Skip to main content Skip to search

Posts by The Investment Collective

Tips to fund your child’s education

Funding your child’s education expenses and fees can be costly. The money you spend funding your child’s education could be one of your family’s biggest expenses.

Research conducted by The Australian Scholarships Group (ASG) on education costs, provides some context. The research is based on a child starting pre-school today and suggests that opting for the private school from Prep-Year 12, will set you back a $367,569 per child. Even if you decide on a government school for primary years and private for secondary, you will still need to come up with $244,822.

For most families, the time when kids are starting out at school comes when household budgets are already stretched with mortgage repayments, bills and living expenses. This means that some forward planning is required to make sure you have enough money to give you, and your children, the full array of options for education.

Here are 5 tips…

  1. Planning is important – have the discussion with your partner, do your research and estimate how much it is going to cost you.
  • Open up a dialogue with your partner about what you want your kids’ education to look like. Is it through Private or Government schooling? Do one of you want to send them to the school you attended as a child? Does your child have any special needs? The sooner you have these conversations the better.
  • All schools have websites. Check out those that you’re interested in. Most should include information about fees and advise you whether there is a waiting list.
  • There is a heap of great resources out there to help you on your way. The ASIC Money Smart website and the Australian Scholarship Group’s online calculator are a couple to try out.
  1. Start saving early!
  • Like any other long-term savings goal – the sooner you start, the better! The best time to start saving is when your child is born or possibly even earlier. Make a budget and decide how much you can put aside each week. Look to increase the amount each year to ensure you’re keeping pace with inflation.
  1. Structuring things right for tax
  • If one member of the couple isn’t working and staying at home to look after young children or working part-time, chances are their marginal tax rate is low. Therefore, holding investments or savings accounts in their name may be of benefit as the assessable income for tax will be much lower.
  1. Once you have a little bit of savings behind you, look to get that money working harder for you.
  • An investment in blue-chip Aussie shares and managed funds can be a great way to accelerate your savings. Bear in mind that these investments are riskier than leaving your money in the bank and that you won’t get rich overnight. A 7 year plus timeframe is appropriate.
  • If both parents are working and earning solid incomes, Investment bonds can be tax-effective for investors with a marginal tax rate higher than 30%, as long as certain rules are followed. Within the bond, your money is pooled with money from other investors and a portion of the pooled funds is then invested in the investment options such as cash, fixed interest, shares, property, infrastructure or a range of diversified investment options, with risk levels ranging from low risk to high risk. The value of the investment bond will rise or fall with the performance of the underlying investments. An investment bond is designed to be held for at least 10 years after which you can withdraw tax-free! You can make additional contributions over the life of the insurance bond. To make the most of the tax benefits, each year you can contribute up to 125% of your previous year’s contribution.
  1. Saving via an offset account against your home loan can provide other benefits.
  • Another simple, but potentially effective way of saving for education costs is through your home loan. An offset account allows you to make extra repayments into a bank account attached to your home loan. It operates much like a normal bank account with some special features. For example, the amount you have in the offset account effectively reduces the loan balance the bank uses to work out the interest payable on your home loan. For example, if you have a home loan of $300,000 with $100,000 in an offset account, the bank calculates interest based on only $200,000.

My advice is to start early, work out how much you will require for education costs, how much you will need to save to get there and then select the appropriate savings vehicle. Seek the help of a good financial planner to set you on the right path

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.

Read more

The Afterpay Christmas

Are you being smart this silly season? Shop now, enjoy now and pay later.

This Christmas will be a bit different for many Millennial and Gen Z’s globally. The buy now, receive now and pay later revolution has taken the world by storm. Afterpay is just one of the buy now, pay later service companies and it already has over 6 million active customers with 15,000 new accounts opening daily and over 40,000 retail businesses from clothing, travel, experiences and health are offering this type of layby service[i].

What are the benefits of buy now, pay later?

Unlike layby where a customer puts goods on hold that they could not otherwise afford. Buy now, pay later allows customers to receive their goods with a small down payment and future interest-free instalments. The majority of the purchase is other people’s money, but you’re not forced to save and wait.

The service is “free” to the consumer but the costs associated are priced into the product as the service company takes a small cut from each transaction. Retailers pay for the service.

