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Everything You Need To Know About Succession Planning

Who does it apply to?

Succession Planning involves everyone. Whether it is planning for retirement or exit from your business or getting your ‘papers’ together for end of life, Succession Planning refers to both and is applicable at all ages.

While it may not be something that many people in their 30s or 40s may think of, being in the prime of their life, and it may not be on the top of their priority list, but it is something you need to consider. It’s important to decide what will happen to your assets when you die. I know when I was in my 20s, I thought I didn’t have assets, but when I went to a bank for a loan, I realised that I actually had quite a few assets. You need to consider how and to whom you should leave instructions about your legal and medical preferences in case you fall ill or lose the capacity to make those decisions yourself. If you have children, you should consider what provisions to make for their care or what you might want to do to help them. Therefore you should ensure that you have a valid and up-to-date Will and seek estate planning advice if appropriate.

For a business, a succession plan ensures there are qualified and motivated employees who are able to take over when the executive director or other key people leave and organisation. It also demonstrates to stakeholders (i.e. clients, funders, employees and volunteers) that the organisation is committed to and able to provide excellent programs and services at all time, including during times of transition. 

So, what is it? Why is it important?

An Estate Plan includes your Will as well as any other directions on how you want your assets distributed after your death. This includes documents that govern how you will be cared for, medically and financially, if you for whatever reason are unable to make your own decisions in the future.

With your business, whether you decide to sell up, retire or have to get out of business due to health reasons, it is important that you spend the time with your family and/or your business partners and plan what you are going to do. A succession (or sometimes called an ‘exit plan’) can help you outline what will happen and who will take over your business when you leave.

Your succession plan will depend on a number of factors, including your family situation, age, financial position and overall health. A good succession plan enables a smooth transition, with less likelihood of disruption to operations. By planning your exit well in advance you can maximise that value of your business and enable it to meet future needs. Please keep in mind that your succession plan must remain attainable – set a realistic timetable and measurable milestone along the way and stick to them. Even if you’re not planning on leaving your business just yet, it pays to have a detailed plan in place for when the time comes.

Another reason to focus on succession planning is the changing realities of workplaces. The impending retirement of the baby boomers is expected to have a major impact on workforce capacity.

Benefits of a good succession plan for your business

The benefits of good succession planning include:

  • Ensuring the organisation maintains a plan to support service continuity when the executive director, senior manager or any key people leave;
  • A continuing supply of qualified, motivated people (or how to identify them), who are prepared to take over when current senior staff and other key employees leave the organisation. This involves knowing your staff and knowing if you have someone to replace them;
  • Alignment between your organisation’s vision and human resources that demonstrates an understanding of the need to have appropriate staffing to achieve strategic plans;
  • A commitment to developing career paths for employees which will facilitate your organisation’s ability to recruit and retain top-performing employees and volunteers.

Wills

A will comes into effect after you pass away. It can cover things like how your assets will be shared, who will look after your children if they are still young, what trusts you want to be established, how much money you’d like donated to charities and even instructions about your funeral.

Your will can be written and updated by private trustees and solicitors, who usually charge a fee. Some Public Trustees will not charge to prepare or update your will, but only if they act as the executor of your will. Other Public Trustees may only exempt you from charges if you are a pensioner or aged over 60. Check with the Public Trustee in your state or territory.

Who is responsible for succession planning in my business?

Both the board and the executive director have pivotal roles to play in succession planning.

The board is responsible for succession planning for the executive director position. The board hires the executive director to ensure it has a skilled manager to implement the organisation’s mission and vision. It is therefore very important for boards to spend some time reflecting on what they would do if, or when, the executive director leaves. All too often, boards find that they are unprepared for such an occurrence and are left scrambling to replace them.

The executive director is responsible for ensuring a succession plan is in place for other key positions in the organisation. These will likely be developed with help from the management team with input from implicated employees. 

What do I need to do?

Identify key positions for your organisation. These include the executive director, senior management and other staff members who would, for their specialised skills or level of experience, be hard to replace. Which position would need to be filled almost immediately to ensure your organisation continues to function effectively?

Review and list your current and emerging needs.

Prepare a chart that identifies the key positions and individuals in the organisation. This may include those listed above as well as others that are pertinent to your organisation, such as volunteers or administrative personnel.

