions to keep working full time and salary
REALLY SIMPLE MONEY 2017
sacrifice extra amounts to super, while withdrawing from their account-based pension to maintain the same after-tax income. Alternatively, you can reduce your working hours, and use a pension income stream to maintain your after-tax income. The transition to retirement provisions allow you to have your cake and eat it, but, as usual, the devil is in the detail. There are a few drawbacks - members of defined benefit funds cannot access this, those on social security benefits may find there are implications for their entitlements, and the tax implications can be complex. So before you set up an accountbased pension, speak to your super fund and to a financial adviser.
if you were born
Your preservation age is:
Before 1 July 1960
1 July 1960 – 30 June 1961
1 July 1961 – 30 June 1962
1 July 1962 – 30 June 1963
1 July 1963 – 30 June 1964
1 July 1964 or after 60
PRESERVATION AGES There is more good news. If, like many Australians, you biggest asset is the family home, you don’t have to move out or sell up to access some of that money. A reverse mortgage (also know as a seniors-equity, seniors-access or equity-release loan) allows retirees to borrow against the equity in their homes. You don’t need an income to qualify for a reverse mortgage and you don’t have to make any interest or principal repayments. You can live in the home, but the downside is that the amount you owe builds up as interest accumulates, depleting your equity. There are also tight restrictions on the amount you can borrow, depending on your age. At about 65, you may be limited to 15-20 per cent of you home equity, rising to 40-45 per cent for those aged over 85. The loan is repaid from the proceeds of the sale of your house when you move into aged care, sell the house, or die. You can’t end up owing the lender more than your home is worth (by law for all reverse mortgages entered into after September 18, 2012). The loan can be drawn down in various ways – a lump sum, a regular income stream, or as needed (a line of credit). But there are some things you need to be aware of.
AGE PENSION CHANGES Importantly, because you aren’t making repayments, your debt will mount at an increasing pace as the power of compound interest works against you.Use MoneySmart’s reverse mortgage calculator to see how this could work in your case. If you borrow a lump sum and invest it in an assessable asset (like a car, shares or a house) you could lose some or all of your Age Pension.
If you are the sole owner of the property and someone lives with you, then (in some circumstances) that person may not be able to stay in the home if you die. If you want to protect the rights of the other (non-title-holding) resident, discuss this with your lender before taking out a reverse mortgage. If you are contemplating a reverse mortgage, make sure you get independent financial advice.
From January 1, 2017, the Age Pension assets test will change. About 170,000 people will be better off but twice as many will lose out under the changes. The rate at which the asset test reduces Age Pensions doubles from $1.50 to $3 per fortnight for every $1,000 of your assets (other than your family home) which exceed the threshold. The asset test threshold will increase too, and you should check to see how you are affected.
“A reverse mortgage allows retirees to borrow against the equity in their homes.”
IF YOU ARE OVER 30
YOU MUST READ THIS
What every millennial needs to know about retirement – and probably isn’t going to ask! By Dominique Bergel-Grant.
f you are 30 today, you have 35 years left in the workforce and need to save enough to fund at least 35 years in retirement. If you are older than 30, the news gets worse. Confronting but true. The average Australian couple needs $60,000 a year in retirement to live comfortably. Remember this is the average and it certainty doesn’t mean they have $60,000 spending money, as this includes costs such as home maintenance, replacing cars and a modest holiday. To achieve this income, a 65-year-old needs a balanced portfolio worth $1,050,000 to retire if they want their money to last 35 years. That may seem like a long time to provide for in retirement considering the median age at death is currently 84. However, with improvements in medicine, that age is increasing by 0.6 years every year. At that rate, by the time today’s 65-yearolds reach their mid 80s, life expectancy could easily have risen to 94. And don’t forget that these figures are the median, with 50 per cent of people living beyond this. REALLY SIMPLE MONEY 2017
If you are in your 30s or 40s today, it is certainly not out of the question that you may need to fund your retirement until at least the age of 100. And by the time today’s 30-year-olds turn 65, it is estimated they will need a nest egg of $3,000,000. How are you going to do that? Assuming $10,000 per annum of combined super contributions, you need to have investments outside your home of at least $120,000 (including super). The table below shows how a 30-year-old today would need to track financially over the next three decades to retire with that $3 million nest egg.
WHAT YOU SHOULD DO AGE
Net assets outside the home required
1. Review your superannuation fund. You need to carefully look at the investment returns after fees are paid. Be careful about taxation being taken out of your account before payment needs to be made. This can equate to tens of thousands in lost investment returns over the years. 2. Consider making extra contributions. There are strict limits on how much and in what ways you can contribute to super. Know the rules. 3. Build up non-superannuation investments. You may also need to build up investments outside the super system. Have a plan on how to eventually get these investments transferred into super to reduce tax. 4. Consider gearing. Borrowing to invest is not suitable for everyone because it does increase your risk. However, it can be done both inside and outside of superannuation for a range of investments including property, managed funds and shares. Dominique Bergel-Grant is the founder and principal financial adviser of Leapfrog LIFE
ONE NUMBER CAN CHANGE YOUR LIFE
You may not be aware of your credit score, but it can make a big difference when you apply for a loan. Mark Chipperfield reports.
ocial commentator Bernard Salt caused a public furore recently by suggesting younger Australians are wasting money on expensive smashed avocado breakfasts rather than saving for a home loan. The price of avocado on toast at a trendy cafe was so ridiculously high, he claimed, it showed spendthrift Millennials didn’t know much about budgeting. Salt, who was writing tongue-in-cheek, was roundly condemned by social media-savvy Millennials for the comment. But now a company that provides consumer and commercial data and insights has produced research suggesting his observations were pretty close to the mark. According to the latest Veda Australian Credit Scorecard, people aged under 30 are the least responsible when it comes to credit – 36 per admit to overspending. What’s a Veda Australian Credit Scorecard? It combines analysis of more than two million “VedaScores” – a number which suggests your creditworthiness – with a survey of 1,000 Australians to see what they think of their financial wellbeing. These VedaScores are used by companies to assess your
“ People aged under 30 are the least responsible when it comes to credit – 36 per cent admit to overspending.”
creditworthiness, so you need to take them seriously if you need mortgages or loans. Izzy Silva, Veda’s General Manager, Consumer, says the tendency of younger people to spend beyond their means and, in some cases, lose control of their finances, was reflected in their poor credit scores detailed in the report. “Our data shows the average VedaScore for Australians in 2016 is 757, which is considered a very good score,” Silva says. “However, Millennials have an average VedaScore of 712. “This is the lowest average VedaScore of any age group in Australia, and the only generational VedaScore lower than the national average.” Millennials remain the riskiest age group, with 23 per cent of this demographic considered at risk of default in the next 12 months, compared to 17 per cent of the total population. But people under 30 are also the most concerned about what is
“ 23 Per cent of people have now accessed their credit score, compared to just 11 per cent in 2015” in their credit history, indicating many young people are beginning to worry about the longer-term impact of their spending habits. “Consumers are becoming better informed about the role their credit history plays; 23 per cent of people have now accessed their credit score, compared to just 11 per cent in 2015. “This number climbs to 26 per cent of people under 30, suggesting Millennials are more credit-aware than the average Aussie,” Silva says. The report also finds women are more financially responsible than men with the average VedaScore for women at 768, compared to 749 for men. Women are more likely to
have a loose budget than men (89 per cent vs 82 per cent), but men are more likely to overspend because they think they deserve it (13 per cent vs 23 per cent). Social researcher Mark McCrindle says gender and age are just two of a number of factors that influence an individual’s financial personality. “Through Veda’s research we have seen that people tend to fit into one of four financial personality archetypes: Money Masters, Slapdash Strivers, Secure Savers and Financial Fumblers,” McCrindle says. “Each of these archetypes is shaped by influences including age, income, gender and work status. There are distinct attitudes and behaviours exhibited by each archetype group.” Money Masters, for example, consider themselves to be knowledgeable on the ins and outs of personal finance. They tend to work full-time, so have a healthy expendable income.
5 TIPS FOR CONTROLLING CREDIT Want to improve your credit rating? Izzy Silva has these tips. 1 SET UP MONTHLY REPAYMENTS
2 MONITOR ALL YOUR COMMITMENTS
3 UPDATE YOUR RECORDS
Make sure you stay on top your monthly repayment obligations. Set up direct debits or re-schedule your payments to meet your regular obligations. It’s vital to be financially responsible – don’t let things drift.
There are plenty of attractive financial products out there – don’t apply for a credit card or a personal loan without doing your research on that product. Some may not be suitable for you credit history.
Make sure all your service providers have your current address and contact details – particularly if you move house. You don’t want to leave any unpaid bills behind – anything above $150 could harm your credit rating.
4 IMPROVE YOUR SCORE
5 CONSOLIDATE YOUR DEBTS
Your credit history drives your credit score. Veda can provide a free credit report outlining what has gone into your credit history. Products such as credit alerts allow you to stay ahead of the game and improve your credit rating.
If you are struggling to make your repayments, it’s vital that you speak to your lenders immediately about debt consolidation or even a hardship plan. This is a much better option than being late or even defaulting.
FINANCIAL FUMBLER On the other hand, Slapdash Strivers are financially ambitious and are willing to take risks to reach their goals, but aren’t very knowledgeable about finance. “People who fall into the Secure Saver archetype tend to be older and feel uneasy spending when they don’t have to. This attitude may be a result of having lived through some tougher economic times in the past,” McCrindle says. “Financial Fumblers are often living payday to payday and feel overwhelmed by the idea of setting financial goals. “The good news for people in this group is that life experience is often enough to help them develop different personality traits in the future.”
WHERE DO YOU SIT IN THE WORLD OF CREDIT? MONEY MASTER
Financial advisers are emotionally driven to make a positive difference to your life.
REALLY SIMPLE MONEY 2016
Find a financial adviser that shares your beliefs at www.yourbestinterests.com.au
GAME CHANGER A new digital financial advice platform launched by Macquarie Group looks set to change the industry, writes Lachlan Colquhoun.
ntil recently, access to the best and most rigorous financial advice was largely restricted to affluent people known as high-net worth individuals. As in so many other areas, the digital era has transformed that model and is enabling the best advice to be distributed on a mass scale at a much lower cost. A leading example of this is the Owners Advisory service, launched by Macquarie Group in March 2016. Founder and chief investment officer of Macquarie’s banking and financial services group, John O’Connell believes the new model can effectively transform the way financial advice is delivered, and could change the industry. “We set out to solve a pain point for people when it comes to financial advice,” says O’Connell. “The reality is that most people didn’t see the value in advice, so we needed to push the price point down while at the same time keeping the rigour and the quality of advice as high as we could. What we have done through using digital platforms is to create a mass customisation service on a larger scale, which is well priced, but also at least as good as the advice you would get from a planner.”
Owners Advisory is different from other so-called “robo” advice platforms in that it does not hold funds under management. Other platforms tend to follow the “fund of funds” model, which take investors funds and place them in a range of products, usually Exchange Traded Funds and charge a management fee. Although Owners Advisory is associated with Macquarie, the platform is “product agnostic” and recommends a range of 30,000 investment products offered in Australia and globally. It uses sophisticated riskprofiling software to gauge each
customer’s risk profile, then uses mathematical analysis to identify the best-performing financial products to suit the individual. Clients pay $45 per month for membership and advice, and for $55 they can order a personalised statement of advice (SOA). The downloadable SOA is generated in real time and provides
recommendations and full portfolio analysis. The SOA is based on the results of a lengthy and detailed questionnaire about a client’s financial position and stage of life. Clients include investors with self-managed superannuation funds, and people who have never engaged a financial adviser, due to price or concerns about the quality and impartiality of advice. Others are using it as a second opinion on their own investment decisions or advice they are receiving from professionals. “The ‘wow’ moment for clients is when they request and download that first statement of advice, because it is incredibly detailed and speaks very precisely to their investments and their situation. It really is a breakthrough in process automation and a completely different approach to financial advice,” says O’Connell. Traditionally, a client will see their adviser once a year for a consultation about rebalancing their portfolio, which can cost thousands of dollars, but Owners Advisory clients get four portfolio REALLY SIMPLE MONEY 2017
rebalancing SOAs a year as part of their membership, which costs around $800 a year. “The whole point about rebalancing based on the once a year visit is that it has been based on what the client can feasibly afford, and not on reacting to the market in a timely way,” says O’Connell. “If you can get the price down, as we have, then you can do that rebalancing and get that advice when it is needed. If markets aren’t doing anything, then it’s a long time between advice, but if markets are moving and volatile and risky, then you’ll need to rebalance your portfolio more regularly and you’ll need more frequent advice.” After six months of operation, O’Connell says the feedback has been positive. “Eighty per cent of Australians do not have a financial adviser. Many don’t see the value in it. Our service lowers the price to where people might say ‘well, at least let’s get a second opinion’. “I think this is the way of the future. I think it will add a lot of trust and credibility to the industry.”