Why would a retailer allow this type of payment?

Retailers want to do business and have seen an increase in average basket size and people shopping more frequently. It’s estimated that retailers have seen more than a 25% increase in transaction values[ii].  Or put another way, users of this payment service are spending more money than they have.

Here are 3 tips to help you avoid a small initial late fee and spend 25% less this Christmas

  • Use cash to pay for Christmas gifts
  • Get your family, friendship group and workplace to embrace Secret Santa. It’s the idea of only gifting to one person
  • Set dollar limits in addition to Secret Santa

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.

[i] 2019 CEO and CRO Presentation (afterpay touch)
[ii] FY2019 Results Presentation (afterpay touch)
Read more

Westpac Bank Controversy (WBC)

AUSTRAC has recently begun civil proceedings against Westpac Bank (WBC) in relation to the alleged contraventions of its AML/CTF obligations. In particular, AUSTRAC has accused Westpac of $23 million breaches, including a small number of transactions that appear to be linked to child exploitation in the Philippines.

Although difficult to estimate, it is expected, WBC will receive a large fine well in excess of what CBA was given earlier his year.

Since the announcement on 20th November, Westpac’s share price has fallen approximately 7.5%.

Despite the immediate issues facing the company, it is still a good cash generating business and there may be future opportunities that warrant further investigation and as the old saying in financial services circles goes, ‘don’t try and catch a falling knife – let it hit the floor and then pick it up.’

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.

Read more

Strategies to equalise super

In most relationships it’s common for couples to have different super balances, especially where one partner has taken time out of work to rear children or for whatever reason, has not been engaged in full-time employment.  For employees, the amount of employer sponsored contributions made for us is also influenced by salary level, which generally increases the longer we’re in the workforce.

Changes to super since 1 July 2017 have put this issue under the spotlight and provided a real incentive to plan appropriately.  It only seems like yesterday the $1.6M cap on the amount of super that could be held in the tax-free pension phase came to life but it’s been in force for almost two and a half years.  Time flies when having a ‘super’ amount of fun…terrible attempt at humour…

‘Equalising’ the super balances between couples can help to avoid the need to hold amounts in excess of the $1.6 million transfer balance cap in an accumulation account, where profits are taxed at 15%, or worse, be held outside the tax-friendly super environment which could expose profits to the larger marginal individual rates of tax.

Another change to the super rules that are now available to individuals with a super balance less than $500,000, is the ability to carry forward unused concessional contributions i.e. before tax contributions, and make a ‘catch-up’ contribution in the future. This rule provides a real opportunity to maximise retirement savings and gain a personal tax deduction, especially once the nest becomes empty, the mortgage paid and surplus cash accrues.

Couples can also consider contribution splitting, which allows one member to rollover up to 85% of their concessional contributions made in the prior year to their spouse.

Another strategy available is where a member’s income from personal exertion is below $37,000.  Their spouse may receive a tax offset of up to $540 if they make a spouse contribution of up to $3,000.

A strategy we employ at The Investment Collective that is specifically appropriate for couples who have reached 60, is the recontribution strategy.  This involves withdrawing super from one member’s account and then recontributing some or all of the withdrawal into the other member’s account.  This is really beneficial where one member’s balance is above the $1.6M transfer balance cap.  The strategy can also mitigate the impact of death benefits tax when the remaining balance of super passes through to a deceased estate on the death of the surviving partner.

Equalising super balances between couples can bring tax benefits, assist with estate planning and boost the retirement nest egg.  Come in and have chat with us…you never know where it will lead…

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.

Read more

‘Death Duties’ in Australia

There are currently NO ‘death duties’ in Australia, all Australian states having abolished them back in 1979.

However, there are taxes that may be payable as a consequence of death. In other words ‘if it walks like a duck, and sounds like a duck…it’s a duck, isn’t it’?

There are several of these but the one I want to focus on today is the potential tax that’s embedded in your superannuation benefits. It’s embedded in a way that you might not even see unless you know what you’re looking for.

To see ‘this duck’ you need to first understand that your super benefits are categorised as either ‘taxable benefits’ or ‘tax-free benefits.’