Pinpoint and list any gaps by asking questions:

  • Which individuals are slated or likely to leave (through retirement, project completion, etc.) and when?
  • Which new positions will be required to support the strategic plan?
  • Which positions have become or will become obsolete (for example, those related to a program that has been terminated)?
  • What skills and knowledge will need to be developed (for example, to support a new program)?

Evaluate/assess staff members who have the skills and knowledge or the potential as well as the desire to be promoted to existing and new positions. It is important to note if they have the desire to take any other role. It could be terrible for your business if you were to rely on someone ‘stepping up’ only to find they aren’t interested. 

Do you have any tips for successful succession planning?

As time passes, your circumstances will change and it is important to update your succession to ensure you are always ready, should the need arise that you leave earlier than anticipated.

You need to secure senior management and board support for a succession planning process. This shows employees and staff how important succession planning is to the organisation.

Again, review and update your succession plan regularly. This ensures you reassess your hiring needs and determine where the employees identified in the succession plan are in their development.

Develop procedure manuals for essential tasks carried out by key positions. Include step-by-step guidelines. Nothing worse than having a long-term or busy employee who leaves (for any reason) and most of the procedures were ‘in their head’. That makes the ‘scramble’ after the employee leaves so much worse.

Allow adequate time to prepare successors. The earlier they are identified, the easier it is on the individual to be advanced and on other employees within your organisation who will know whether certain options are available to them.

Final notes

Wills are just the same. You need to consider what you want to leave and to whom. Regularly check your will and make sure it is brought up to date. Ensure your family is aware of your wishes.

Communication is key to Succession and Exit Planning. You need to communicate with family, colleagues and all key staff members. You need to express to them what you want. Then get the plans drawn up (by a legal professional or by the Public Trustee).

All too often, a will has been drawn up but there are other issues that prevent the exiting person’s wishes from being following. These include not keeping documents up to date; not discussing it with anyone; the will being written up without professional advice (this includes having the will drawn up but the legal professional was not aware of all the circumstances).

Are you interested in getting your will and your succession plan decided started? For your free initial consultation contact us today, one of our friendly advisers would be delighted to speak with you.

Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs.

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Insurance That Doesn’t Pay

Thousands of Australians wrongly think they are adequately covered by insurance held inside their superannuation funds, or those bought directly from an insurer. Usually via TV advertisement or online, known as direct marketing.

An article in The Age newspaper on Wednesday, February 21, titled ‘Protect yourself – make sure your insurance covers you’, highlighted the pitfalls of these policies, which only become known at the most crucial time – claim time.

Although these policies can seem hassle-free to put in place, given the (usually) very limited disclosures required around lifestyle or medical history, and the ability to obtain cover without any blood tests etc. (known as deferred underwriting). In many cases, this can be problematic.

Deferred underwriting means the assessment of the insured’s eligibility for cover (in terms of health, pastimes and financial entitlement) is done at claim time, rather than on application. This essentially means, there is no certainty of a claim actually being paid.

As a result, these types of policies have a significantly higher rate of denial at claim time when compared with policies taken out under the advice of a risk professional.

There is nothing worse than thinking that one is fully insured, only to find the policy doesn’t work at claim time. For the insured and their family, the right advice may be the difference between long-term financial security and severe financial distress in the case of death or serious health event.

Learn more about our Life Insurance services.

Please note that the above is provided as general advice and has not taken your personal or financial circumstances into consideration. If you would like more tailored advice, please contact us today. One of our friendly advisers would be delighted to speak with you.

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Are You Prepared For Retirement?

I have just read my Super statement…

I am turning 65 in about 3 months’ time and I plan to retire the week after my birthday, but I have just received my super statement and I am not sure if I have enough money to last me.  I have $175,000 in my accumulation account and I plan to take out enough for an overseas holiday next year and to buy a new car.  I’m going to apply for the age pension and then I want to draw enough from my super account to give me the same kind of income I’ve been getting from work.  I need the same income because I still owe some money on my home and my wife doesn’t work.

Does this scenario sound a bit far-fetched?

Do you think that everyone plans their retirement for years ahead?  We find that some people do, but many don’t give that matter much thought until the time comes to quit their job.  This conversation is one that happens with frightening frequency and it means that many people are unable to live the life that they have dreamed of in their later years.