When digital advice platforms began appearing on the market about a year ago, financial advisers and fund managers went on the attack. It was at this point that the term “robo” started being used, a slightly derogatory term that implied people would be receiving inferior advice from a robot. A lot has changed since then, and financial advisers are increasingly seeing these platforms as something they can use in combination with their own services. “We are currently working with several players in the industry to develop a business to business solution,” says O’Connell. “This is taking our Owners Advisory solution, but in a form that financial planners and accountants will use in their practice. “You end up with a human adviser doing the concierge aspects, and talking with the client about the more ‘upstream’ strategic issues, such as whether you should have a self-managed super fund and how to set it up.” O’Connell adds that the funds and advice industry is now understanding that the digital platforms can be part of the mainstream.
INVESTMENT ADVICE MADE SIMPLE
So you can retire comfortably You’ve worked hard to put together a fund that will see you through your retirement. Setting up an SMSF has not only meant lower fees, but also greater control and responsibility of your financial future.
Reach your goals
That means making the right investment decisions for you. Owners Advisory helps guide you through the ‘what’ and the ‘how’ of your SMSF investments. And we do it online.
A better-performing SMSF
An expert second opinion
Join our email list and stay up to date
www.moneytalk.com.au Owners Advisory is a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504. This information has been prepared by Owners Advisory and does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you.
MONEY BUYS SECURITY
Chef Adam Liaw credits good financial advice with ensuring his money is safe while he travels the country writing and cooking. Teresa Ooi spoke with him.
awyer-turned-celebrity chef and author Adam Liaw doubled his money in a year when he made his first foray into the property market at the age of 21. “I was earning about $40,000 a year and had to pump all my salary into the home loan for a threebedroom house in central Adelaide, which I bought for $140,000,” he says. “While all my friends were talking about buying cars and going out to fancy restaurants, I was stuck – it was my biggest investment. But when I sold the property a year later, I doubled my money.” With the profit, Liaw consulted a financial adviser and invested in managed funds. He then began building a portfolio of shares, taking high risks for high returns. If Liaw sounds like a sophisticated investor, he insists he is not. When he moved to Tokyo to work as an expatriate lawyer, he decided to borrow in yen and trade in US dollars because interest rates in Japan were so low. He lost close to $300,000, and it took him almost two years to clear the debt. Today, Liaw, 38, is in a good space. He left his legal career when he won TV’s MasterChef contest in 2010, and has since become a household name, appearing on TV cooking shows, writing recipe columns and publishing five cookbooks, with the latest, The Zen Kitchen, out in October 2016. He has built up a portfolio of two investment units, high-yield REALLY SIMPLE MONEY 2017
stocks and some managed funds. This is apart from the four-bedroom home in Chatswood he shares with his wife, Asami, and children, Christopher, three, and Anna, one. “The family house is probably the best investment I made in Sydney,” he says. “It was a smart buy at the right time and the right place. It was a lifestyle choice as I grew up in Adelaide with space and wanted my children to have at least a backyard in Sydney.”
he has no regrets about putting his legal career on hold. “Money buys security, and when you have young children, you must have a wealth-creation strategy that ensures the family and children’s future are protected,” he says. “I am in a good space as I am more or less debt-free.” His advice to young Australians: “Always invest in things you understand – not because they look good on paper.”
“Always invest in things you understand – not because they look good on paper” As a father, costs have risen, and Liaw has taken out heath insurance, life insurance and income protection. “My appetite for risks has also diminished and I now prefer to pick stocks with steady growth and yields. I cannot afford to be too cavalier.” Running a small business as a chef and author, he tends to do everything himself and finds it difficult to relinquish control. He spends nine months of the year on the road and says
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TOP OF HIS GAME Australian cricket star Michael Clarke draws parallels between his successes in sports and business, writes. Teresa Ooi
t 35, cricketer Michael Clarke is still called “Pup”, a nickname that belies his savvy business acumen. Clarkey – another nickname thanks his parents for teaching him the value of money. His mother, who worked in a bank for almost 30 years, looked after his money before he shot to fame as Australia’s cricket captain. Today, 80 per cent of Clarke’s investments is in property, the rest is reportedly spread over blue-chip stock from the ASX 200. “I have a few properties, not only in NSW, they are well-located investment properties and the rent
“In sport you have to be tough... and to have success in business is exactly the same.”
helps to offset the mortgages,” he tells The Really Simple Guide to Money. He acknowledges that many people of his generation are struggling to get on the property ladder and his advice to them is to save, and keep looking for the right property in the right location. Clarke himself leaves little to chance. He says he’s not a spendthrift, though he loves to shower his wife Kyly and their baby girl Kelsey with gifts. “It may sound strange, but I’m a disciplined spender. It’s about working hard, achieving something and rewarding myself.
I also believe it’s very important to plan for the future.” He’s been budgeting from an early age. His first job, at Kingsgrove Sports Centre in Sydney, paid him $150 a week. After he’d given his parents $50 for board, spent $40 on petrol and paid $10 in tax, he had about $50 left. “And that $50 back then was well and truly enough,” he told the Australian Financial Review. Today, Clarke is a commentator for Nine Network, and an ambassador for Toyota and luxury watch brand Hublot. A conservative investor, he relies on his financial adviser Anthony Bell of Bell Partners, who’s been with him nearly 15 years. He also takes advice from corporate heavyweights like casino billionaire James Packer and veteran banker John Wylie. “When I look at all three of those guys, they are tough characters. In sport, you have to be tough to get through the rough times and be able to find a way to turn that around, and to have success in business is exactly the same,” he told the AFR. Now, Clarke says he is looking to the digital space for his next financial project, doing his research so he has a good understanding of the investment before he commits. Clarke has come a long way since leaving school in year 11 to pursue cricket. After his success in financial investing, he’s making a different kind of investment – setting up the Michael Clarke Cricket Academy for promising young players. It’s his way of giving back to a community he loves.
OF WEALTH AND HAPPINESS Each stage of life needs a different approach to money. You need to plan for and adapt to life’s changes in every decade – our panel of experts tells you how. Teresa Ooi and Lachlan Colquhoun present real-life case studies.
T OUR PANEL
hey say there are two certainties in life: death and taxes. Actually, there are far more than that. Throughout your life, wonderful – and, sadly, not so wonderful – things will happen that may appear random. But if you think about it, most events are predictable.
ELEANOR DARTNALL is the principal of Dartnall Advisers and 2014 AFA Financial Adviser of the Year. She has worked in the banking and finance sector for several decades. She believes in educating clients about managing their financial affairs, and she loves client relationships that are built on trust.
Most of us start careers, meet a partner (or more than one), have children, buy a house and have holidays. Some of us fall sick, and all of us get old. While not all of these things are connected to your wealth, many will have an impact on it. A plan can smooth out the wrinkles,
GLEN JAMES is a licenced financial adviser and managing director of the Fortify Financial advice network. He is conservative and somewhat a contrarian in the way he delivers his practical financial advice. Glen has a particular interest in personal finance and estate planning.
soften the blows and help enjoy the highs. The following pages are designed to prompt you to think about the things our team of experts predict may happen. We hope their advice will help you to prepare for every life stage with peace of mind.
BILL BRACEY is the founder and principal of Sydney Financial Planning. With 27 years experience, he has helped many clients to realise their financial dreams. He features in a television series Your Best Interests, which is about financial advice and the difference it makes to the lives of ordinary Australians.
Six Ages The Carefree 20s
20s ENJOY THE PARTY, BUT GLIMPSE THE FUTURE
ust because you’re young, free and gorgeous, it doesn’t mean you don’t need financial goals. This is the message that more and more 20-somethings are embracing as they enjoy what is traditionally the most fun decade of life. Sure, there are lots of parties, plenty of travel and the focus is on study rather than work, but for today’s 20-year-olds, financial concerns are creeping in as they try to set up their lives. After all, life is different for them than it was for their Baby Boomer parents who had free university education, tended to marry and have children earlier, had longterm careers and and bought their own homes rather than renting. Today, young people live at home longer, accumulate HECS debt on
their tertiary study, and most can only dream of home ownership. Work is also a different experience. Many young people move between part-time jobs for several years in their 20s, and have a number of different incomeearning activities on the go.
Today’s 20-year-olds are partying with more of an eye on the future Professions are changing and disappearing so rapidly now that planning a career is not as easy as it used to be, and many young people are embracing a life of freelance work, or becoming entrepreneurs. In terms of money, this creates confusion, especially as people find they’re enrolled in four or
five different superannuation funds. Financially switched-on 20-somethings will think about consolidating them into the one account, so the super situation is streamlined going forward. They should also think about a savings plan, even a modest one. There are many new apps and innovative alternative investments created by the “fintech revolution” which will appeal to this generation, and help them build their wealth. Another key goal is not to succumb to credit-card debt. No-one wants to launch into adult life saddled with debt, especially with the growing interest that entails.Debt drags you down, and that’s a hard thing to deal with as adult life is just beginning.
1STAY AT HOME: There is
a reason more young people are staying in the family home for longer. It’s cheaper than a share house and Mum and Dad aren’t too bad after all.
2START TO SAVE: You’ll
never have fewer outgoings,
so it’s a perfect time to start saving. Think about saving half of what you make.
3 BEWARE THE CREDIT CARD: Getting into big
trouble with credit cards will not only mess up your credit rating, it’s a financial black hole. Be careful.
4DON’T WORRY ABOUT
UNI DEBT: Australia’s HECS system of paying for university is just about the cheapest debt you’ll ever have. Get educated.
INSURANCE: Life and
income-protection insurance only get more expensive the older you get. Be aware premiums rise with age, and for health insurance, sign up before you’re 30.
6HAVE FUN: Life is for
living. Money will never be less important again.
PLANNING TO BE DEBT FREE
OUR PANEL’S ADVICE
AT 26, NICOLE WATSON is in a good space. She has a good job in an advertising firm, a loving husband Cameron, who works as a carpenter, and a rented apartment in the Sydney suburb of Wollstonecraft. But the couple has $50,000 of debt due to two car loans and a spiralling credit card balance. “We were just paying the interest on our credit cards and the minimum amount on the two car loans. The repayments weren’t getting us anywhere,” says Nicole. “So we decided to see a local financial adviser, Glen James of Fortify Financial on the Central Coast, where we both come from. He told us the first priority is to get rid of the debt. He then worked out how much repayments we have to make each month. He put the Moneysoft app on our phones, which tracks our
spending. I also decided to sell my car as I really don’t need it. By the end of next year, we should be debt-free,” Nicole says. It was a sobering lesson for the couple, who together earn more than $140,000 a year, but whose debt had crept up. “We both come from big families and buying presents
ELEANOR DARTNALL Several jobs will mean several superannuation funds, so make sure you keep track of them as they often come with valuable insurance cover. Take the time to amalgamate your super, paying particular attention to the insurance cover provided. Don’t be afraid to nominate High Growth investment options – you have 40+ years that the money will be invested in. Watch out for credit card debt – try to live within your means and save a little.Remember to get your health-insurance sorted before you’re 30.
for all of them at Christmas set us back by $2,000. We’re both homebodies and haven’t been on a big overseas holiday. But day-to-day spending and the odd flight to attend family weddings adds up and it dug a hole in our credit cards. “Now we have a system set up, which automatically
GLEN JAMES When you’re in your 20s, life is basically all about cafes, travel and memes. It’s where you first have some money after leaving school or university. When you’re in your 20s, financial habits begin to take place – both good and bad. In this age group, it’s the right time to establish good cash flow habits and to work on your savings muscle. Let’s be honest, at age 20 you’re still not that worried about super and retirement. If you can get out of your 20s without consumer debt, you’re in front.
deducts the loan repayments leaving us with $630 per week for groceries, entertainment and day-to-day expenditure. Hopefully, I’ll be able to sell the my car which means I no longer have to pay the car loan.” Once the couple is debt-free, they want to buy a property in Sydney or the Central Coast. “I look at my dad and mum who are in their 50s and are still working because they still have a mortgage on their Central Coast home. We want to own property and enjoy ourselves more and not be in debt by the time we’re in our late 50s. It’s important for young people to seriously think about their finances so that they don’t have the same problem as we did with our debt issue.”