The first is ‘taxable benefits.’ These include benefits arising from salary sacrifice contributions, personally deductible contributions or employer contributions (i.e. the 9.5% super guarantee). Essentially, any benefits arising from contributions on which someone’s received a concession (read ‘tax deduction’). Whether there’s any tax actually due on these benefits depends on who receives them. If at the death of the super account holder the taxable benefit is paid to a spouse or dependent child, for example, no tax is payable. The logic being that the benefit is actually helping someone who was directly dependent on the deceased; this being one of the purposes of superannuation. If on the other hand, the taxable benefit is paid to an adult child who is not financially dependent on the deceased, tax of up to 16.5 % (or more) may be applied. The logic being that superannuation was never designed to benefit individuals who were not financially dependent on the decease and, as such, the Government wants to ‘claw back’ some of the concessions (read ‘tax deduction’) that were received by the deceased.

Keep in mind that for someone who is already accessing their super via a pension (e.g. someone over the age of 65), the distinction between ‘taxable’ and ‘tax-free’ benefits is irrelevant. Any and all amounts paid to them, while they are alive, are tax-free in their hands.

However, it’s when this person dies that the ‘taxable’ benefits could turn into a ‘death duty’ (as noted above, depending on who receives it.)

For example, earlier this year I met a lovely gentleman in his early 70’s who was on his death bed. He had no partner and only one adult son who was not financially dependent on him. He possibly only had a few days, perhaps weeks to live and wanted to know if there was anything he should do while he was still alive to reduce tax payable by his son (his sole heir). As it happens, he had about $200,000 in his super account balance consisting entirely of taxable benefits.

My advice to him was to immediately contact his super fund and arrange for the full redemption of his super paid into his personal bank account. As noted above, any and all payments received from super in respect of a person over age 65 are tax-free ‘in their hands’, in other words, while they are alive. This simple action saved his son about $33,000 in ‘death duties.’

Keep in mind that this can be a tricky area, and there’s a bit more to what I’ve described above, so it’s important to seek out the right advice.

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.

Read more

Protecting your Super – changes and impacts

Whilst many Australians hold only one super account, there are many who hold multiple. Across the board the balances in these super accounts are often smaller and/or the account is no longer receiving contributions. The member is sometimes unaware that they have insurance cover within their super.

The Federal Government introduced the Protecting Your Super (PYS) Package Act on 1 July 2019. The PYS package is designed to protect members with smaller super balances from having their benefits eroded by fees and insurance premiums. Some of the key reforms covered by the package include:

  • Super accounts with balances under $6,000 that are inactive for a period of 16 months, i.e. they have not received any contributions or rollovers, will be closed;
  • Exit fees on super accounts will be banned. This means you can rollover or transfer your super to a different fund without being charged a fee;
  • Super accounts with insurance that have been inactive for 16 months will have the insurance cancelled unless the member opts-in to keep it.

Whilst on the whole this will help protect the consumer, you need to be aware of these changes as non-response to communications may result in a loss of benefits to you.

If you are impacted by the above you will receive correspondence from your superannuation fund explaining the options available.  If you receive this communication it is important that you read and action any requests.  If no action is taken and this relates to insurance, your policy will be cancelled and you will be left without cover.

If you have any questions or concerns regarding these reforms or the communication you have received please contact your adviser who can provide guidance.

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.

Read more

The motivational concept of Ikigai

One of the exciting things about working in financial services is the sense of synchronicity between what we learn in theory and how we see it play out in practice. Rarely a day goes by when I’m not reminded how meaningful our work is, in breaking down the complexities of the financial world, so our clients can move toward achieving their goals in a way which seems simple. Helping my clients provide for their future, for their families’ future, is how I make a living and in turn provide for my family… could there be any better motivation for getting out of bed each day?

I saw this concept of motivation and purpose beautifully illustrated when I attended a symposium for health professionals, as part of my work for an organisation that is involved in helping doctors manage their own health.

Like other great graphic organisers, this one looks impressive in and of itself. The overlapping outer circles look petals of an iconic Asian flower such as the chrysanthemum, which features prominently in Chinese artwork as a symbol of survival. In the ‘inner petals’, one can make out a face or a star or a mask. And all of those layers meet in the middle, in its heart – as all good treasures do – at the point described as ikigai, which loosely translates to your reason for being.