What can I do now so that I am prepared for my retirement?

Like everything that we do, planning and preparation are key factors.  Seeing a financial adviser is a good starting place, as an adviser will be able to advise you on the most appropriate path.  Sooner is better, so that there is time to make changes that will make a difference well ahead of your planned retirement date.  Setting proper goals and objectives is vital.

It is really never too early to take this step.  For example, small things put in place when you first begin to earn a salary will compound over time and place you in a much more substantial position than if you were to do nothing. A simple strategy such as saving a small amount from each and every pay will make a large difference to your retirement savings not only from what you have saved, but from the effect of compounding.  It’s a good idea to increase your savings every time you get a pay increase.

Don’t rely on a credit card to fund your living expenses, unless you pay it off in full every month so that you don’t incur any interest charges.  If you don’t have the cash available now, don’t buy it!  Save a little each pay period so that you can afford to pay cash for it.  You will have the added satisfaction of having earned something that you really wanted!

If you have a home loan, make sure you have your repayments scheduled at the most effective frequency – your adviser can assist with this.  Pay a bit more than your required minimum payment, and don’t decrease the amount that you pay because your interest rate has dropped.  They won’t always drop and it will be a real benefit to have made a big hole in your outstanding balance while rates are down.

Is it ever too late to seek financial advice?

No, not really, because there will always be advice that will benefit you.  It may well be too late to realise some of your dreams and aspirations, but careful advice and planning can help you to make the best of what you have.

Are you interested in planning for your retirement? Are you ready to retire now? Contact us today for your free initial consultation, one of our friendly advisers would be delighted to speak with you and help you plan for your retirement.

Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s Individual objectives, financial situation or needs.  Before acting on anything in this article you should consider if it is appropriate for you, having regard to your objectives, financial situation and needs.

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Stuck On The Money-Go-Round?

Do you get the feeling that you’re just treading water financially? Don’t think you’re alone. A recent study conducted by ME Bank into household financial comfort suggested that over 25% of Australians have less than $1,000 in savings to draw upon in the event of an emergency.

Here are some tips to help you get off the money-go-round and back in control of your money.

Develop a budget

It is important to have awareness of where you are spending your dollars. By creating a budget, as boring as it sounds, it can change things dramatically because you become more aware of where you are spending your money.

There are many good budget tools out there. I suggest the ASIC Money Smart Website Budget Tool.

Get on the same page

It can be difficult maintaining a budget if you have a partner who isn’t on the same ‘money-wise’ page as you. I’ve seen figures indicating that around 60% of couples argue over money, therefore talking to one-another about your financial goals and aspirations in a constructive and respectful manner can really help. We spend so much of our time finding “the one” who will share our values, and financial values are just as important when it comes to maintaining a comfortable and stress-free lifestyle.

Educate to elevate

Education can elevate you to different pay levels, provide career opportunities and/or even allow you to start up your own business. It has long been a catalyst to achieve a better life and millions of people have invested in themselves to create opportunities.

Look for a new job

With unemployment in Australia low at present, there are always plenty of employers looking for good staff. If your current boss is underselling you, there’s a strong chance in today’s employment landscape that someone else will pay a premium for a good employee just like you! Don’t get stuck in a rut and accept the same job conditions; do something about it and change your life at the same time.

Invest in yourself

If you’re still struggling to see the light at the end of the tunnel, then employ the services of a financial planner to help you navigate the big issues. An investment in yourself is the best investment you can ever make because it can pay a lifetime of dividends and give you the best returns. Never underestimate your value and potential.

The money-go-round is not an enjoyable place to be. By taking action and pursuing opportunities you can write your own financial and life story. Don’t just accept the status quo or get caught in a state of inertia; there’s always something you can do to improve your situation and there are plenty of people to help you if you’re struggling to do it alone.

Note that the above recommendations are provided as general advice only. It has not taken into account your personal financial circumstances. If you would like advice tailored to your specific financial position, please contact us. One of our friendly advisers would be delighted to help you.