BILL BRACEY In this decade, let’s face it, you feel like having fun and seeing the world is all that matters. Then one day Mum and Dad will say, “It’s time for you to move out!” Uh oh. That’s a great time to start to get your money management in order. Step one is to start a budget, work out what it’s going to cost to live, and then get a job (or several jobs) to cover your expenses. Set some short, medium and long-term goals and see what you’ll need to do to reach them.
Six Ages The Thrifty 30s
30s GROWING UP AT LAST
or many people, their 30s are a decade of transition. After taking advantage of the family home for much of your 20s, you graduate from the “kidult” phase and it’s time to move out and find your own place. You’ve finished university and made the first steps towards establishing a career. This might involve moving cities, or even countries. You might have found a partner, and you may be living together and talking about taking the next step. Children may be on the agenda, or they might have arrived already, bringing joy but also responsibility. But where your parents thought of buying their own home as a rite of passage, for today’s 30-year-olds it is much more difficult.
Rampant house price gains in major capital cities have put home ownership on the back burner for many 30-somethings. You may be resigned to renting long term, and while this might not be ideal, there is an upside. If you’ve been saving for a house deposit only to find yourself locked out of the property market, that leaves you with a nest egg or a sum to invest.
This decade is the time to start making some big decisions This raises questions about how to maintain this capital, and how to make it grow. At the same time, your superannuation will be starting
to build and you’ll see the balance creeping up with every annual statement. If you haven’t already streamlined your various super funds from part-time jobs in your 20s into one account, now is the time to make those decisions and set up your super. And while it’s probably not something you thought about in your 20s, but in your 30s it makes sense to organise life and income protection insurance. It might seem dramatic, but it also makes sense to sort out your will, just in case. By your 30s you’ve likely accumulated assets which would need to be passed on if the worst were to happen. Between all this, you’ll find life busier than it has ever been.
SIX-POINT CHECK LIST
1THINK ABOUT SUPER:
You probably have a number of accounts accumulated through various jobs in your 20s. Best to consolidate them in one account.
2GET A PROPERTY PLAN: It’s harder and harder
for first-home buyers in Australia. Get a savings plan and a strategy to get on the property ladder.
3START BUDGETING: If
you are going to get ahead, you need to know where all your money is going and keep it under control.
INSURANCE: Think worst case scenario and make sure you have some appropriate cover.
5DO SOME TAX
PLANNING: Understand how much tax you are paying
and what you are entitled to do to minimise it.
6MAKE A WILL: You’ve
probably accumulated some assets, you may have a life partner and be starting a family. Having a will makes sure your assets go to them if something happens.
PROPERTY PAYS OFF
OUR PANEL’S ADVICE
OVER THE LAST two years, Brett Kidman has sold his East Melbourne family house at a profit of $200,000 and bought two other properties. At just 37, Brett has done quite well for himself dipping in and out of residential property, which is an investment sector he finds enjoyable. “Property is my choice of investment – it’s all I know. I keep abreast of all the property sales, purchases and trends. I track property prices every day, especially in areas where I want to live or invest,” he says. “The rest of my investment portfolio including superannuation contributions, I leave to my financial adviser, Scott Hayward of Hayward Financial Management.” Brett, who works as a sales executive with Fuji Xerox, spent upwards of $100,000 refurbishing
the four-bedroom, twobathroom East Melbourne house before selling it at auction for more than $800,000. He then bought a threebedroom, two-bathroom house in Lysterfield, Victoria for $660,000, which is now his primary family home. He also purchased an off-the-plan, seaside townhouse in Seaford for
ELEANOR DARTNELL It’s time to get income protection and trauma insurance, especially if you have a mortgage or a family. The earlier you join, the cheaper it is. If you’ve managed to buy a home, you probably don’t have a lot of room to save. Get a mortgage offset account, and direct your salaries into it. Just make sure you’re paying down your mortgage, reducing the nondeductible debt as much as you can. Get your Wills done, ensuring that you nominate guardians for your children.
$494,000, which will be completed next month. “The value of the three-storey, two-bedroom townhouse has already gone up to between $650,000 and $700,000,” Brett says. “Right now, I’m considering whether I should flip the property and sell it or keep it and rent it out. I will use the rental income to draw down on
GLEN JAMES At this time, relationships and careers are being established, income has increased and normalised. The frivolous spending has slowed, you’ve seen some of the world and your cash flow and budget are under control. For those aspiring to home ownership, usually a deposit is well underway. Super and retirement still aren’t a priority, but you’re starting to think about it. Consider turning to financial advisers to help bring your goals to life.
my mortgage repayments. I am weighing up the options.” Brett married his Italian wife Kathrin in Italy in July. They have a three-year-old son named Phienix and are planning to have a second child next year. Brett likes to be in control of his financial affairs, and he started planning when he was still young, entering the property market in his late 20s. “I wanted a share portfolio and needed my superannuation to be structured and my income protected,” Brett says. “Scott worked in the same building and I’ve known him for many years. I am comfortable with his advice and recommended him to my parents. “Things are going to plan. I am pleased with my investment portfolio but one has to be nimble and flexible.”
BILL BRACEY Around this age, people are either getting married or choosing a partner, so this is the perfect time to start building your financial plan together. Is it time to buy an investment property or a first home? Can you survive if you go to one income once you have children? Now is the time to decide what you really want to do in life and to start making it happen. And it’s also the time to create a basic will.
Six Ages The Roaring 40s
40s GETTING SERIOUS
orty is one of those glass halffull, glass half-empty ages. You are, after all, about halfway to the current life expectancy for Australians, but with life expectancy increasing all the time, there’s every chance you’ll make it into your 90s. In many ways, your 40s are when you’re at the top of your game. The career is humming along, you are still fit and energetic, and life seems pretty good. But the 40s are also when things start to get complicated and responsibilities can start to weigh. The family you started in your 30s is now out of primary school and into high school. If you are committed to private school
education that can be a major burden, and can really keep you on the treadmill. With a family, you need a stable living situation and that means having a house. Hopefully you have managed to get onto the property ladder by now. Maybe you had an investment property that have sold and used for a deposit for the family home.
In your 40s, time can seem a precious commodity The super balance is gaining momentum, but that brings with it more questions. Should you change funds, set up your own or start making extra contributions?
Careerwise, even if you are established, questions and doubts can start to creep in. Should you start your own business? Is it too late to change course? Is it worth uprooting the family for that better-paid job in another city? While you are making decisions for your children, you’re also watching out for your parents, who aren’t getting any younger. You may feel like you’re sandwiched between the generations, and in your 40s, time can seem a precious commodity as you’re busy taking care of everyone else. If you aren’t careful, the decade can slip by in a flash, and all of a sudden you’ll be staring down the barrel of the half century.
SIX-POINT CHECK LIST
1STAY FIT: Especially if
you are working too hard, take time out to look after yourself. You won’t want to pay for neglecting your health with illness later.
2INVEST: Not just in super, but maybe it’s time to get
some shares for yourself, or start a business on the side.
3CHECK YOUR SUPER:
Perhaps you haven’t thought about it in years. Maybe check how it’s tracking and re-set it based on how many years you are from retirement.
4SPEND TIME WITH
FAMILY AND FRIENDS: Don’t lose sight of what is important and the reason you are working so hard.
YOURSELF WITH OTHERS: It’s counterproductive. We
chart our own course in life. If you feel you need to do more, do it for yourself.
6LOOK FORWARD WITH
CONFIDENCE: Feel satisfied with what you’ve achieved and anticipate the future. If you’re not satisfied, there’s still plenty of time.
RECOVERING FROM DEBT
OUR PANEL’S ADVICE
AFTER TRAVELLING ROUND Australia with his wife and three children in a caravan for almost two years, Trent Taylor has settled down and bought a farm in Victoria. His children continue to be schooled at home by his wife Sally and his coaching business has picked up. For more than 10 years, Trent ran a successful mentoring business until the GFC in 2008. His business took a massive hit, Trent lost a lot of money and his company nearly went under. His assets dwindled from $1.4 million to zero in 18 months. After he split from his business partners, things got worse. His real estate assets plummeted in value and he was almost wiped out. “I knew I needed financial help. Through a friend I was introduced to Glen Killen of Strategy Financial Consulting. From the start, Glen struck me as a no-nonsense person. He was kind, calm and compassionate and didn’t make feel like a loser,” says Trent.
“He told me to keep things simple and start investing in superannuation so I can set up my own SMSF. “He also helped me make the hard decision to sell the family house in northern NSW which had dropped $70,000 in value.’’ With the help of Trent’s accountant Michael Osborne, Glen reworked Taylor’s financial plan to keep it tax-effective. The first priority was to pare down
ELEANOR DARTNALL School fees, family holidays and the mortgage are sucking up your earnings at a scary rate, but you are probably also earning more now. Keep paying the mortgage and start putting more into your super. Get educated and be involved in the investment of your super. Ensure your Wills are valid through marriage or divorce. Ageing parents may mean inheritances, so consider investment.
Trent’s debt and slowly build up his investments. Once his debt was cleared, Trent, 42, said he was under so much stress that he needed a break. He also wanted to spend more time with his family. So he packed his wife and three children, aged 10, eight and six, into a caravan and drove around Australia from Broome to Alice Springs to Cooktown in Queensland.
GLEN JAMES Without a doubt the most expensive time for those who started a family 30s. For those who don’t have a family, the priority is usually clearing the mortgage or saving surplus income for the long term by investing in property, managed funds or super. For young families, there generally isn’t much money left over. A slight career pivot or role change may occur.
The kids were schooled at home and they loved it. In the meantime, Trent worked on his business coaching franchise, Teach It Forward. Now that he’s bought a farm and the children are settled, he can concentrate on developing his business. Trent works with about half a dozen accountants on business development systems that enable the accountants to deliver better support for their clients. According to Trent’s blog, “Life as a business owner with a younger family can be hard and we go through so many issues... Let’s talk about these, bring solutions and collaborate, to solve the challenges and achieve what we want in life – peace, happiness and satisfaction - while we grow our business.” Trent works a four-day week from 10 am to 3 pm. He keeps Fridays free to spend time with the kids. He is also the author of the book Have Your Cake And Eat It Too.
BILL BRACEY Review your financial plan, particularly looking at wealth creation, super and retirement strategies. If you’re not on track to meet your goals, you need to effect immediate change. Is your insurance plan adequate in terms of children, debt and divorce? Remember, half of all marriages today fail. Maybe you also now have new goals to add to your plan?
Six Ages The Full-On 50s
LAUNCH PAD TO RETIREMENT
ou’re cleaning up after your sensational 50th birthday party and you go through a checklist of where you are in life. You’ve partied until dawn with some of your closest friends and family and despite the hangover and the sleep deprivation, you feel pretty pleased about where things are at. The kids are finishing high school, and seem to be on the right path to university and beyond. The house is nearly paid off, and the business you started in your 40s is ramping up just at the right time. The plan is still to sell it in a couple of years and take a step back and do all those things you’ve been promising yourself for years. You don’t think the house will be like a vacuum when the kids leave.
It’ll be an opportunity to reclaim your own life. When you sell the business you’ll sell the premises you bought through your self-managed super fund, and cash up for retirement. Thinking about the party, you realise you’ve been luckier than a lot of your friends of the same age who were celebrating with you.
In your 50s, you have a good launch pad for retirement There were several divorces, and even the amicable separations meant that the assets were halved, so people had to reset their financial expectations and begin again. Others had lost jobs and some had been retrenched several times.
The redundancies were nice at the time, but a friend assumed he’d get a new job straight away and squandered the money. He didn’t, and ended up at Centrelink. His confidence took a huge hit and he believed he was too old to get another job in his 50s. There was the school friend who had had that debilitating illness. Like many, she’d assumed she was bulletproof, so didn’t have income protection or disability insurance. She ended up moving back in with her elderly parents, and becoming their carer as they became progressively more infirm. In your 50s, thanks to some good planning, you have a good launch pad for retirement. It’s just sad that so many of your friends are desperately playing catch up.
