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Archives for Stephen Coniglione

HomeBuilder – Federal Government Stimulus

A lot has changed since the start of the COVID-19 pandemic and life is slowly getting back to normal as social restrictions are eased at a different pace, state by state. All levels of Government are now shifting their focus to targeted economic stimulus.

HomeBuilder is the latest Federal Government stimulus targeted at the residential renovation and new home construction market. The Government is offering a grant of $25,000 to build a new home or substantially renovate an existing home, where a contract is signed between 4 June 2020 and 31 December 2020.

To be eligible, you must be an Australian citizen and an owner-occupier over the age of 18. You will need to earn less than $125,000 per annum for an individual or $200,000 per annum for a couple (based on 2018-19 tax return).

If you choose to renovate, the cost of the renovation contract will need to be between $150,000 and $750,000. The value of your property must not exceed $1.5 million pre-renovation.

If you choose to build a new home, your property value must not exceed $750,000. Construction for the new build or renovation will need to commence within three months of the contract date.

The State and Territory governments will distribute the HomeBuilding grant when the builder you employ seeks permits and submits appropriate applications. First home buyers are still eligible for the respective State or Territory Government grants on top of the HomeBuilder grant.

HomeBuilder might just be the extra money needed to build your first home, complete that major renovation or build your new home.

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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Preventing financial stress on expecting parents

I can see how having children can be the most rewarding and life-fulfilling experience for parents. Spending time with my niece and nephew and seeing them grow gives me great joy and insight into parenthood.

Starting a family or a growing family brings a roller coaster of emotions and financial stress as parents assess the upcoming changes in their life and finances. I’ve recently met with a couple expecting their first child and they are confused about how to do this and what financial support is available to them. Additionally, while focus is on immediate income and expense needs, other financial considerations such as superannuation and insurance can get left behind.

Should planning for a baby start after conception?

From my experience expecting parents tend to focus on the cost of having children in the sense of preparing for the babies arrival, prams, cots etc. – and longer-term education costs. In reality though, the most significant cost of having children is the loss or reduction in employment income, during both the initial maternity/paternity leave and also via reduced working hours over the longer term.

From a planning point of view, it’s important for a couple thinking about starting a family to know what that future cash flow shortfall will look like. This will show how much a couple will require to save in cash before the baby is born in order to get through the child-raising year without having to drastically change their standard of living.

The government provides a range of financial support initially which can supplement or replace reduced cash flow. Note that this is only very short term and it is important to discuss with your partner what happens after these payments stop.

Parental Leave Pay

The government offers 18 weeks of minimum wage payments (currently $740.60 per week) to the main caregiver of a new baby.

To be eligible, the primary carer of the newborn must have worked 10 out of the 13 months before birth (or adoption) of the child and at a rate of least 330 hours over the 10 months (equivalent to approximately one day per week on average). Have individually earned less than $150,000 in the last financial year.

Don’t worry, dads or partners are not forgotten!

Dad and Partner pay

The government offers two weeks of minimum wage payments (currently $740.60 per week) to the dad or partner of the primary carer.

Any initial financial stress is generally forgotten by parents as the majority of conversations I’ve had with clients is about their child’s achievements. I’ve often heard how sleep-deprived new parents are once their baby is born and planning for the new one’s arrival by removing some of the financial stress will help a couple to focus on caring for the newborn.

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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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)
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Upside with protection

We’ve seen global markets correct as global growth wanes under pressure of protectionist political policies and an escalating trade war with China and the United States. The fear of a global recession pushed our Australian stock market lower.

Has this market volatility scared you?

Rewind a few weeks and the Standard and Poor’s (S&P) Australian Stock Exchange (ASX) 200 closed at a fresh record high surpassing the closing price reached on 1 November, 2007. Our asset allocation strategy provides our clients with the comfort of knowing that a vast majority of their investments are not exposed to the Australian stock market.