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It Takes Time: Superannuation Contributions

The superannuation system has a long history with both sides of government shaping the compulsory superannuation system we have today. The establishment of this system in Australia was a response to the financial challenges posed by an aging population. The aim was to have individuals saving for retirement over a working life to relieve the pressure on Australia’s government paid age pension.

Throughout your working life, your employers will make compulsory contributions to your superannuation fund (currently 9.5%). You also have the option to make personal contributions to help build your savings at an accelerated rate.

The government has made superannuation savings attractive as it offers a flat tax rate of 15% on employer contributions and investment earnings (10% on longer-term capital gains if held for more than 12 months).

Reaching your retirement savings goal should not be complicated. You should endeavour to start early and make short-term sacrifices for the longer-term gains. Let time and compound interest do the majority of the heavy lifting for you!

An initiative from the federal government to help boost your superannuation is the co-contribution scheme. If you make a personal after-tax contribution to your superannuation, you may qualify for an additional contribution directly from the government (free money!).

The government will match $0.50 (50 cents) for every dollar you contribute to superannuation up to a maximum co-contribution amount of $500.  The maximum super co-contribution is available if your total income is less than $36,813. The maximum co-contribution reduces by 3.33 cents for every dollar earned over $36,813, reducing to zero when your total income is $51,813 (for 2017/2018 financial year).

There are a few basic eligibility criteria to be met in order to qualify:

You must lodge a tax return

At least 10% of your total income comes from employment or carrying on a business

The balance of your super is equal to or less than $1.6 million and

you are less than 71 years of age at the end of the financial year.

Provided you qualify for the co-contributions, and your fund has your tax file number, the government will automatically forward the co-contribution amount to your super fund.

To find out more go to the super co-contribution information page on the ATO website.

This article has not taken into account your objectives, financial situation or needs. You should consider if the advice contained within the articles is suitable for you and your personal circumstances before acting on it. If you would like to discuss the suitability of the advice to your personal situation, please contact us to make an appointment with one of our friendly advisers.

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Purchasing Your First Home

Buying a house can be a daunting, complex and often frustrating experience – and that’s for people who’ve done it before! A first home buyer can often feel completely overwhelmed when faced with their first property purchase.

If you’re about to buy your first home, you may feel like you’re on the brink of taking a great leap into the unknown. The idea of lenders, real estate agents, solicitors and vendors all with mountains of forms, requirements and jargon may have you wondering whether it’s worth all the effort. And on top of all that, you still have to find the right house!

Relax – it’s not that bad.

Save time and money by avoiding these common first home buyer mistakes

1. Underestimating the costs of purchasing property

Some first home buyers make the mistake of thinking that if they’ve got a $50,000 deposit and a $500,000 home loan approval, they will be able to afford a $550,000 property. The truth is that there are many other costs involved, other than the price of the home. Inspection reports, Lenders Mortgage Insurance (LMI), solicitors’ costs, and stamp duty are just a few of the additional costs involved in purchasing your first a home.

2. Over-extending

Buying your first home should be a happy experience, not one that leaves you racked with doubts and resentment. Far too many first home buyers find themselves in difficult situations because they didn’t stick to their budget, or they didn’t create a budget that was realistic for their needs. The best way to avoid overextending is to have a firm grasp on your current income and expenses. If you know exactly where all your money goes each month, before you buy, you will be much better able to plan an affordable repayment strategy. When it comes time to make an offer, never go above your budgeted purchase price. You never know what might happen in the future that will put strain on your finances.

3. Not taking advantage of first home owner concessions

The First Home Owner Grant is a government initiative to assist people in buying their first home in Australia and can save you thousands in duties and fees. Visit the First Home Owner Grant website for details on each state’s grants.

4. Not considering all aspects of a property

It can be hard not to let emotions get involved when inspecting a property. People immediately start thinking about how they’re going to remodel the bathroom or how they might arrange their furniture. The tendency to get too far ahead and caught up with the aesthetics of a property often distracts people from considering other essential points. Think beyond the home. What is the local council like and how do their services measure up? How has the suburb been trending in the past few years? How is the home positioned and what are the neighbours like? Are there many owner-occupiers around you? Is there adequate public transport? Are there infrastructure or building development plans near the property?