SIX-POINT CHECK LIST
1SET SOME NEW GOALS: 3GET SERIOUS ABOUT Write the bucket list. It helps you focus.
2RE-THINK WORK: Are you enjoying your job, or is it time to try something else? It’s not too late to change as long as you plan carefully.
SUPER: Now is the time to put your foot on the super savings accelerator. Don’t freak out if you don’t have enough super, there is still time. Just.
4DON’T OVERSPEND: With the kids off your hands,
you probably have more disposable income than you’ve had in years. Enjoy that, but don’t waste it.
your own financial future to molly coddle your kids.
5 DON’T OVER-INDULGE THE KIDS: You had to make
Get those check-ups, keep up the exercise. If life is a marathon, you are barely two-thirds of the way there and you need to stay fit to make it.
your own way in life and moved into a share house in your teens. Don’t sacrifice
6FOCUS ON HEALTH:
ON TRACK FOR EARLY RETIREMENT
OUR PANEL’S ADVICE
CHARTERED ACCOUNTANT Roy Wilkinson is very pleased his investment portfolio is outperforming the market thanks to a decision to stick to industrial stocks. “I am happy with the advice of my financial adviser, Glen Killen of Strategy Financial Consulting, as my portfolio continually outperforms the market,” he says. “We decided to invest in industrial stocks and stayed away from property and mining shares. So things are going fine. I meet Glen every 12 months and he sends me quarterly reports.’’ Roy is the chief financial officer of the family-owned Akubra hat business. While he is well versed in accounting, he felt he still needed a specialist to handle his financial affairs. Now in his 50s, Roy’s brief to Glen Killen was twopronged: the long-term goal
was to grow Roy’s nest egg so he could retire at 60, and his short- to medium-term strategy was to reduce his mortgage payments to meet the education needs of his three children. Though Roy is the main breadwinner, his wife Nerida also still works and her salary is spent on the day-today living expenses.
ELEANOR DARTNALL Now your children have left home, you may be thinking about renovating, maybe a new car and freedom. Costs can blow out so make sure you have a back-up plan to cover extra costs. If you want to retire in your early 60s, plan a retirement income. You may wish to start salary sacrificing to increase super. If you have capital, consider contributions to super using the bring-forward rule. If you are not sure about these strategies seek financial advice.
They decided to salary sacrifice up to 15 per cent of his pay into his self-managed superannuation fund and build up a portfolio of mostly industrial stock from blue chip AXS top 200 companies, which has delivered consistent returns. Roy is not keen on property investments as they are illiquid assets with
GLEN JAMES The kids are gone and you start to feel you have money again. The household financial obligations are not as hard as the decade before and you’re earning well. You may travel more, upgrade your cars and now you’re really thinking about retirement and what the next 10 years look like. Super can be very appealing to you at this time as saving income tax and investing for the future is a win-win. Those who have an investment property may purchase again.
high outgoings and average returns. The couple are also still paying off the mortgage on their four bedroom house in Port Macquarie. Roy pays $2,500 a year for the management of his financial affairs, which is tax deductible via his SMSF. “It’s money well spent,’’ he says. “I like Glen because he gives good service, independent advice and his fees are hourly. He is not linked to a bank or any financial products providers.” As an accountant, Roy does not like to leave things to chance. He likes to be in control and always plans ahead. “Start planning for your retirement and future as early as possible, preferably by the time you turn 40. Don’t leave things to the last minute. “Things are going according to plan. We are in a good space.’’
BILL BRACEY Review the “bedroom plan” that you formed 20 years ago to see if it still matches your goals. Reprioritise and effect changes based on your updated objectives. Retirement is now within reach. Will you be debt free by then? If the kids have moved out, it might be time to think about downsizing and freeing up some capital-gainstax-free funds to shore up your wealth-creation strategy.
Six Ages The Super 60s
60s HAPPY NOW?
everal global studies have revealed that, for most people, their 20s and 60s are the happiest decades of life. You might be ageing, but a large number of people still enjoy good health and many of life’s challenges and chores have been overcome. Children are living their own lives and may even have delivered grandchildren. You have the money to reward yourself with some of the things you have always aspired to, and work has finally taken a back seat. The golf clubs are getting a workout. You may have sold the family home and downsized into a more practical situation, pocketing a tidy sum, which bought you that dream cruise to an exotic location.
That is the best-case scenario, of course, but the reality is that many people still continue to work well into their 60s because they simply don’t have enough super.
The 60s are perhaps not as carefree as they should be for many. Many single woman are in this unenviable situation – 70 per cent rely on the pension and 40 per cent retire below the poverty line. According to super experts, we need at least $1 million in super to retire in comfort, but today’s 60-year-olds were well into their working lives when compulsory super was introduced in the 1990s.
Some do have that $1 million, but many don’t, and that means many people are still on the work treadmill into their 70s. So the 60s are perhaps not as carefree as they should be for many people. Those who have stopped working and are living solely on their super have another serious question to ponder: how long can I afford to live? With average lifespans pushing past 80 all the time, many people will need to keep their hand in at some kind of work to keep things ticking over, and make sure their super doesn’t run down too much. So even though you may have fewer cares in your 60s, there is still business to take care of. A good plan can help.
SIX-POINT CHECK LIST
1GET SOME FINANCIAL
ADVICE: You’re likely to retire this decade. If you’ve never had financial advice, now is the time to get some.
2THINK ABOUT WORK/
LIFE BALANCE: Re-configure your life with some part-time
work if you want to take your foot off the pedal a bit, but don’t want to retire yet.
3CHECK YOUR SUPER:
How is your super tracking? Do you need to do something to top it up? Do you need or want to start accessing it?
4PLAN THAT BIG TRIP:
You’re still healthy and if the finances are looking okay, think about treating yourself.
DOWNSIZING: Perhaps having a big cull of your possessions, selling the
family home and downsizing is the change you need.
6LOOK FORWARD TO
THE FUTURE: Retirement in Australia is increasingly the Third Age, a 20-odd year period of happiness and fulfilment. Think about making that happen for you.
WE DON’T NEED A LOT
OUR PANEL’S ADVICE
SMALL BUSINESS OWNER Bruce Gearing kept his promise to his wife Christine – he finally sold his car compliance company to a loyal employee for a nominal fee and retired. They moved to their “nothing fancy” three-bedroom house by a golf course where Bruce now plays golf three times a week. Christine, who was the company’s bookkeeper, is a contented retiree, spending her days looking after her six grandchildren. She has also learnt how to swim – a major achievement for someone who grew up on a farm in Western Australia and never swam as a child. “The thing is, we can afford not to work and have enough in our superannuation to see us to our old age,” says 60-something Christine from her home in Queensland. “We aren’t looking for a lot of money, we have
enough and our financial adviser, Brendan O’Reilly of Bridges Financial Services, has sorted all our financial needs and looks after our superannuation, our SMSF and investment portfolio. “I really don’t worry too much about how much we have in our super – I leave it to Brendan. I am too busy having fun.”
ELEANOR DARTNELL You may consider sacrificing salary to increase your super. If you’re close to retirement, be sure you understand the investment in your super and whether your fund allows for a rollover into pension phase. Will an industry fund meet your financial goals or should you swap to a self-managed fund? Your children may ask for financial help to buy property. If you provide this, consider how to equalise gifting to your children in your estate planning.
The couple met their adviser at a retirement expo. “Unlike other advisers who wanted to charge us $1,000 and for us to go into highrisk investments... Brendan listened to us and explained patiently again and again what we needed to do.” They pay Brendan $3,500 a year to look after their SMSF and investment portfolio,
GLEN JAMES You’ve gone through life with the number 65 as the finish line. This will feel like the busiest time of your life and you feel far from old. You may have grandkids and have more social commitments now that your kids have left the nest. The dream of the caravan road trip is coming to life and downsizing the family home has crossed your mind. There are some good opportunities in your 60s in terms of superannuation and tax savings.
which includes a yearly visit to reassess their financial strategy. The couple sold their seven-bedroom family home in Brisbane, which they’d been running as a homestay for students, for $810,000 almost two years ago and stayed in their motorhome until their house by the golf course was ready. Both of them also looked after their aged parents until they passed away recently. Now they’re free of filial duties, the couple can relax and enjoy the fruits of their labour. “We keep our super fund simple. We don’t need a lot. We try to go overseas for a holiday once every two years. The rest of the time we prefer to drive around in our motorhome.”
BILL BRACEY Retirement is either upon you or just around the corner. This can be an enjoyable time of life if you start transitioning out of employment and into parttime work, using some of your superannuation to fund your lifestyle. It’s really important that you are both debt-free and kid-free or this won’t work well. Now is the time to ask yourself whether you still have enough funds to achieve your goals.
Six Ages The Slow-Down 70s
70s ARE YOU SLOWING DOWN YET?
n theory, the 70s are the decade when work stops and retirement kicks in with all its rewards, benefits and relaxations. That might be the case for some of us, but for many people the reality is that they need to continue working into their 70s because their super balances are inadequate. Recent analysis of Australian Bureau of Statistics data shows the number of over-45s who say they will not retire before 70 has dramatically increased, from 8 per cent to 23 per cent in a decade. We might be living longer, but that requires money to survive and many of us are working longer. For some, this is no chore. They enjoy their work and like to keep their hand in. They might still be running a business, but
have taken their hands off the tiller and delegated day-to-day responsibilities to someone else. While there is still work to contend with, many people are facing major health issues for the first time in their lives. Even if your health is relatively good, it is likely you will be visiting the doctor more frequently than you have before.
We might be living longer, but that requires money to survive The sad reality is that in their 70s, many people will be mourning the loss of a life partner. For those who have divorced earlier in life, there are the challenges of being a 70s single, and issues of loneliness.
In terms of your living situation, there is the question of downsizing, perhaps for a second time. Is the next move into a retirement living facility? If so, what can you afford and what services do you need? So while the 70s should be the decade of smelling the roses, for many it is another balancing act. The balance on the super fund needs to be monitored regularly, and any major decision – such as a holiday – can have a serious financial consequence. It is also the decade when the impact of your financial planning earlier in life becomes clear. Have you done enough and planned well enough? Not everyone, unfortunately, will be able to answer this question with a resounding “yes.”
SIX-POINT CHECK LIST
1KEEP YOUR MOMENTUM: Whether it’s travelling, taking up a hobby or volunteering, stay involved and keep yourself active.
70: Each generation of 70-year-olds is pushing the
boundaries on what this decade means in terms of fitness and health. There’s still a lot of fun to be had.
3CHECK YOUR ESTATE
PLANNING: Make sure that if anything did happen to you, everything is in order and as you want it.
4TAKE ADVANTAGE OF
BEING A SENIOR: There’s a range of entitlements and discounts for senior citizens. Use them, even if you don’t feel like a senior.
5WATCH YOUR SUPER:
We’ve all heard the one about
not being able to afford to live to 80. Keep a close eye on your funds so to make sure they don’t run out.
SMELL THE ROSES: Cherish your friends and your family and enjoy the first chance in decades to live for the moment.