The Japanese island of Okinawa, where ikigai has its origins, is said to be home to the largest number of centenarians in the world. Researchers who try to understand their vitality have arrived at varying conclusions – about their diet and exercise, the quality of their air – but they also keep coming back to the concept of a meaningful life directly contributing to a longer life. To put it another way, a meaningless life – a sense of emptiness, uncertainty or uselessness about how you spend your days – could well shorten your lifespan.

Just days after I saw this concept of ikigai illustrated for the first time, I read in the paper about a local sculptor who is using her previous experience in retail to develop her artistic products and processes. She said the hardest thing about art is the stigma that artists make their pieces ‘for the love of it.’

“If you go into making art with the mentality you won’t make money then you won’t,” she said.

Now I think that’s a very clever and very pertinent observation.

I hear all the time about other artists – photographers, designers, website developers and musicians – who are invited to donate their work or time in exchange for ‘exposure.’ About these so-called ‘influencers’ who make demands on retail business to donate their goods or services in exchange for a shout out on their Instagram page. It’s all good and well to be good at art, to love making art, and to justify its importance in contributing to a given region’s cultural offerings.

But, if at the end of the day, you don’t plan to at least recoup your costs – in terms of materials, packing, postage, transport and so on – let alone pay yourself a wage for the hours you put into each piece, then it seems unlikely your art is going to bring you much peace of mind. Worse, pouring all that money into something you don’t get paid for is probably going to cause you some degree of uncertainty – about how to pay the bills, for example – and leave your pockets empty.

How about you… how’s your ikigai?

  • Are you slogging away at a job which bores you because it pays the bills?
  • Are you barely paying the bills in a job which you nevertheless love because you’re helping people?
  • Are you getting paid heaps to do a job which you’re not even sure you’re very good at?

Making an appointment with a trusted financial planner is the first step to balancing out what you love and are good at with how society values your work and what you get paid for it.

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.

Read more

Why don’t we seek financial advice?

This week, I received the dreaded email – ‘Sue, it’s your turn to write the adviser article.’ My mind was a total blank, until I read a story posted on Facebook, that made me think.

The story was about a man who had been on the brink of suicide, at age 65. He felt like a failure and indeed, had failed with many things in life. At retirement he had received a cheque from the government for $105.00 and he again felt that he was a failure. Something stopped him, and instead he wrote down what he had accomplished in his life. It made him realise that he still had more things that he wanted to achieve in life, things that he hadn’t done. He knew that there was something that he could do very well, and that was cooking. He borrowed against his retirement cheque to buy some chicken that he fried up and sold door to door. Do you know who it was? Yes, none other than Colonel Sanders of the 11 different herbs and spices recipe, the founder of what is now Kentucky Fried Chicken (KFC).

When he died, at age 88, he was a billionaire.

This story made me think about how much we hold ourselves back from achieving things, whether at work, financially, or life in general. We are masters at hiding the truth from ourselves. We will all have heard stories of people on their death beds, concerned about how much money they have. Let’s take a dose of cold hard reality here – we can’t help that person with their financial state at that point in their life, but we can help the family that they leave.

What intrigues me is why we don’t address these things in life while we can? Are we afraid to seek help from someone such as a financial adviser? Why would anyone be afraid of coming to see an adviser? We don’t judge people, but rather assess a situation and provide strategies to deal with it. Once it starts to fall in place, people can expect an immediate improvement in their overall financial situation, and probably their state of mind as well. I have come to the realisation that it isn’t so much that we are afraid of baring our financial situation to, possibly, a complete stranger, but that we are afraid to admit to ourselves that we haven’t done as well as we would have liked. So, we take the ‘do nothing’ option. Face your fears people! What are you waiting for? Come and see us – you don’t need to know what a P/E ratio is, or anything about the stock market, or even how much money you spend [although it does help to have some awareness]. We can work out the things that you don’t know and we can help you to understand some of the terminology associated with finance.  While I can’t turn you into an instant billionaire, I can certainly make improvements for you and your family.

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.

Read more

Should I invest or pay off my home loan?

It is a common dilemma for Australians all over the country. Do you use spare money to pay off your mortgage and reduce debt? Or do you invest it somewhere else in the hope of boosting returns and improving your overall net worth?