Firstly, we assess our clients’ risk tolerance and understanding of the risks associated with investing, then allocate a risk profile (such as Balanced) based on this assessment. Each risk profile divides our clients’ money up between defensive and growth asset classes to produce a diversified portfolio. Defensive investments include cash, term deposits and fixed interest investments (government and corporate bonds). Growth investments include Australian shares, international shares, property and infrastructure.

Effective asset allocation not only provides protection when markets correct but also offers opportunity to maximise returns. I often say to my clients that defensive investments can be compared to shock absorbers of a car as they smooth out the bumps in the road.

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Developing Saving Habits

You can’t teach an old dog new tricks, or can you?

Who we are today is a reflection of our past experiences and as we age we become more set in our ways. Our habits, what we enjoy and how we respect the people and material things we have rub off on those around us, especially children. What financial habits are you teaching your children?

Adolescence and teenagers are not taught how to manage money at school and it is left to parents to provide them with the knowledge and skills to be good money managers.

I remember at school buying my lunch from the canteen on a rare occasion, the lunch was something of a treat and not the norm. It’s not like my parents couldn’t afford it and at times I felt angry that my friends always bought lunch and I couldn’t.

On reflection, I now understand what my parents were unknowingly teaching me. Preparing my lunches the night before school was a habit they taught me and preparing my lunches has continued into my working life. However, now my wife and I prepare lunches on Sundays for the working week, we eat more nutritious food and avoid the costly takeaway lunch expense.

The $15 to $20 daily work lunch and coffee might not seem like a lot but, preparing our meals saves us thousands each year. Thank you, Mum and Dad, for teaching me how to make good financial decisions on a daily basis.

This is only one example of how my parents taught me to respect and spend money. The only way to save is to spend less than you earn and a bit of frugality is key. What financial habits will you teach your children?

Please note this article provides general advice and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today. One of our advisers would be delighted to speak with you.

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Protecting Your Loved Ones From Potential Financial Mistreatment

What I really enjoy about being an adviser is the opportunity to resolve client puzzles. Each situation is unique and the solutions are an opportunity to make a real difference to a family’s life.
Recently, I was asked by a client how to protect their child with special needs from potential future financial mistreatment. This was an opportunity for me to dust off my knowledge of trusts and more specifically, special disability trust.

The purpose of a special disability trust

A trust is a legal obligation that details how you want property or assets held for the benefit of a beneficiary administered and managed.

Special disability trusts are primarily established to assist succession planning by parents and family members, for the care and accommodation needs of a child or adult with a severe disability. The name ‘special disability trust’ relates to the social security treatment of the trust, not the actual disability.

The legal requirements for setting up a special disability trust

The first step is to make sure that the special needs person qualifies for a special disability trust. They need to meet the definition of severe disability as detailed in the Social Security Act 1991. The individual will have to go through a process where they are interviewed and assessed by social security. Centrelink has a special division that makes an assessment regarding whether they meet the criteria under section 1209M of the Social Security Act.

The Social Security Act recognises that people with special needs work and positively contribute to our society. If the special needs person is working, the act states that a condition of a disability restricts them from working more than 7 hours a week for a wage that is at or above the relevant minimum wage.

The trust deed must comply with certain conditions, and incorporate compulsory clauses as defined in the model trust deed as laid out by the Department of Social Services.

Anyone except the special needs person or the settlor can be a trustee of a special disability trust. There are two types of trustees and they both must be Australian residents (must be assessed by the Department of Social Services).

  1. Independent (corporate) trustee – does not have any relationship with the special needs individual and has to be a professional person or a lawyer.
  2. Individual trustee – A minimum of two trustees are required to ensure the special needs individual’s interests are protected.

The trust can either be activated while you are alive – this gives the special needs individual more independence or set up as part of a will – to protect the special needs individual.

The special disability trust can only have one beneficiary (the special needs individual) and the beneficiary can only have one trust. There are two main restrictions placed on the beneficiary, their living situation and gifting.

The Social Security Act stipulates that the beneficiary is not able to reside permanently outside of Australia – the reasonable primary care and needs for the beneficiary must be met in Australia.