ADJUSTING TO RETIREMENT
OUR PANEL’S ADVICE
RETIRED SENIOR MANAGER Ron Francis, 77, had a bad experience with a financial adviser from St George Bank, which cost him dearly – he lost $80,000 during the GFC after investing in high-risk stocks. “Perhaps, I was naïve and relied too much on the financial adviser who was hopeless. He was also difficult to get in touch with and did not give me proper advice,” he says. “I stopped using his services and looked for an independent financial adviser and was impressed with David Reed of The Retirement Advice Centre, who worked out a proper financial plan for my retirement. “I am very comfortable with David who helped plan where I should be investing my money and still maintain my lifestyle.” Ron’s main asset is the family house in Yarrawarrah, in the Sutherland Shire south of Sydney, which he and his wife bought 16 years
ago for $346,000. The three-bedroom house with a swimming pool and a large deck has been recently valued at about $1.3 million. He also has a term deposit which is not paying a lot of interest. Ron and his wife, Margaret, 63, who still works part-time for charity, draw a pension from their superannuation funds, which pays all the bills including grocery, petrol and the occasional holiday to visit
ELEANOR DARTNALL This is a time for winding down, planning travel, working in the garden. Some may consider moving to a smaller house or retirement village. Selling your home to downsize is challenging, give yourself lots of time to do this. Aged care is a hot topic in this decade. There are several options that can be considered, if you want to know more, speak to an aged care accredited adviser to find out about the process and likely costs.
one of their sons who lives in Queensland. When Ron retired at 68, after working for more than 50 years, he enjoyed the first two months. But after the initial euphoria was over, he found it difficult to deal with the psychology of retirement. “To go from a highpressure, full-on job to retirement was a bit of a shock. I felt depressed, worthless and guilty about not
GLEN JAMES In your 70s, social activities and networks need to be maintained for your mental health, and you may do some final travel while you’re still agile. The 70s make more widows than any time before so a property downsize is more likely. If you haven’t already, your estate planning needs to be cemented. Who will care for you if you can’t care for yourself? How do you want your wealth distributed if you die? Discuss these issues with your family.
working. I felt that I had fallen off the cliff, had little mental stimulation and did not know what to do with myself. There are only so many times you can mow the lawns. “I was on a downward spiral. I had to shake myself off this negative feeling and decided to do something about it. So I got two rescue dogs. They are now my best mates and give me unconditional love. “I took up flying model aeroplanes and meet up with my retiree friends at the flying club.” Ron’s advice to men contemplating retirement after working all their lives is to plan what they’ll do when they stop work. See a financial planner to work out a financial plan that will take care of their finances and lifestyle. “It takes a while to get into the mindset that this is my time, I’ve earned it, so lets enjoy it.”
BILL BRACEY The important thing is to enjoy yourself while still making plans for the future. Your needs will change and you want the luxury of making your own decisions. Ensure your retirement plan is going to last. Review possible government age pensions and other benefits, because you may be eligible. Start or review your aged-care plan so you’re not forced into something further down the track.
THERE IS OPPORTUNITY OUT THERE
Michael Klim is as dogged and successful in business as he was in the pool. Teresa Ooi spoke with the former Olympic swimmer about his financial wins.
ormer Olympic gold medal swimmer Michael Klim leaves very little to chance. Even while he was doing sprints in the pool, he was already planning for life after his swimming career ended. Now he has successfully parlayed his speed in the water into a growing empire of property, swimming schools and skincare. At the tender age of 19, Klim, with the help of some sponsorship money, took the plunge and paid the deposit for an off-the-plan, $170,000 studio in the Melbourne beachside suburb of St Kilda. And he has never looked back. He negatively geared the property and kept it for 10 years before selling it for a decent profit. Klim’s taste for property investments was fuelled by his father Wojtek Klim, a property developer who also acts as his “unofficial financial adviser”. Klim went on to buy another apartment in St Kilda and a house in neighbouring Brighton. At one stage, he had five investment properties, including two he promoted in sponsorship deals. He even dabbled in property development, buying an old house in Brighton in the “best street and REALLY SIMPLE MONEY 2017
the best location” for $1 million, then knocking it down and building two townhouses on the site, which he sold for $3.5 million each. With his amassed funds, Klim who retired from swimming in 2007, started a skincare business with his then-wife Lindy. “I had no idea about skincare, so I asked a lot of people a lot of questions, found mentors, saw where they made mistakes and decided to put my money in my business,” he says. “Like most start-ups, my skincare business, Milk & Co, required a lot of working capital.” Milk (Klim spelt backwards) has been a hard slog but has turned into a rewarding business for the former swimming champion. Milk skincare uses all-natural ingredients. It is made in Melbourne and primarily sold in supermarkets, including Chemist Warehouse and Priceline. Today, the skincare and men’s fragrance business turns over more than $5 million a year and exports to the US, Scandinavia, Korea, China and Singapore, though about 75 per cent of sales are domestic. Klim has also parked some of his funds in a swimming school in Richmond, run by his parents.
“At one stage I had five swimming schools, but we have reduced them to one because it is a very labour intensive business and my parents are getting old. “I also bought a retail store, which delivered good returns and I do a lot of corporate speaking on health and wellness, which I am passionate about.” At 39, Klim has recently split from his wife, Lindy. Their three children Stella, 10, Rocco, eight and Frankie, five, (pictured with Klim) live in Bali, looked after by their grandparents and nannies, while Klim and Lindy split their time between Bali and Melbourne. Klim owns two properties in Bali, one he lives in and the other is the former marital home. “I am happy with the arrangement, but it is not cheap to travel with kids who only come to Australia once a year or for a special occasion.” Klim believes the discipline and control he developed in swimming stood him in good stead when he went into business. “I guess my swimming career set me up for life,” Klim says. His advice to others: “There is always opportunity out there. You just have to shop around.”
â€œI guess my swimming career set me up for life.â€?
LIFE’S LIFE’S DEFINING DEFINING MOMENTS MOMENTS
Have you considered your tax position? Think about negative gearing Beware hidden taxes Consider stamp duty and agents fees Have you decided on a fixed or variable interest rate?
GET THE ANSWERS
Your Best Interests is dedicated to helping you make the right financial choices.
REALLY SIMPLE MONEY 2016
MONEY ESSENTIALS What you need to know to get your finances in shape THE MONEY QUIZ
CALLING IN THE EXPERTS
HOW TO FIND AN ADVISER
5 QUESTIONS TO ASK AN ADVISER
THE COST OF ADVICE
WHAT TO DO IF THINGS GO WRONG
COLLECTABLES 70 BEATING THE TAX MAN
A-Z OF MONEY SPEAK
“The hardest thing to understand in the world is the income tax.” – Albert Einstein
WHAT KIND OF MONEY PERSONALITY DO YOU HAVE?
Take our quiz to find out how your attitudes are affecting your power to build wealth and how to change things for the better.
I worry about other things more than money
It is necessary to save for unexpected items
I know where I can get money advice if I need it
no no yes
It is embarassing to run out of money
It is easy to stop myself from buying something I want
It is important to check my bank statements
REALLY SIMPLE MONEY 2017
I envy people who can afford to buy more things
Iâ€™m confident I have the skills to manage my money well
yes My parents/ family expect me to manage my money well
It is important to keep a close check on how much money I have
Budgeting is boring
5 KEY ATTRIBUTES
You 1. You know where to get support are financially for financial issues. predictable and live 2. You keep to a strict budget within your means. You and avoid impulsive spending. stick to a budget and 3. You actively analyse your have an emergency finances and don’t often savings fund. You are wary break from habits or plans. of investment risk and don’t seek new 4. You tend to avoid high risks, ways to make or no matter the potential manage your money. rewards.
HOW TO IMPROVE YOUR RELATIONSHIP WITH MONEY
• Don’t be afraid to try something new once in a while. • Broaden your horizon and seek information from different sources. • Try focusing on the positives rather than the negative financial outcomes. • Reward yourself with small wins to keep yourself on track.
5. You avoid new tools and strategies for financial planning.
5 KEY ATTRIBUTES
1. You understand financial issues and may even know your credit score.
You aim to have a flawless financial 2. You can stress too much about history. You don’t shop the little details of your finances. impulsively, can give 3. You watch finances closely up-to-the-minute reports on to catch mistakes that could your accounts, plan for your cost you. financial future – and make it look easy. But money 4. You auto-schedule bill can cause you stress even payments so you never miss a when you have no due date. problems. 5. You make comparisons to get the best prices, rates and terms.
HOW TO IMPROVE YOUR RELATIONSHIP WITH MONEY • Don’t stress over every little detail of your finances. • Look at your money on a higher level to get the big picture. • Try to simplify your finances without sacrificing good results. • Don’t be afraid to try something entirely new.
no 5 KEY ATTRIBUTES
MS ADVENTUROUS yes
1. You’re willing to try new financial tools to change habits and curb spending.
You may not love the details involved in financial planning and tend to keep a loose hold on your finances, but you still keep track of your income, pay your bills on time and rarely spend impulsively.
2. You tend to make risky choices in your career and finances. 3. You may become enamored by new experiences leading you to overspend. 4. You don’t prioritise financial planning, but you have one eye on the future.
5. You stay calm when working through your financial issues.
5 KEY ATTRIBUTES
1. You tend to make impulse purchases and sometimes even binge shop.
Your enthusiasm can make you 2. You usually give in to peer vulnerable to impulsive pressure to spend more and over spending and you can allow your emotions to may be living above your influence your spending. means. You trust others to manage your budget 3. You’re not afraid to reach out and give money to help to family or friends for financial others. Sometimes help or support. you overpay for 4. You don’t focus on your finances things. or the long-term effects of your spending.
HOW TO IMPROVE YOUR RELATIONSHIP WITH MONEY
•Use your creativity to build stable plans for future adventures. •Establish an emergency fund to reduce stress when you hit rough times. •Separate your wants from your needs when spending money. •Give purchases an extra thought before pulling the trigger. •Make a plan, stick to it and reward yourself when you hit small goals.
5. You may take bigger risks with your money in the hope of big rewards.
HOW TO IMPROVE YOUR RELATIONSHIP WITH MONEY
• Start putting aside a regular small amount to get into a savings habit. • Be mindful of peer pressure. • Weigh your options carefully before making financial decisions. • Shop around to save money. • Try to keep the big picture in mind and build towards long term-goals.
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WHAT ARE YOUR GOALS…
AND HOW SOON CAN YOU REACH THEM? The first step towards a secure financial future is setting goals. Here’s a simple guide to get you started.
n the words of the Spice Girls, tell me what you want, what you really really want. However, financial goal setting is not just about understanding what you want, you need a hierarchy of goals and to be able to understand how they fit together in your life. You’ll need clear short-, mediumand long-term goals to overcome the temptation to simply spend what you earn when you earn it. Whatever the timeframe, repaying debt puts you in the realm of financial geniuses. When you’re in the red and paying interest, compounding is working against you. Ditching debt gives you a risk-free, taxfree effective return equal to your interest rate. The best approach to goal setting is to understand how to chip away at debt, save where you can and prioritise what you want over the short, medium and longer terms.
IN THE SHORTER TERM – ONE TO TWO YEARS
IN THE MEDIUM TERM – THREE TO FIVE YEARS
Think fun! A holiday in Thailand next year, or a longer, more expensive sojourn the following year. A new couch. Maybe even a new kitchen. These are the sorts of goals you should be focusing on in this period. The relatively instant pay-offs. These are beautiful money targets because they make you feel you are really achieving something. Whatever you do, never use credit for something experiential for which you’ll have nothing to show afterwards but photos. Also cast your mind towards the future: pay off a credit card without forking out a fortune in interest or clear that car loan years early.
In this period, your car might need replacing. Plan this far ahead and rather than borrowing for what is one of the worst investments, pay cash. Put aside $140 a fortnight into a top savings account and in five years you could have $20,000 cash to buy a car. The alternative is borrowing $20,000 to buy a car then paying about $27,000 including interest for it over the next five years, or $205 a fortnight. In this timeframe you might also like a new kitchen. Same deal.
IN THE LONGER TERM – FIVE YEARS+ The ultimate goal for all of us should be to retire with no personal or non-investment debt. The other Holy Grail is a big enough asset base – super, a separate share portfolio or property, for example – to generate an income adequate to replace your salary (or the recommended two-thirds of it).
NOW SET YOUR GOALS List your money goals in the table opposite. Set a date you’d like to achieve each one, estimate what it will cost and how many pays until your target date (if the date is five years away and you are paid fortnightly, multiply five x 26). Then divide the cost by the number of pays to find the amount to put aside each pay.