Making a decision based on numbers alone is relatively straightforward (I’ll show you this soon). However, it is not that simple. For all of us, there are other considerations that come into play, including our emotional response to money and security. Let’s take a look.

If there were a simple answer, it would be this.

It may be worth investing if the ‘after-tax return’ you get on your investment is greater than the interest rate on your mortgage.

Let’s say, for example, that the interest rate on your mortgage is 5 per cent, with your investment returns 7 per cent at after tax and other costs. Financially, you are 2 per cent ahead. You could reinvest this money or even use it to pay down your mortgage – helping you achieve both goals.

Of course, this approach depends on your personal income and the marginal tax rate you pay. In the table below, you can see how much investment return you need for this strategy to make sense. If, for example, you earn the average Australian full-time income of $81,530 (with a marginal tax rate of 32.5 per cent), you need 7.4 per cent pre-tax from investment to achieve an after-tax return of 5 per cent.

Can you see what this table shows us? The higher your income, the more you need to make on your investments in order for this strategy to work.

There are other things you need to consider such as the impact of variable interest rates and the actual return of the investment. But it does give you a general idea of where your money might be better off.

Some other reasons people choose to invest their money instead of paying off their mortgage include diversification and accessibility.

Some people worry about having all their money tied up in their home. What happens if prices fall dramatically? We can’t predict the property market but diversifying investments can offer some protection.

Another consideration is accessibility. You need a lot of money to buy a property. Investing in shares or managed funds, on the other hand, requires much smaller amounts. It’s also generally easier to get your money out when you need it.

Reasons you might pay off your mortgage instead of investing

· Peace of mind: The emotional aspect of investing is just as important as the numbers. If your number one goal is the security that comes from owning the roof over your head, then that’s what you should do.

· Pay less interest while getting a guaranteed return: Additional money you pay into your mortgage reduces the interest you’ll need to pay and the duration of the loan. Plus, it acts as a guaranteed return. If the interest rate is 5 per cent, you’re effectively getting a guaranteed 5 per cent return on any extra money you add to your mortgage.

· Build equity: The more you pay off your loan, the more equity you have in your home. Coupled with capital growth over the long term, you can borrow against this equity in your home to build a larger property portfolio.

At the end of the day, we all want to sleep easy at night. For some of us that means feeling comfortable with our financial decisions. If your focus is debt reduction, then go with paying down your mortgage. On the other hand, if your goal is long-term wealth creation and the numbers stack up, then look to invest your money at an appropriate level of risk.

Read more

Australia’s Household Debt

Australia’s household debt to income ratio is currently at 190% which is among the highest in the world. This number is a far cry from the debt to income ratio from nearly 30 years ago which stood at around 56%. The rapid increase of household debts can be attributed to a rise in mortgage debt which has been brought on by Australian’s looking to purchase their own home or investment property. Other reasons as to why we have seen a sharp increase in the debt to income ratio is that over the last decade we have been given easier access to credit, built a reliance on credit cards and experienced lower mortgage interest rates.

Facts About Australia’s Debt to Income Crisis

The recent property market boom has resulted in many Australians borrowing higher amounts with wage growth not keeping up with rising housing and living costs.

  • Lower interest rates have been a key factor in growing debt. When credit is offered at a lower rate, borrowers want more of it.
  • Whilst some developed countries have seen a decrease of debt to income ratios since the Global Financial Crisis, Australia’s debt levels have increased to record levels.
  • The Reserve Bank of Australia is carefully monitoring the levels of residential lending, and the risks associated with high household debt. Further cash rate cuts may be required as the outlook for household consumption has slowed.

Managing Your Debt

If you are having difficulties managing your debt, here’s a few tips to keep in mind:

  • If you have multiple credit cards and other personal loans, you should consider consolidating your debts into one loan account. If you have equity in your home, you could consider refinancing the debts at a reduced interest rate.
  • Create a budget and have the discipline to stick to it.
  • Set up a savings account and try to contribute any surplus from your budget for upcoming expenses. This may assist you to avoid using a credit card or drawing down on other loans to cover expenses.
  • Resist the urge to splurge on credit cards!

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 assist them in creating a cost-effective home loan which suits their needs.

Read more