There is also a gifting concession available and the contribution made must be unconditional (you can’t get it back), and without the expectation of receiving any payment or benefit in return (if gifted by you). The beneficiary is only able to give money that they received as an inheritance within 3 years of receipt into the trust. Also, a gifting concession, that does not impact any Centrelink benefits is available for the first $500,000 of gifts contributed to the trust.

The social security implications of a special disability trust

There is no limit to the dollar value of assets that can be held in a special disability trust, however, there is an asset test exemption (for Centrelink benefits) of up to $669,750 (indexed 1 July each year) available to the beneficiary. Another advantage is no income is assessed under the social security income test for the beneficiary. The special needs individual can also have their primary residence in the special disability trust, which is also exempt.

Centrelink has also added a limit of $11,750 to ‘discretionary expenses’ for beneficiaries to improve their level of health, wellbeing, recreation and independence.

Further information about special disability trusts can be found on the Department of Veteran’s Affairs site and the Department of Social Services site.

In conclusion, the aim of establishing a special disability trust is to provide protection and to ensure that those we love have a secure financial future.

Please note this article provides general advice and information only, it has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today, one of our advisers would be delighted to speak with you.

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The Global Financial Crisis?

Just over 10 years ago we were in the midst of what is now known as the Global Financial Crisis (GFC). I recall at the time a flurry of job losses from the financial services industry, Australian banks and the collapse of the American investment bank Lehman Brothers. Our country just avoided a technical recession but it felt like one for many people.

The GFC referred to a period of severe stress in the global financial markets and banking systems between mid-2007 and early 2009 as the US housing boom ended and defaults increased. Banks’ access to short-term borrowing evaporated and funding account holders withdrawals were problematic.

Why did the US housing boom impact the world economy?  For many years prior to the GFC, house prices in the US grew strongly as banks and other lenders were willing to make highly profitable increasingly large volumes of risky loans to buyers. The loans were risky as the lender did not closely assess the borrower’s ability to make loan repayments. You might recall the nickname NINJA (no income, no job, no assets) loans, symbolising the lack of documentation the banks and other lenders had to provide to secure funding.

Financial innovation allowed banks and other lenders to reduce their lending risk by packaging these risky loans into mortgage-backed securities (MBS) and collateralised debt obligations (CDO). In the US, over $500 billion USD in CDOs were issued in both 2006 and 2007 (source). Credit rating agencies provided these financial products with a high credit rating signalling to investors that they were low risk. The high rating allowed pension funds, governments, US and global banks to invest. Many investors borrowed large sums to purchase high yielding ‘low risk’ MBS and CDOs without understanding the complex and illiquid nature of the underlying investment.

When the US housing boom ended and defaults increased the demand and liquidity for MBS and CDOs evaporated and prices dived. MBS and CDOs could only be sold at a large loss of up to 95 percent (source).

The systematic problems started in the United States and rapidly spread across the globe. Banks and other financial institutions stopped lending as they were unable to easily assess how badly a potential borrower was impacted by the toxic debt. This credit freeze spread globally, many companies were unable to access funds and those that could, found there was a substantial increase in the cost of debt making the venture unprofitable.

In the wake of the turmoil, central banks globally lowered interest rates rapidly (in many cases to near zero) and lent large amounts of money to banks and other financial institutions that could not borrow in financial markets. Central banks also purchased financial securities to support markets.

Governments increased their spending on infrastructure to support employment throughout the economy, Australia handed taxpayers $1,000 relief money and guaranteed deposits and bank bonds. Governments also increased their oversight of financial firms that must assess more closely the risk of the loans.

The severity of the Global Financial Crisis caused a global economic slowdown that led to unprecedented government bailouts and economic stimulus globally. The support from governments and central banks paved the way to an economic recovery.

Please note, this article provides general information and advice only. If you would like tailored financial advice, please contact us today.

Read more articles in our Financial Literacy series. 

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3 Tips For Reducing Christmas Costs

Christmas is a time to be savvy!