REALLY SIMPLE MONEY 2017
YOUR MONEY GOALS (1-2 YEARS)
SHORT-TERM GOALS Goal
No. of pays
Savings per pay
MEDIUM-TERM GOALS Goal
No. of pays
Savings per pay
LONGER-TERM GOALS Goal
No. of pays
Savings per pay
CALLING IN THE EXPERTS… WHEN YOU NEED AN ADVISER Whether or not to seek financial advice is a personal choice, but many people find the right advice makes a real difference. By Lachlan Colquhoun.
hen you want to build or design a home, if you are not a builder or an architect, you engage those services. And if something goes wrong with the plumbing, unless it’s very easy to fix, you call the tradies in and the plumber fixes the problem for you. It’s the same for financial advice. While some people feel comfortable handling their own investments, many do not. The reality is that many people are out of their depth in planning their finances and need the advice of a professional to help get them on track. They don’t know enough about the disciplines of budgeting. They have no real idea of how much they actually spend and where their money is going. And when it comes to investing or saving, they have little knowledge of the range of products out
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there and how they are regulated and taxed. The investment landscape is complex and challenging even for experienced and engaged individual investors, and planning for retirement can be a minefield. Many people feel the need to engage financial advice as retirement age comes into view. They feel they haven’t done enough to save for retirement and are dissatisfied with their progress towards investment goals. Some need financial advice because of life-changing events, others simply lack the time required to be as vigilant as they need to be. In recent years, the concept of coaching and mentoring has become popular in many aspects of life. People have coaches for their businesses and their careers. They seek out experienced mentors to guide them along their way. In the same way, financial advisers can be seen as money coaches. They are there to help guide people with goal setting and finance strategy. They are there as a sounding board to give people
feedback on how they can get to where they want to be on their financial journey and achieve the lifestyle they seek. The financial advice profession has also gone through significant changes in Australia. With the advent in 2013 of the Future of Financial Advice (FOFA) reforms, the world of advice is now more transparent than ever before. The FOFA reforms were designed to ensure the integrity of the financial advice industry and deliver a system offering affordable and accessible financial advice to the Australian community. In tandem with the compulsory superannuation system, which has created a national savings retirement pool of more than $2 trillion and growing, FOFA’s goal was to further professionalise the financial advice profession to help Australians manage and grow that wealth. The aim is to inspire consumers’ trust so that more will reach out to advisers in full confidence that their financial best interests are paramount on the agenda.
… AND HOW TO FIND ONE If you’ve decided it’s time to get some financial advice, Dianne Charman has some tips on finding the right professional to help.
financial adviser can bring a wealth of support and value to you and your family as you seek to achieve your financial goals. All relationships require effort and investment, and your relationship with a financial adviser is no different. And like other partners in life, your adviser can be a great support in uncertain times and is there to celebrate the highs with you. In choosing the right adviser, here are a few key steps.
STEP 1: Decide what you want to achieve. Make some notes on your future goals and what’s important to you right now.
question 3 on the next page. Review their financial services guide, which will tell you the services they offer and the areas in which they are qualified to provide advice. Next, verify their information by checking on the ASIC Financial Adviser Register at moneysmart. gov.au.
STEP 3: Meet with advisers. When making a decision about any professional you’ll engage with, it’s important to meet with them to confirm
you’re a good match. This is one of the most important professional relationships you will have and ensuring you fit together is critical. Don’t rush this part of the process. See as many advisers as it takes for you to find one that you want to work with. Remember, it’s not just the financial adviser you’ll be dealing with, it’s their team as well. Use the five questions on the next pages to help you narrow down your choice. Dianne Charman, CFP, FChFP, is Senior Financial Adviser with the Jade Financial Group.
STEP 2: Think about what you are looking for in an adviser, in terms of their location, the type of advice they offer, their qualifications, professional association membership and experience. Then do some research. Look at how they charge – check out the process and their fee schedule – for more, see
Find an adviser near you at yourbestinterest. com.au/memberdirectory
YOU SHOULD ASK A FINANCIAL ADVISER Once you are ready to meet potential advisers, here are some questions you should ask to help you find the best person to fit your needs. By Charles Badenach.
1WHAT IS YOUR BACKGROUND
AND WHAT FORMAL QUALIFICATIONS DO YOU HAVE? When you are dealing with any professional, it is important to have an understanding of their professional background and relevant qualifications. All financial advisers in Australia must meet a certain minimum educational requirement and these standards are constantly being raised. The more qualified and experienced your adviser is, the better. Your adviser should show a commitment to continual education. When looking at an adviser’s qualifications, you should consider both their formal education and their experience. •W hat degrees, diplomas or post-graduate qualifications do they have. The highest industry designation is the Fellow Chartered Financial Practitioner (FChFP). •W hat specialist accreditations do they have e.g. life risk specialist, SMSF specialist, estate-planning specialist etc. •W hat is their experience as a financial adviser? • Are they a member of any industry associations and/or professional bodies, such as the Association of Financial Advisers? REALLY SIMPLE MONEY 2017
You can check an adviser’s qualifications through the financial advisers register on the ASIC website moneysmart.gov.au.
WHAT IS THE SCOPE OF YOUR ADVICE? In a similar way to medical professionals, not all financial advisers provide the same services. Some offer holistic advice, others offer advice in a limited range of areas such as insurance or superannuation. It is important to ask a potential adviser if they are capable of providing all of the services you require. An adviser who suits one individual may not suit another. Some advisers may not have the experience or qualifications to advise on a particular area such as self-managed superannuation funds, direct shares or margin loans. Whatever your long-term needs and objectives are, make sure the adviser you choose can meet them all. As you will hopefully have a long-term relationship, you should also ask your adviser what actions they will take to implement, update and maintain any plan you devise together. For example, how often will you meet with your adviser? Do you have access to a team of experts or just the adviser?
HOW DO YOU CHARGE FOR YOUR SERVICES? A professional relationship will not work over the long term unless you have an understanding of what advice you are receiving and how much this costs you. It is important that you get an understanding on what fees you pay, how these are calculated and how they are paid by you. A financial services guide, which you will receive at the initial meeting, is a useful starting point, and any costs you are charged will be set out in the statement of advice. Generally, you will pay costs for the initial advice which should be set out either in a terms-ofengagement letter or discussed and agreed before proceeding. If you require ongoing financial advice, you will be charged an annual fee. Traditionally, this has been a percentage of the funds under management, however most advisers are moving towards charging a fixed fee for an agreed set of deliverables. There are a limited range of circumstances in which an adviser may be paid from a product such as personal insurance and in these situations, you need to understand how this works. All fees and commissions will be transparent and disclosed to you in the statement of advice.
CAN YOU PROVIDE AN EXAMPLE OF YOUR CURRENT WORK AND CLIENTS? Before you work with an adviser, you should get an understanding of how they work with their clients though examples of the work they have provided for clients. This would normally include how they structure their statements of advice and how advice is provided on an ongoing basis. For example, do they use an agenda for a client meeting, how do they update their clients when changes are required, and what technology do they use to assist with the provision of advice, e.g. videos. In addition to reviewing how the adviser engages with their clients, I would also recommend asking
for client testimonials and details of current clients who have similar needs to you and who you can contact. We have a client testimonial playlist on our YouTube channel which we email to clients as and when required with the client contact details. For prospective clients this is an invaluable resource.
ARE YOU AN ALIGNED OR UNALIGNED FINANCIAL ADVISER? It is important that every client understands whether the adviser works in an “aligned” or “nonaligned” financial advice business. This allows the client to gain an understanding on whether there are any incentives to recommend one product or structure over another.
Aligned advisers include those employed by a large organisation who recommend products associated with that organisation. This may also include advisers whose businesses use that organisation for compliance services. Non-aligned advisers, on the other hand, generally have an “open architecture” model where they do not have an incentive to recommend one product over another. One option is not necessarily better than the other, but clients need to understand if any conflicts of interest potentially exist.
A FINAL WORD A financial adviser can add significant value to your financial health over the long term and, while finding the right one can be difficult, when you find one, it will be one of the most sensible moves you can make. However, be careful when making the choice as, similar to any profession, there is a small number of bad apples, which tarnish the reputation of the majority. Good luck in your search. Charles Badenach, CFP, FChFP, is the Principal and Private Client Adviser at Main Street Financial Solutions.
Find an adviser near you at yourbestinterests. com.au/memberdirectory
YOUR FIRST INVESTMENT By Brad Fox, CEO of the Association of Financial Advisers
hat is the difference between an investment and a speculation? It sounds like the beginning of a joke at a “Become a Millionaire Overnight” seminar. But there is an important distinction. An investment is a carefully thought out, deliberate decision that has a medium to long term (that is, longer than five years) outcome as the goal. It balances the size of the risk with a reasonably likely return and usually requires some form of ongoing commitment. A speculation on the other hand is usually based on a short timeframe, has a lot of risk and, if you get it right, a lot of reward. As an example, an investment could be buying a portfolio of shares in strong and established companies.
A speculation would be buying shares in a start-up mining exploration company.
IS CHOOSING A FINANCIAL ADVISER AN INVESTMENT OR A SPECULATION? Here’s a clue, it shouldn’t be a speculation! Financial advisers must be licensed to give you advice that is personal to your needs, and I think you should only choose one that belongs to a professional body such as the Association of Financial Advisers because they must abide by a code of professional conduct. The adviser you choose should also be able to show you the qualifications that they have, such as being a Fellow Chartered Financial Practitioner (FChFP). These things aside, expert advice comes at a price, so establishing that the price represents good value is important. In simple terms,
for financial advice to qualify as a good investment, the adviser must be able to deliver much more value to you than the cost of the advice itself. For most Australians, especially after the age of 30, this will almost always be the case. The question then is, what should financial advice cost, what is the value, and how can you pay for it? Paying for professional financial advice is much the same as paying for any other service. It comes down to the size and complexity of the issues that you need to solve. Most financial advice fees are structured in one of four ways: u An hourly rate where the client will be charged on the basis of the number of hours that it takes to provide the financial advice and to implement it. Depending on the experience and qualifications of your adviser, this fee would typically be between $175 and $375 an hour. These are similar hourly rates for many professions. u An agreed flat fee for a clearly defined package of advice and services. It is important that you fully understand what you get for the flat fee and be sure that the package will address the issues you want to solve. u A percentage of your assets that they advise on (this will normally include only the assets they are advising you on like superannuation or a share portfolio). With this method, the amount that you pay will be directly related to the value of the investments. An example would be a 1 per cent ongoing
advice agreement on a portfolio of $100,000 means you will pay $1,000 a year. This charging model is becoming less popular. u Life Insurance Commissions are the only types of commissions allowed for financial advice these days. Some advisers now offer the client to pay a fee instead for life insurance advice. Each financial adviser has a legal document called a Financial Services Guide (FSG for short) which sets out how they charge for their financial advice. At your first appointment they should clearly outline the costs for the work that you need done based on your circumstances.
IS IT GOOD VALUE? Value is an important question. Think of any work you may have had done for you like construction around home, legal advice or even personal training. Value depends on how you feel about what you received. In a recent report from the Association of Financial Advisers and the Beddoes Institute called “Money, Well-being and the Role of Financial Advice”, it was proven that improving your understanding of money issues can increase your sense of wellbeing by up to 42 per cent. So, placing a value on financial advice comes down to how you feel about the advice and support you receive, and the outcomes both in terms of physical and financial wellbeing. It is also important that the adviser can demonstrate very clearly to you how you will be better off financially from the advice.
HOW CAN I PAY FOR IT? The simple answer is: almost any way that you like. It is really important to consider the tax advantages of various ways that you can pay for your advice, and you can ask your financial adviser about this at your appointment. Ongoing financial advice is usually tax-deductible but regrettably the Australian government hasn’t yet made the initial advice fee a tax deduction. By law, financial advisers must put their fees in writing for you, and this will usually be in a legal document called a Statement of Advice. As the client, I recommend you sign an agreement on the cost of the advice before any work gets started so that everyone’s expectations are clear.
“What should financial advice cost, what is the value and how can you pay for it?” Generally financial advice is broken down into three steps and most advisers charge a separate, clearly defined fee for each one.
STEP 1 A Strategy Fee is where the adviser’s expertise draws out from you what it is that you want to achieve in your life over the next ten years or so. They will consider your financial position today, your desire to limit risk, and your career and family aspirations and work with you to determine the ways in which you can achieve your lifestyle and wellbeing goals.
This fee depends on complexity, and could be as low as $1,000 for simple matters up to around $8,000 for family-type matters.
STEP 2 Financial advice businesses offer an implementation service so that your financial strategy moves off the paper and gets put into action. This involves things like doing the paperwork and applications, life insurance underwriting, consolidating superannuation accounts and setting up investments. They will quote and agree a fee with you. You often have the choice to implement the plan yourself, but few clients have the expertise to manage this important step themselves.
STEP 3 It is so easy to lose focus and get distracted by the business of life. Very few people have the selfdiscipline to stay on course and often make the mistake of falling back into bad habits. Financial advisers take on the role of accountability coach to help ensure that you stay on track with the plan.