5. Failing to get a property inspection

A building inspection is a worthwhile investment for a number of reasons. Aside from their ability to bring potential problems to light, building and pest inspections can also be used to negotiate on the purchase price. We’ve all heard horror stories of buyers discovering structural faults, water or pest damage after spending their whole budget on purchasing the home. If you can get a third party to identify any issues before you purchase, you will have much more bargaining power with the seller.

Good luck with the house hunting and look forward to the memories that you will create in your new home. If you would like to talk to one of our mortgage brokers contact us today.  One of our friendly advisers would be delighted to speak with you about your property investments.

The information provided in this article is general advice only. It is prepared without taking into account your objectives, financial situation or needs. Before acting on the advice in this article, please consider the appropriateness of the advice, whether the advice is appropriate to you, your objectives, financial situation and/or needs, before following this advice.

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Are You Under Insured?

Every so often we hear how Australians are under insured, and how income earners and their families experience financial hardship as a result of suffering from sickness, injury, long term disability or death. I’ve developed a quick guide to help you see if you’re at risk, and what you can do to rectify the problem.

1. Do you have insurance?

Recent statistics have shown that 83% of Australians say they have car insurance, and only 31% of those have income protection. Did you know that your income is your biggest asset?

For example, John is 35 years old, earning $80,000 per year and is married to Jane who is a stay at home mum. They have 2 young children, and have a $350,000 mortgage. Over a 15 year period (assuming a salary increase of 3.5% p.a.), John will have earnt over $1.5 million. Looking further in the future, by the time John looks to retire at age 65, he will have earned just over $4 million. How much is your car worth? How much is your house worth? Is it more than your accumulated income?

Many Australian’s don’t think twice about insuring their car or home, but struggle to see the importance of insuring themselves.

2. Where is your insurance held?

Is it held within superannuation, or is it personally owned? Many Australians have some form of insurance via their super fund, and may think that it is enough. But this is often not the case. Super funds offer various insurance benefits according to the fund design, and member eligibility criteria. The amount and type of insurance cover you have could be on a cost per unit basis, or a fixed amount depending on your age, occupation, etc. It is unlikely that the default cover offered via your super fund is appropriate for your specific circumstances.

You should be aware that there may be tax implications for holding insurance within your super fund.

Let’s go back to John. He holds $300,000 of Total & Permanent Disablement (TPD) cover inside his industry super fund, and goes to claim. Due to his age and other contributing factors, out of the total sum insured, he will need to pay almost $73,000 of tax. Leaving a payable amount of $227,000, this is not even enough to pay off his mortgage.

Another thing to keep in mind is that some super funds will decrease your insurance entitlement as you get older. So if you’re relying on the insurance in your super fund, it may not be enough to cover your needs.

3. How much is enough?

  • When calculating the required amount of Life and TPD insurance, there are a few things you will need to consider:
  • Repayment of debts
  • Funeral costs
  • A lump sum to allow for home and vehicle modifications
  • Future income expenditure. For example, costs of living, school fees, childcare, etc.
  • Allowances for tax implications

There are a number of ways to calculate your need for insurance. The best way, however, is to speak with one of our friendly Risk Advisors who can assist with some tailored recommendations.
If I were John’s adviser and he told me he didn’t have any life insurance, I would be asking him this one simple question: how will your family survive if you’re not around to provide?

Please note that the above has been provided as general advice, it has not taken into account your personal circumstances or goals. If you would like more tailored advice, please contact us today, one of our friendly advisers would love to speak with you.

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Are You Thinking Of Downsizing?

Many Australian retirees find they want a smaller home, or a home more suited to their empty-nest requirements. For some retirees, selling the family home can be a great way to release built-up equity to pay for retirement living expenses or in-home support that will allow them to stay at home longer.

Older Australians are the people targeted by the Government’s new policy to allow homeowners aged 65 years or over to downsize their family home and invest the surplus into their super. The downsizing and super contributions proposal was announced as part of the 2017/2018 Federal Budget (May 2017 Budget). The proposal became law on 13 December 2017.

From 1 July 2018, Australians aged 65 years or older will be able to make a non-concessional (after-tax) contribution into their super account of up to $300,000 from the sale proceeds of their family home if they have owned the property for at least 10 years. The legislated rules indicate that the property sold must be the person’s primary residence.

Couples will be able to contribute up to $300,000 each, giving a total contribution per couple of up to $600,000.

