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Archives for July 2019

Presenting ‘Financial Planning 101’

I’ve been a financial adviser for about twenty years now. I still get a ‘buzz’ out of making a positive difference in people’s lives by helping them achieve what’s important to them. The foundation blocks of my own understanding of financial planning were taught to me by my parents. They didn’t call it financial planning of course. It was just about how they conducted their own lives and the advice they would give to my siblings and I. Advice that was underscored by their own actions. They worked hard, they never spent more than they earned and they invested for the longer term in ‘real assets’ that they understood. Perhaps not all that ‘sexy’, but it worked for them. I assumed all parents were like mine, teaching their kids the basics of financial planning. Of course, many parents were like that. But not all. And if kids weren’t learning it from their parents, they certainly weren’t learning it at school.

Last year I had the opportunity to revisit my old secondary school, Mazenod College in Mulgrave, Melbourne. It had been decades since I was last there and the facilities the current students body enjoys are far and away better than in my day. Instead of a footy field that turned into a quagmire during winter, the boys make use of a ‘synthetic’ footy field. There’s state of the art cooking facilities to rival the MasterChef set to teach the boys how to cook. However, what doesn’t seem to have changed much is the curriculum. Financial planning 101 still doesn’t get taught.

I think this is a material shortcoming in the education we’re providing to our children. We teach them a trade or a professional, but we provide them with virtually no tools to help them manage their own money and achieve financial independence.

So, in the last few months I started doing my little bit to remedy this situation.  I’ve started seeking out opportunities to present my version of ‘Financial Planning 101’ to secondary school students. To date I’ve presented to students at Huntingtower School and St Michael’s Grammar, both in Melbourne. My version of ‘Financial Planning 101’ includes the financial process as we deliver it here at the Investment Collective; a consideration of what really drives residential property prices; basic investment principles, as well as ‘4 easy steps to becoming a millionaire’. This last topic garnered particular attention.

I reckon that if one or two kids comes away with a heightened curiosity and an interest in their own financial planning, I’ve achieved something!  I get a lot of personal satisfaction out of it, and am keen to continue, so if you’d like me to present to your school, please drop me a line at robert_syben@investmentcollective.com.au.

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How To Pay Off Your Home Loan ASAP

If one of your new financial year’s resolutions is to start paying off your home loan as quickly as possible, here’s a few tips to get you on your way.

1. Interest rates are at record lows due to the consecutive RBA cuts in June and July. Most lenders have passed on the reduction in their home loan rates.  One strategy to pay off your home loan faster would be to maintain the repayments which applied before your lender reduced their rates in June and July.

2. If your lender didn’t pass on the full rate reductions, contact us to refinance with an alternate provider with a lower rate/ongoing fees than your current loan. Some of the lenders on our panel are offering owner/occupier principal and interest rates as low as 3.29%.  If you are not considering refinancing, at a minimum, you can ask your lender if they will match the rate, or reduce your home loan interest rate and/or fees.  Your bank may be willing to reduce your home loan rate and ongoing costs as an alternative to losing your loan to another lender.

3. On a principal and interest loan, in the first five or so years, most of your payments go towards paying off the interest. If you are able to make additional payments during this period, or at any time during the loan term, this will reduce the interest payable, and decrease the lifespan of the loan.   If you receive a bonus payment from your employment, or a tax refund, resist the temptation to splurge and put it to work for you by making an additional repayment on your mortgage.  If you are able to increase your regular repayments, this will save you thousands over the life of your home loan.  For example, by paying an extra $100 a month, a typical $400,000 home loan could be reduced by nearly 3 years, with a saving of almost $30,000.  Before making additional repayments, check if there are any conditions or limits on extra payments.

4. One of the quickest ways to save on your home loan is to make more frequent payments. If your home loan is on monthly repayment, switch to a fortnightly repayment.  Split your existing monthly repayment in two, and make these payments on a fortnightly frequency.  You won’t notice the difference in your cash flow, but it will save you time and money on your loan.  Repaying your home loan on a fortnightly basis means you are effectively making 13 monthly payments every year.

5. If you have an offset account with your home loan, ensure that your savings and ongoing salary are deposited into the account. An offset account can accelerate paying out your debt as the balance will reduce the interest payable on your home loan.

6. Be disciplined with your discretionary spending! Every dollar you save by cutting back on some of your luxuries can be put to work by making additional repayments on your mortgage, and saving you more in interest repayments over the life of the loan.  I’m not suggesting that you adopt a monastic existence and abandon all of your pleasures, but as an example, if you reduce your daily take away coffee consumption by 1 cup a day, you will easily achieve the previously mentioned saving of almost 3 years and $30,000 on a $400,000 mortgage!