AN INTERESTING FACT: In a lot of financial advice, the adviser often convinces the client to spend money on a life experience like a great holiday. They’ll be able to help you overcome your fear of not being able to afford it. So, start your investment portfolio by investing in financial advice. It will give you the strategy, the confidence and the support to make a long-term, meaningful difference to the quality of your life. Find a Financial Adviser: yourbestinterests.com.au reallysimplemoney.com.au
WHAT HAPPENS IF THINGS GO WRONG You’re in dispute with an adviser. What are your rights? Rod Bristow outlines the steps you should follow.
uality financial advice changes people’s lives. dvice isn’t transactional like a bank account, a credit card or a mortgage – it is a trusted relationship with a qualified and experienced financial “coach” who is there to help you be the best that you can be in your financial life. But what do you do if you have concerns about your adviser or the advice you’re receiving? What about if you aren’t sure the advice is right for you or your circumstances? Let’s step through this to help you understand what you can do if things aren’t going to plan in your advice relationship.
THE FIRST STEP First and foremost, speak with your adviser. An advice relationship is based on trust, so it’s important to be open and honest with your concerns. If you think something isn’t right, ask as many questions as you need to in order to get satisfactory answers. Be clear about the issue and, if possible, REALLY SIMPLE MONEY 2017
state what you would like to happen to fix the problem. Qualified, experienced and reputable advisers will value this feedback and work to ensure you remain a satisfied customer.
WHAT IF THIS DOESN’T WORK? If you have spoken with your adviser and still feel something needs to be addressed, you can speak to the adviser’s financial services licensee. Each adviser must list contact details for the licensee and the complaints process in their financial services guide. All licensees have clear obligations to manage customer complaints and will be keen to hear from you if there are unresolved matters. Licensees are also required to have formal internal dispute-resolution processes in place. This includes a number of steps such as: • Acknowledgment of the complaint • Investigation processes • Commitment to a final
Your adviser is measured against legal obligations and the licensee’s policy requirements. If any shortfalls are identified, the licensee will work with you to ensure they are resolved
response within 45 days of the initial complaint – in many cases, the licensee will aim to resolve this earlier if at all possible. You should clearly set out your concerns so they can be adequately addressed. It’s good to be able to put these things in writing, but don’t let the thought of not being able to write your complaint clearly put you off. Your adviser or licensee should help you to do this, to ensure your complaint is heard fairly and promptly. While investigation by the licensee is not independent, this investigation is not taken lightly by any reputable organisation. Your adviser is
measured against legal obligations and the licensee’s policy requirements. If any shortfalls are identified in these, the licensee will work with you to ensure they are resolved.
I STILL HAVEN’T RECEIVED A SATISFACTORY RESPONSE. WHERE TO FROM HERE? If you have done all of these things and still don’t feel the issues you’ve raised have been properly or fairly addressed, you have the right to seek assistance from one of the financial services industry’s external dispute resolution schemes (EDRS). These are the Financial Ombudsman Service, Credit Ombudsman Service Limited, and Superannuation Complaints Tribunal. During the complaint process, your adviser’s licensee will advise you of the relevant EDRS for you to progress your claim with. The intention of these organisations is to provide an inexpensive and accessible option for you to resolve matters without the need to progress them through the courts, including providing the option to have your complaint investigated at no cost to you. There are limits to what EDRS can award, so check with the licensee about these limits before making a decision on how to progress your complaint. Where the amounts of a claim are significant, you may want to consider having the matter heard in court. Rod Bristow is Managing Director and CEO of Infocus Wealth Management Ltd. reallysimplemoney.com.au
NEW MONEY ON
OLD TECHNOLOGY Old computers, mobile phones, pinball machines and even vacuum cleaners are morphing from junk to objects of desire as collectors turn their attention to retro technology, writes Lachlan Colquhoun.
echnology is soon outdated and then disposable, right? Well, that’s not strictly true. In recent years there has been a growing trend for people to get nostalgic about old bits of technology that most of us would thankfully consign to the “e-waste” collection, such as old computers and mobile phones. If you have what is considered a “collectable” model then, bizarrely, it might be worth some money, and, in some cases, big money. Consider, for example, the original Apple computer, the Apple 1. Only 575 of these were ever produced, and today there are believed to be only 61 remaining.
Only 575 of the original Apple computer, the Apple 1, were ever produced and today there are believed to be only 61 remaining. In 2013, one of these sold at auction at Christie’s for US$390,000 In 2013, one of these sold at auction at Christie’s for US$390,000. That is an extreme example, but the original Macintosh computer, launched in 1984, can still fetch more than $3,000 if it is in good condition – as much as the latest laptop. There is also a market for other, less celebrated and now defunct, computer brands. Only people of a certain age would remember Atari or
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Amstrad computers, which were everywhere when computers reached mass popularity in the 1980s. An Atari 2600, built in 1982, plugged into the back of a television. It probably wasn’t the most advanced piece of technology, even at the time, but if you come across one in your attic you could probably convert it into $1,500 fairly quickly. As for Amstrad, a 1984 model in good condition is now worth about $1,200, while the littlelamented Neo Geo games console, which bombed on launch in 1990, now sells for more than $1,500. The nostalgia is even extending to old mobile phones, once among the most unwanted of objects. In the UK, the very first Nokia from 1981 was selling for $2,000 online recently. Beyond computers and phones, the retro technology craze has also pumped up the value of old pinball machines. South Australian collector Sean Causebrook hunts through deceased estates and second-hand shops in country towns looking for his favourite item – old pinball games. “It’s an interesting chase, because you are always hoping that the people selling them just look at them as old junk and don’t realise the prices are on the way up,” he admits.
“Unfortunately, more people are wising up to this so it’s hard to get a bargain now.” Causebrook has his eye on an auction house in Adelaide, where a rare 1981 Williams “Hyperball” machine and a shooting gallery “alien attack” pinball game are coming up for sale. The latter is one of only 4,444 units made worldwide. Both machines are expected to reap as much as $6,000 at auction, with interest from around Australia. Another surprising collectable is old fuel bowsers. This is part of a new retro-appreciation movement called “garagenalia”. Even old rusty pumps that once dispensed “regular” or “diesoleum” are sought after, while examples with the bright yellow Golden Fleece sheep on top send collectors into raptures. The most collectable are the Ampol Wayne model 70, one of which sold for $4,000 in Tasmania earlier this year. Not everybody has one of these lying around in the shed, of course, but next time you have a spring clean, think twice about taking all your junk to the dump or throwing it indiscriminately in a skip. Here are some other items that might be worth investigating before you throw them out: old SLR cameras, jigsaw puzzles, film memorabilia, old black and white televisions, record players, even an old-style vacuum cleaner – as long as it looks like a spaceship. As collector Sean Causebrook says, the key to value is originality and brand cache. People can’t get enough of retro examples of classic brands, he says. “Looking at cameras, for example, it would need to be something like a Leica or a Pentax to be worth very much,” he says.
“But there are collectors out there who will pay decent money for something with a brand name on it. “I kick myself to think of all the great stuff I’ve thrown out over the years, simply because I thought it was worthless. “Now I love this stuff so much, I’m spending a small fortune buying it all back again, but in the hope that it’s just going to increase in value again.”
One item Causebrook has held onto is several metres of Star Wars wallpaper, which came out with the first film in the 1970s. “I checked online on the value of this a while back and was really disappointed,” he says. “But I’ve learned my lesson. I’m not getting rid of it and I’ll just wait for the market to improve.”
Beyond computers and phones, the retro technology craze has pumped up the value of old pinball machines
BEAT THE TAX MAN
AND STILL BE HIS FRIEND Bit miffed about all the tax you lose out of each pay slip? Then you’ll be delighted there’s plenty you can do to secure a fat refund. a little lean, delay expenses and scrounge all the income you can to take advantage of the lower tax rate. If you have any highperforming assets, such as shares or property, you’d like to offload, now’s a good tax time.
your receipts. Don’t miss one cent of money you are entitled to from the government – deductions are probably the easiest and best way to slash your tax. You may be able to claim any cost that relates to your income, for example, nurses can claim dry cleaning and car costs if they carry equipment.
SPEND UP BIG Assuming you’ve earned a tidy sum and are looking to cut your tax bill, fork out for additional deductible expenses. For example, nurses can claim uniforms. Search ato.gov.au for a list relevant to you. This will help most if it pushes you into a lower tax bracket – below the 2016-2017 taxable income thresholds of $18,201, $37,001, $87,001 or $180,001.
WEIGH A PREPAY You can take good timing to a whole new level if you’re likely to cop a far bigger tax bill this year than next – pay the next 12 months of some deductible expenses up front. Think of the big ones such as income-protection insurance and interest on investment loans (but consider if this is the best use of the money).
Kerry Packer famously said: “If anybody in this country doesn’t minimise their tax, they want their heads read.”
DELAY PAY Once again assuming it’s a prosperous year, do what you can to shunt further income into next year. Bonuses, commissions, overtime… defer them until the next tax year and you’ll come out ahead. If instead, the year’s been REALLY SIMPLE MONEY 2017
GET GIVING RUMMAGE FOR RECEIPTS Suppress that groan, fill in those mileage logbooks and hunt down
Donations to a registered charity are tax deductible, which means they will cost higher-rate taxpayers little more than half. Kerry Packer famously said: “If
anybody in this country doesn’t minimise their tax, they want their heads read.” What better way to do it than helping others?
$13,800 taxable income) and you can earn a rebate of up to $540.
SUPER SUPER SAVINGS FUND
GET TRAVELLING It is possible you can claim deductions for work-related or investment-related travel. So give thought to a work jaunt and/or investment-property inspection. You can usually claim whatever portion of the trip is business related. And don’t forget workrelated training could also be tax-deductible (you might have to reduce the amount by $250).
SUPPORT YOUR SPOUSE Make an after-tax super contribution of $3,000 for a nonor low-earning spouse (less than
SUPE(R) UP YOUR OWN BOTTOM LINE This is not technically a tax tip, but if you’ll earn less than $36,021 this tax year and you make an after-tax super contribution of $1,000, you’ll get $500 from the government (a co-contribution). The government will still contribute, on a sliding scale, up to an income of $51,021. This goes directly into your super fund – so you can’t get it until it’s unlocked at your preservation age, but extra money is extra money.
MAKE PROPER(TY) MONEY We Aussies love our investment property, but many of us fail to
claim enough deductions. Generally these are anything to do with managing or maintaining the property (so agent’s fees, repairs, rates, water and insurance) and also loan interest. But a professional depreciation schedule could give you the biggest boost; get an adviser, accountant or quantity surveyor to calculate the decline in value of furniture, appliances and renovations you could claim over a number of years.
BUY HEALTH COVER (MAYBE) If you earn more than $90,000 a year as a single or $180,000 as a couple and don’t have private hospital cover, you’ll pay a fine of up to 1.5 per cent called the Medicare Levy Surcharge. Often this is more than the cost of cover itself. Put health insurance in place for the year (remembering you may also qualify for a tax rebate on your premiums).
The ATO website, ato.gov.au, has lots of information, tools and handy calculators reallysimplemoney.com.au
A to Z
A-Z of ‘MONEY SPEAK’ Talking about your money needn’t be a baffling experience – you just have to get used to a few terms and phrases. Here’s a simple A to Z to get you going.
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A to Z
The state of any superannuation fund before it begins paying a pension. The retirement benefit depends on contributions by you and employers, and the fund’s investment return.
AGE PENSION A fortnightly payment from the federal government. You must meet various criteria to qualify in part or full. Not to be confused with Account Based Pensions, which are paid from super annuation.
ANNUITY Annuities are bought with a oneoff payment and provide a fixed income for a set number of years or life. Generally your money is locked away for the period of the annuity, although some permit withdrawals or a “residual capital value”. Payments may be indexed, often in line with inflation. Some annuities allow for reversionary beneficiaries, or payment of the annuity upon the death of the recipient to a qualifying family member.
ASSETS Anything owned by you that has monetary value, from the cash in your bank account to property, bonds and stocks. It’s smart to have assets in different investments – such as savings and investment accounts, property and shares – to minimise losses if one area isn’t performing well.
COMPARISON RATE BANKRUPTCY
People unable to pay their debts may formally ask to be declared bankrupt. Creditors to whom they owe money may also apply for this declaration. Bankrupts cede control of their finances to a manager and a permanent record is created on the National Personal Insolvency Index.