Any super contributions made using the new downsizing rules are in addition to any voluntary contributions made under the existing non-concessional (after-tax) contributions cap.
Although downsizing and contributing to super is an interesting idea, there are definitely some benefits and dangers – together with a few unknowns – to consider before taking the plunge.

Set out below are 10 important issues to consider before downsizing your home and contributing to your super account:

1. Opportunity to boost super balance

Retirees who have not had the opportunity to save sufficient funds for a comfortable retirement will be able to use the new downsizing cap to top up an inadequate super balance.

2. No ‘work test’ or age limit

The existing ‘work test’ for voluntary contributions made by those Australians aged 65-74 does not apply to downsizing contributions. Currently, people in this age group need to prove they worked in gainful employment for 40 hours within a 30-day period during the year to make a super contribution.

3. Retirement phase transfer balance cap remains in place

Australians making a downsizing contribution into their super account will still face a $1.6 million transfer balance cap on the amount of super savings they can move into tax-exempt retirement phase income streams. If a person has reached their $1.6 million transfer balance cap, then any downsizing contribution they make will need to remain in accumulation phase (and be subject to 15% tax on any earnings derived from the investments).

4. Contributions not subject to the $1.6 million Total Superannuation Balance restriction

Since 1 July 2017, an individual cannot make non-concessional (after-tax) contributions to a super account if they have a Total Superannuation Balance of $1.6 million or more. Individuals who have maxed out their opportunity to make non-concessional contributions to a super account will still be able to make a downsizing contribution as these contributions are exempt from the new $1.6 million Total Superannuation Balance limit.

5. No requirement to buy a new home

An individual making a downsizing contribution (from the sale of their principal place of residence) is not required to buy a new home after they sell their home.

6. You must submit a downsizing contribution form

Downsizing contributions will be invested within the super environment, which means such assets will be able to take advantage of the lower tax rate levied on investment returns within the super system. Earnings received on a super balance are only taxed at 15% (or are tax-exempt if rolled into a retirement income stream) rather than taxed at the person’s normal marginal tax rate.
Given the tax advantages, it’s worth noting that the ATO will be responsible for administering the scheme. Before accepting contributions under the downsizing scheme, super funds require verification on behalf of the ATO that downsizing contributions are from the sale of a family home owned for more than 10 years. An individual planning to make a downsizing contribution must provide his or her super fund with the special form before or at the time of making the downsizing contribution.

7. Contributions count toward Age Pension tests

The government has confirmed downsizing contributions will be counted for the assets and income tests used to determine eligibility for the Age Pension and DVA benefits. Downsizers will be moving money out of an exempt asset (their family home) into the non-exempt and assessable environment of their super fund.

8. Transfer and property costs limit surplus capital

The costs involved in selling a family home can be substantial due to high stamp duty and land taxes, therefore, people considering downsizing should carefully calculate this impact.
In addition, selling a large home and downsizing to a smaller property does not always release much excess capital (particularly in a capital city). Hence potential downsizers should check they will have sufficient funds left over for a worthwhile super contribution.

9. Timeframe (90 days) for contributing sale proceeds into super

The new downsizing law specifies that an individual hoping to take advantage of this measure must make the downsizing contribution within 90 days of receiving the sale proceeds (typically settlement day) from their family home before they are prohibited from making a downsizing contribution.

10. 90-day timeframe may give an opportunity to invest sale proceeds before contributing

The downsizing policy starts from 1 July 2018. The new laws don’t appear to preclude investing the sale proceeds or mixing the proceeds with other money in the period between settlement and making a super contribution.

Learn more about our personal financial planning, mortgage broking or self-managed super fund services. Please note that the above is prepared as general advice, it has not taken into consideration your personal circumstances or financial goals. For more tailored advice, please contact us today, one of our friendly advisers would love to speak with you.

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Is Bitcoin Really An Investment?

I’ve known ‘Joe’ for about a year. He’s a barista at one of my favourite local coffee shops. Most mornings our conversation doesn’t progress past the weather. However, last week, as he’s handing me my extra-shot cappuccino, Joe suddenly asks me, ‘Robert, I want to invest in Bitcoin. My mate bought some last year and quadrupled his money. What do you think, good idea?’
‘Joe’ I said, ‘Buy it if you want mate, but don’t call it an investment. Call it what it is, a punt.’