The November and December months are a time when our wallets are an endless money pit, credit cards are in high demand as we try to keep up with the Joneses. The next few months of unconscious spending can set us up with a significant financial burden well into the New Year.

What can you do to avoid the Christmas expense blues?

1. Create a list

Get organised and make a list of all the people you need to buy presents for. Creating a list allows you to jot down some ideas and start looking online where you can find a bargain. Purchasing multiple gifts from one retail site will reduce your cost of postage.

2. Create a budget

This could be for each gift or the total amount you want to spend on all the gifts you want to buy. A budget will prevent you from buying gifts you don’t need or spending more than you want to.

3. Gift an experience

The manufacturing of cheap, quickly disposable trends are cluttering our lives and sending us broke with a mirage of happiness. Experiencing nature or organising an adventure will create a memorable journey that will last a lifetime.

These simple tips and suggestions will help you avoid overspending, which you’ll reap rewards for well into the New Year.

Please note this article only provides general advice and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today. One of our advisers would be delighted to speak to you.

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Benefits of an SMSF

Previously, I highlighted the findings of the Australian Securities and Investment Commission (ASIC) report after reviewing 250 self-managed super funds (SMSF). ASIC does not regulate SMSFs, the Australian Tax Office does and trustees are held directly accountable.

At The Investment Collective, we assess the appropriateness of an SMSF, provide tailored written advice in the form of a Statement of Advice and present the recommendation where you are encouraged to ask questions to better your understanding.

Why should you set up at SMSF?

A client of mine established an SMSF to take back control of their superannuation by removing any influence from large financial institutions and unions. They wanted more investment choices and to be involved when choosing the underlying investments that are appropriate for their risk profile. Both members are now benefiting from the additional income from franking credits.

Another client established their SMSF once we conducted a fee analysis of their previous super fund provider. We highlighted all the fees and additional transaction, operational, borrowing and property costs they were paying. With their new SMSF the client has a very transparent fee structure and is now saving thousands each year. This client had a share portfolio in their name that we were able to directly transfer to their SMSF, increasing their superannuation benefit. We managed their capital gains over a few financial years and transaction costs were cheaper than going through a share broker.

In many instances, our clients’ are surprised how stress-free maintaining their SMSF is. We assist clients to look after and oversee almost all of the administrative tasks. We also connect our clients’ to professional SMSF administrators to complete the annual compliance obligations.

As you can see, there might be benefits to establishing an SMSF depending on your circumstances. The Investment Collective can assist you in an analysis of your current superannuation provider. Please contact us to arrange a review.

 

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

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Is A Self-Managed Super Fund Right For You?

Australian Securities and Investments Commission (ASIC) recently released a report after reviewing 250 self-managed super funds (SMSF) files. These SMSFs were randomly selected based on Australian Taxation Office (ATO) data.

The report highlighted a poor standard of advice provided on SMSFs. They found 91% of the files reviewed were non-compliant. Non-compliant advice included process failures, poor record keeping and increased risk of financial loss for lack of investment diversification mainly due to a single investment property.

An SMSF allows a member to purchase property within the superannuation environment and I am often asked about how to facilitate this. However, what most clients do not realise is that property is capital intensive, costly to maintain and tends to offer a very low income. An SMSFs sole purpose is to provide retirement benefits for the members or their dependents. Therefore I have to ask my clients, is property appropriate for your retirement when you need to draw an income?

At The Investment Collective, we assess the appropriateness of an SMSF for every client.  We look at many factors and alternatives and then provide a detailed analysis for our clients’ to make an informed decision. If you have thought about establishing an SMSF you should consider the following:

  • The balance of your superannuation
  • Costs involved to set up and running an SMSF
    • According to ASIC a starting balance below $200,000 the setup and operating cost are unlikely to be competitive with other options
  • Willingness and ability to manage the SMSF and meet trustee obligations
  • An investment strategy that suits the needs of members
  • Members Insurance needs
  • Lack of government compensation available for SMSFs

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

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