BONDS A medium- to long-term investment issued by governments and some companies. They pay regular, fixed amounts of interest for the term of the bond. As they are usually low-risk, returns are commensurately lower. Invested funds (the principal) are repaid at the end of the term (maturity).
BUDGETING Allocating money based on your expected income and expenses for a given period. If you can make budgeting a habit, you should stay out of debt, have money for incidentals and build solid savings.
For individuals, the money or other assets owned for the purpose of investing. For a company, the funds received from owners or investors to further its business objectives.
A notional interest rate that combines any fees and charges relating to a loan with the basic interest rate to reveal the true cost of the loan.
CREDIT SCORES Your credit score is calculated from information such as unpaid and overdue mortgage repayments, plus credit card and
A fund that invests across a mix of asset classes such as cash, fixedinterest investments, property and shares, to achieve medium- to long-term capital growth and a reasonable level of income.
CAPITAL GAINS The financial gain realised from buying and then selling assets. It is essentially a profit created over time. It can be subject to capital gains tax, depending on your tax position and the type of asset. reallysimplemoney.com.au
A to Z
other defaults. It also factors in your lender request and credit enquiries history. You can order a credit report from a bureau such as Veda. Want to improve your score? Consolidate all debts, so you can pay loans off faster and on time.
A diversification strategy involves spreading your money across different asset types such as cash, fixed interest, property and shares, in the hope that if one investment loses money, the others will help make up for the loss.
DIVIDEND A payment made by a company to shareholders. It is a share of profits based on the number of shares a person holds. A franked dividend is from profits on which tax has been paid, which translates to big savings at tax time.
The value of an asset – your house, shares and so on – less any money owed against it.
ESTATE PLANNING Estate planning might not top the list of fun things to do, but creating a will is a crucial part of securing your family’s future. Nominating beneficiaries on your superannuation account is equally important. Developing an estate plan ensures your assets are given to the right beneficiaries and are also protected if a beneficiary has legal issues.
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These terms mean the same thing. A financial adviser reviews your circumstances, then puts together a plan to help you reach your goals – whether that’s investing or planning to retire. When choosing an adviser, ensure they are licensed and have the qualifications and knowledge for your situation.
FINANCIAL PLAN A strategy, usually created with help from a financial adviser, that defines your current financial position and goals, and sets out investment strategies to reach those goals.
Keeping track of your net worth is the first step to increasing your wealth. Even on a budget, you can gradually increase your net worth
FIXED INTEREST RATE Interest paid at a fixed rate over the term of a loan or investment. Opposite of variable interest rate.
by adding assets and decreasing debt. Spend weekly discretionary income wisely – avoid splurging too often on things that don’t appreciate in value, such as clothes, dining and nights out. They might be fun, but won’t make you rich.
GUARANTOR A person who guarantees a loan for someone else. The guarantor is legally responsible for paying the other person’s debts if the debtor can’t pay them.
HOME BUYING / HOME LOANS
Do it right. Research properties and neighbourhoods, then set your budget: aim for a 20 per cent deposit and factor in costs such as stamp duty. Ask mortgage providers for fact sheets so you can compare like with like. Many websites and apps can help. Work out repayments you are sure you can handle. If possible, build a reserve in case interest rates rise, as most home loans apply variable rather than fixed rates.
HONEYMOON OR INTRODUCTORY INTEREST RATE An interest rate offered for a short period: reduced, for a new loan or credit card account; or raised, for a new savings account or term deposit. It will eventually revert to the standard rate.
Depending on where you are in life and your risk level, you will probably have many types of insurance. Whether choosing life, health care, home or consumer credit insurance, research the details, know what they do and
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don’t cover, and what they cost. If in doubt, see a financial adviser.
INVESTING Whether you are looking into shares, managed funds or property, investing is a key way to grow your wealth. An investment needs to make you money, or a “return”. Before deciding on an investment, read its product disclosure statement to understand the fees or financial risk involved.
Have you heard the terms “good debt” or borrowing “solutions”? The finance industry is loaded with cringeworthy phrases and jargon. Don’t let marketing copy or think pieces on the state of the economy cloud your judgement – if something doesn’t make sense, ask questions.
JOINT ACCOUNT An account with a financial institution in the name of more than one person. Many families and married couples have their assets in joint accounts. Anyone named as a joint account holder can operate it (unless any activity requires two signatures), so the account can still be accessed in the event of the death of an account holder.
A measure of how easy it is to turn an investment or financial product into cash. Shares, for instance, can be traded daily and are considered liquid. Property, on the other hand, can take weeks or months to sell.
LOAN-TO-VALUE RATIO (LVR) The LVR is the size of the loan compared to the value of the property. The higher your LVR, the greater the risk to the lender. Avoid high-risk loans, such as one with a 90 per cent LVR, as you will incur extra costs such as lender’s mortgage insurance.
The date on which a debt or investment and all outstanding interest payments must be paid in full.
Gearing is the process of borrowing money to invest in assets such as property. Negative
gearing is when the cost of owning an asset is higher than the income it generates. Under current tax law, this shortfall can be offset against your other income and earn you a tax refund.
Popular in mortgage finance, money in an offset account is linked to a home or investment loan. Money held in an offset account can be calculated against total debt and borrowers are charged interest on the difference.
OPTIONS Options give investors the right, but not the obligation, to purchase shares at a predetermined price within a set time period.
OVERDRAFT An overdraft is when you withdraw more money than you have in your bank account. You can also arrange an overdraft with your bank if you are in need of emergency cash. Extra interest is
INFLATION The increase in the cost of goods, services and wages over time.
As they say, knowledge is power and that’s definitely the case in the finance world. By keeping up to date with the latest economic developments, financial products and services, you will be better equipped to discuss your options with your accountant, adviser and financial institution. reallysimplemoney.com.au
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charged for as long as the account remains in overdraft and other fees may also apply.
A cash advance against your next pay. These short-term loans charge high interest rates and often very high fees, and usually must be repaid within a single pay cycle. There are many warnings about such products, as they often lead borrowers into spiralling debt traps.
PROFIT Profit is what you make after accounting for all expenses.
It is a good idea to keep track of the quarterly earnings reports of the companies and funds you invest in. Quarterly reports tell you whether a company or fund’s reported profit growth matches their forecasts. If a company beats its forecast or estimate, share price tends to rise – but it’s unwise to make long-term investment decisions based on a single quarter’s data.
Having a financial plan for your retirement is essential. You can increase your retirement income by investing in assets, watching your spending and continuing to work longer. Don’t forget to take advantage of increased entitlements as you age, such as travel concessions and reduced council and water rates. REALLY SIMPLE MONEY 2017
A home loan often used by retirees to boost their cash holdings without having to sell their home. Interest is added to the loan and does not have to be repaid until the house is sold, usually as part of a deceased estate.
Risk is the chance of an unexpected outcome. Risk tolerance is a measure of how comfortable you are with receiving bad returns from an investment. We all tolerate unexpectedly good returns but usually underestimate how we will feel about bad outcomes.
From owing a small fortune on the credit card to getting behind on your mortgage repayments, debt can easily creep into your life. But don’t let it become unmanageable – find an ASIC-licensed debt consolidator or speak to a financial adviser about your options.
ROBO ADVICE Investment advice created online by digital advice progams. For a fee, customers input their financial details and the robo adviser creates a suggested investment portfolio.
You and your employer agree to pay a portion of your pre-tax salary as an additional contribution to your superannuation. Assets that help you produce an income, such as a laptop computer, may also be paid for via salary sacrifice.
SAVINGS ACCOUNT Usually a deposit at a bank or credit union offering a higher interest rate than basic transaction accounts. Minimum monthly deposits may be required and time restrictions may apply to withdrawals.
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Money put aside while you’re working to provide an income when you retire. Always aim to build on your super. Choose the investment option – balanced, conservative or growth – that suits your risk profile. Upping your contributions by salary sacrifice or making after-tax contributions are key ways to boost your super. If you want a ccess to a broader range of investments, such as antiques, property and rare metals like gold, a self-managed super fund (SMSF) might be for you.
One of many terms used to explain that investments carry risk, and markets can fall as well as rise. When they fluctuate rapidly, they are described as volatile. Greater volatility equals greater risk.
ZERO PER CENT LOANS
The length of time a loan or an investment will run. Regular interest is usually paid until they mature, when any remaining interest accrued, plus the original deposit, are paid in full. For a loan, the term is the point at which it must be fully repaid.
TRUSTEE Someone appointed to carry out a legal duty – often to manage a super fund on your behalf.
UNIT INVESTMENT TRUST
VARIABLE RATE HOME LOAN
An investment vehicle that pools the resources of a group of investors. In Australia, a unit trust must be registered with ASIC as a managed investment scheme.
A mortgage where the interest charged changes, usually in line with the Reserve Bank’s official cash rate. The possibility of rises in mortgage payments must be allowed for in your financial planning. Opposite of fixed rate.
A financial product issued by banks and traded on the Australian Securities Exchange (ASX). Somewhat like a lay-by, warrants let you lock in the price of an asset to buy at some point in the future.
Getting divorced takes such a toll that people forget the many practicalities and decisions involved in decoupling. When splitting assets, seek advice from a financial adviser on how to divvy up assets.
Know your marginal tax bracket to help you understand how tax affects you and your income. If you earn between $37,001 and $87,000 a year, for example, you are taxed $3,572 plus 32.5 cents for each $1 over $37,000. If you earn between $87,001 and $180,000, you will be slugged $19,822 plus 37c for each $1 over $87,000. Capital gains tax is what you pay on the profit received from selling an asset or investment.
Yield is the income you receive from an asset on an annual basis.
A loan with “zero per cent” interest sounds enticing. Whitegoods and car dealers use this marketing come-on, but the cost of the offer will be built into the pricing at some point. Remember: if it looks too good to be true, it probably is.
Links: ASICs MoneySmart: moneysmart.gov.au Association of Financial Advisers, Your Best Interests: yourbestinterests.com.au Veda credit & data analysis: reallysimplemoney.com.au
The Last Word
SHOULD COUPLES SHARE
EVERYTHING? By Lisa Weaver
find it a bit awkward when I go out to dinner with couples who pull out their respective credit cards because they are going “Dutch”. This is a foreign concept to me. Since my husband of 15 years and I have been living under the same roof, we’ve shared our cash. I always reflect later on why people who share homes and children don’t share financial resources fully. Is it a lack of trust? Or is it entirely sensible? After some research, I’ve concluded there are pros and cons to merging your money and quite a bit to consider. What’s vital though is for new couples to have a thorough conversation about how they will handle financial matters. Here are a few scenarios:
1. Keep most of your finances
4. Each person pays certain bills
separate, except for one joint account to which you both contribute the same amount each month. Pay rent, bills and other shared expenses from this account.
and expenses, not necessarily of equal value. This is perfect for couples who don’t want to combine finances at all. Be careful about helping to pay off a mortgage for a home someone else owns. (You might consider paying rent, however.) Figure out a plan that works for both of you.
2. Rather than the same dollar value, each contribute the same percentage of your income to a shared account – ideally less than 50 per cent of each person’s takehome pay. This is good for couples who earn unequal incomes.
3. One person pays for all expenses. If one partner makes a lot more than the other and can afford it, they can take on all the household expenses. Before doing this, agree what would happen if you broke up. Would the breadwinner want to be paid back?
5. Combine your finances completely by depositing all your income into a joint account from which you pay all your shared and individual expenses. Alternatively, have one joint account for shared expenses and savings goals, and a separate account each, with money you can spend however you want. Decide how much you will dedicate to paying off loans and how much you will save each month.
6. Live on one income and save the rest. This is ideal when one partner has an inconsistent income, or for couples planning to live on a single income in the future. Use that one income for everything from paying bills to dining out and shopping to paying off debt and saving for retirement. Put all the other partner’s income straight to another savings account. This is one of the best things a couple can do for their finances because it forces them to keep their expenses low and ramp up savings. However unromantic it may seem, this is something every couple should talk about. Tell us what you think at reallysimplemoney.com.au REALLY SIMPLE MONEY 2017
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The fourth issue of The really simple guide to Money explores how our banks are listening, superannuation changes and how to work with a fi...
Published on Mar 16, 2017
The fourth issue of The really simple guide to Money explores how our banks are listening, superannuation changes and how to work with a fi...