Bitcoin is like the money in your wallet, except it’s digital. It’s ‘digital money’. Encryption techniques are used to regulate the generation of new units as well as verify transactions. Nobody controls it and nobody’s responsible for it.

Now, although I don’t really understand how Bitcoin works, I’m pretty sure that at some point in the future, we’ll all be using some form of ‘digital money’ to buy things. However, I don’t know whether that digital money will be Bitcoin or something else.

But here’s what I do know. When my barista starts asking me about buying Bitcoin as an investment, red flags start going off in the back of my head.

The price of this ‘investment’ has just exploded over the last few months, as Joe’s mate and thousands of others like him, started buying Bitcoin aided by the numerous means by which they can now do so. And of course, the mainstream and social media are now awash with reports of how individuals have struck it rich trading Bitcoin. Meanwhile, all this excitement is being fanned by ‘market analysts’ predicting that having just breached the $20,000 valuation, Bitcoin is on its way to $1 million by 2020.

I also know that the associated volatility in price of these ‘digital currencies’ is simply stomach churning. For Joe and his mates, that’s perhaps exactly what they’re seeking; an ‘investment’ that will pay off big time within a short time. They don’t know how it works, and probably care less. They’re not interested in a steady, reliable income stream over the longer term. Everyone else seems to making big money, and they just want in on that action.

So, what do I know? It sounds like a punt, and if that’s your thing, good luck! Just don’t call it an investment.

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Are You Experiencing Credit Card Stress?

By now, you would have received your credit card statement following the spending spree of Christmas, and the impulse purchases made during the Boxing Day/New Year’s sales. Maybe you overindulged in online shopping over the holiday period.

Credit cards offer a quick and convenient way to purchase goods and services; however, it may be more difficult to keep track of your spending when compared to using cash. If you have substantially increased your credit card balance, or reached your limit, you may be struggling to keep your repayments up to date within the interest-free period.

When paying via credit card we often believe that we will repay the balance within the interest-free days, but that may not always be the case! When you exceed the interest-free period, the purchase interest rate can be around 20% per annum or higher (22%+ p.a.) for a store card.

What are your options to get your credit card debt under control? Here are some alternatives to consider:

BALANCE TRANSFER CREDIT CARD

Most providers offer a balance transfer facility to attract new business. The debt from the existing card can be transferred to a new credit card which offers a reduced interest rate (as low as 0%), for a fixed period. The balance transfer rate can apply for 6 – 24 months depending on the provider; however, any additional spending will incur the standard interest rate of the new card. The key to this strategy is to be disciplined by not clocking up more debt, and to take advantage of the ‘honeymoon’ period to focus on repayments, and ensure that you clear your credit card balance on time. Once the balance transfer period has ended, the rate will default to the provider’s purchase interest rate, which may be higher than the rate on your old card! It is important to check if there are any balance transfer fees, and what other terms/conditions and charges will apply after the introductory period has ended.

LOAN CONSOLIDATION – PERSONAL LOAN

Obtaining a personal loan to consolidate the debt on your credit card(s) may be an option. Many providers offer the ability to consolidate several credit cards, with a lower fixed or variable interest rate, over a loan term of several years. Consolidating your debt should make it easier to manage your repayments, and you may be able to clear the debt earlier by paying more than the minimum amount.

REFINANCE/CONSOLIDATION – HOME LOAN

If you have sufficient equity in your home, you could consider refinancing your mortgage to consolidate your credit card debt. We are currently in a record low-interest rate environment, with some providers offering rates of >4% p.a. With or without credit card debt, if you haven’t reviewed your home loan for a few years, you may be paying too much on your current mortgage!
Consolidating credit card or personal loans into your home loan will allow you to clear these debts sooner if you have the ability to pay above the minimum home loan repayment.

There may be many issues to consider before consolidating debt, or deciding to refinance your home loan. Please contact one of our lending specialists to determine the costs and benefits, and to discuss your options.

Please note that the above has been provided as general advice. It has not taken into account your personal or financial circumstances. If you would like more tailored advice, please contact us today, one of our friendly advisers would love to speak with you.

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