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. Please contact us today for a confidential, cost and obligation free discussion about your lending needs.  We would also be happy for you to refer your family or friends so we can also assist them to locate a cost-effective home loan which suits their needs.

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Claiming Travel Expenses

One of the hot topics from the ATO during this busy tax season is travel expenses claims for individuals and businesses.  As an individual, you are entitled to claim any work-related travel expenses you incurred during the financial year.  This can include accommodation, incidental expenses, air, bus and taxi fares, road tolls, parking fees, car hire charges and meals (if your travel is overnight).  The exception to this is you are not able to claim the travel between your home and work.  If you have to travel between different work sites or offices you are able to claim that.  It is vital you keep receipts to justify your claim and if you are travelling overnight a travel diary is recommended.

For a business, the travel expense debate can be more complicated.  In order to establish if a business can claim the travel expense, you need to understand whether the travel was necessary to earn an income.  For a business, this means there must be a direct link between the travel and the earning of business income.  Again, documentation is the key.  There need to be accurate records of what meetings were attended and what was discussed.  You can do this by keeping a diary entry of the meeting or even a follow-up email with the person you had the meeting detailing the points discussed.  The three main items that can be claimed are travel, accommodation and food.  Speak with your tax professional but it may be a better option for business owners who are also employees to be paid a travel allowance.  This allowance is then tax-deductible and the employee are able to claim a tax deduction against the allowance.

It is also important that only the business-related expenses are claimed if the business owner combines the travel with a holiday.  Say for example the owner attends meetings that will mean they are away from home for three days but they decided to extend that stay for a further two days as leisure it is only the expenses relating to the first three days that will be claimable for the business.  In this case, the travel to and from will need to be apportioned as business and personal.

The ATO publishes a list of reasonable amounts that can be paid for the travel allowance based on where the employee is travelling.  This list will include those three main components of travel, accommodation, meals and incidentals.  This list is based on what the employee would earn and where they are travelling to.  It is also accompanied by a list of high-cost country centres, also tier 2 country centres and cost categories for overseas travel.

The overwhelming message from the ATO is record keeping is vital in making any claim as an individual or a business.  Always talk to your tax professional about what records you need to keep and try and do this before 30 June each year so you are not missing out on deductions you may not have kept receipts for but have incurred.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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What You Need To Know About Your Credit Score

As of 1st July 2018, under Comprehensive Credit Reporting (CCR) it is mandatory for credit providers to provide positive credit data to credit reporting agencies.  Prior to July 2018, credit reporting agencies only obtained negative data such as defaults with utility providers, bankruptcies, and court judgements in order to compile your credit report, and determine your credit score.  CCR will ensure that additional information such as the type of credit applied for, amount of credit applied for and repayment history for the last two years will be included in your credit report.

Lenders use your credit score to assist in the assessment of a loan application or credit card.  Your credit score will help a lender decide the potential risk of lending to an applicant, and the likelihood of being repaid on time based on your credit history.   The higher the score, the better the credit risk you are to a provider.

Some of the key factors that impact your credit score include:

  • Your total debt.
  • Personal details.  Your score will take into account your age, time at current address and length of employment.
  • Types/size of credit accounts and relationships, eg. Home loan, personal loan or credit card.  Mortgages have a different level of risk when compared to a credit card.
  • If you have credit relationships with specialty finance providers such as debt collection agencies or payday lenders.
  • The date your credit file was established.  A newer file may present a higher level of risk when compared to an older file.
  • The number of credit enquiries made on your file.  This may have an impact on your score as credit enquiries remain on your file for up to 5 years.  If you’ve shopped around for credit and applied with several providers, you are seen as a higher risk.
  • Late payments, defaults, serious credit infringements, court judgements and bankruptcies.

There are a number of ways you may be able to improve your credit score:

  • Firstly, obtain a copy of your credit score.  You may be able to get a copy by opening an account via several providers such as:
  • Once you have obtained the score, check which range your credit score falls under.  Typically your score will range from below average to excellent.  If you have a low score, consider reducing your credit card limits, and check for any incorrect negative listings.  You may be able to apply to remove an incorrect negative listing from your credit file.
  • If you have multiple personal loans &/or credit cards, consider consolidating the debt under one loan.
  • If you have overdue accounts >$150, pay them off as soon as possible.
  • Limit the number of credit applications you make.
  • Ensure that your loan repayments are always made on time.

Checking your score and getting your finances back on track will be an important step to improving your chances of being approved for a loan.  If you have a low credit score and you are looking to borrow, a rejected application will further reduce your score.

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored credit advice, please contact us today for a confidential, cost and obligation free discussion about your lending needs.  We would also be happy for you to refer your family or friends so we can also assist them to locate a cost-effective home loan which suits their needs.

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