All posts by Robert Wright
How to use your tax return to build a stronger financial future
By Robert Wright /September 08,2021/
Whether you breeze through tax time or dread the extra admin, receiving a tax refund makes the effort worthwhile. For many of us, getting a financial boost will be even more welcome this year, and you might be looking around for the best ways to spend it.
Plan how you’ll spend your tax refund wisely
Never underestimate the power of a well-crafted plan – it’s easy to watch funds dwindle when you haven’t given them a clear direction.
Recent research has revealed that 87% of us admit to splurging an average of $2,172 annually as a result of comfort spending, a figure that has increased for one in three Australians since COVID-19 hit. Additionally, 37% of us are struggling to repay debt.
Like any goal, your ambitions for this year’s tax return can be more easily realised if you have a concrete plan in place. In fact, studies have found that taking the time to write down your goals and plans can improve your chances of making them happen.
When you have a clearer picture of your finances, decide exactly how you plan to use your tax refund to avoid excitement spending once it lands in your account. This includes any money you’re hoping to use for a holiday or other splurge – work it into your financial plan to avoid spending beyond your means.
Anticipate your upcoming living expenses
When making your plan, you might want to consider your upcoming living expenses, particularly any large, irregular bills such as car insurance and registration costs, utility bills and general home maintenance.
Putting aside some of your tax refund as a cushion for upcoming expenses or into an emergency fund for unexpected expenses helps you avoid reaching for other financial support – such as personal loans and credit cards – when the bills start to build up.
Pay off debt
If you have some debt to repay, you’re not alone: the average Australian household debt-to-income ratio is around 190%, meaning we owe almost twice as much as we earn each year4 Putting your tax return towards any outstanding debts, including mortgage repayments, personal loans, and any credit card debt, may help reduce any interest charges.
Source: AMP
Money worries and your mental health
By Robert Wright /September 08,2021/
It’s been a trying time for many people, with our collective mental health taking a toll as the COVID-19 pandemic rolls on. The Melbourne Institute says one-in-three Australians are now reporting financial stress, while one-in-five are feeling ‘mental distress’.
It’s well known that our financial wellbeing and mental health go hand in hand. Severe or prolonged financial stress can trigger symptoms of anxiety and depression, relationship breakdowns, trouble sleeping and anti-social behaviour. This in turn can lead to further poor decision making when it comes to money.
Fortunately, there are things you can do to improve your financial security and wellbeing. If you’re experiencing financial stress, here are some practical steps you can take to get back on track.
Give yourself a financial health check
When you’re experiencing financial stress or hardship, it can be tempting to avoid the problem altogether; but this only makes things worse. Once you gain a clear understanding of your financial position, you’ll feel more in control and can take steps to improve your position.
Start by doing a financial health check to assess where your income is going. Use a spreadsheet or budget planner to list your income, debts, and expenses. Then look for opportunities to reduce your expenses, pay down debt and increase your savings.
Renegotiate your bills
Renegotiating what you owe is a smart way to free up some cash flow for daily living and ease the pressure you feel about meeting your obligations.
If you’re having a hard time meeting expenses, it’s important to speak to your service providers as soon as possible. Let them know you’re doing it tough and ask to negotiate lower repayment amounts and extended timeframes.
Don’t be shy to ask for a better deal on any services you use, including phone bills, internet, and utilities. Most organisations will try to work with you – it’s better for them to get paid (albeit slowly) than for you to default on what you owe them.
Pay down debt
With more cash flow available, you can concentrate on clearing your debts, a key step on the path to financial freedom. If you have lots of debt, it’s worth seeking the advice of a financial adviser. They can advise you on the most efficient and cost-effective way to repay what you owe. You might be able to refinance, take advantage of ‘no-interest’ periods or consolidate your debts into a single monthly repayment at a lower rate.
Make bank accounts your best friend
Keeping all your money in one bank account makes it hard to keep track of how much you have and how much you owe. One simple strategy to help you manage your money is to set up several bank accounts, each with a different purpose. For example, one to receive your income, another to pay household expenses, one for discretionary ‘spending’ and one for saving.
You can set up automatic payments to transfer the right amount of money into each account when you get paid. That way, you’ll always have the money put aside to pay your bills as they arise. Make sure to set up direct debits or automatic payments for each of your regular household bills from your expense account, so there’s no chance of falling behind in future.
Build your savings
Feeling financially secure goes hand in hand with having a good financial safety net in place. The more you have put aside for a rainy day, the less stressed you’ll feel when things don’t go to plan. Aim to build up your emergency fund to cover six-months’ worth of living expenses for yourself and your family. Again, creating an automatic transfer of funds to your ‘emergency’ savings account each month is an easy option. Then sit back and watch your savings grow.
Where to get help
If you’re experiencing financial hardship, struggling to make ends meet, or find yourself on the wrong end of one too many late payment notices, remember, there is help available.
Source: Money and Life
Women and superannuation – how the pay gap can impact your super
By Robert Wright /September 08,2021/
According to the Australian Bureau of Statistics, women are retiring with 37% less than men in their super accounts, which is a frightening thought considering women, on average, live up to five years longer.
So, what’s behind the super gap?
The super gap is partly due to the lower average earnings of women. Data from the Workplace Gender Equality Agency, reports that the full-time remuneration gender pay gap in Australia is 13.4% compared to males.
While many have blamed the “wage gap” on gender, Harvard Business Review research suggests women ‘ask’ for pay rises as much as men do, however, they are far less likely to actually get them.
The study also suggests that while men are successful in negotiating a pay rise 20% of the time, women were only successful 15% of the time.
This in turn impacts retirement savings, as the less money you earn, the less superannuation you will receive because your Superannuation Guarantee contributions are based on your level of income.
The second reason for the super gap, is that women typically take time out of the workforce to raise children. The absence of ongoing superannuation contributions can have a significant impact on the final amount women can end up with in super.
What can be done to address the super gap?
One of the simplest ways to catch up on lost super contributions, is to make additional contributions to super along the way. Small amounts over longer periods of time may be easier to commit to, for example, making additional contributions may be enough to narrow the gap caused by taking time out for the workforce.
If you are getting closer to retirement, you may consider maximising the amount you are contributing each year in concessional contributions up to the $27,500 limit (or higher if you have previous unused concessional cap amounts).
Keep in mind, however that any contribution you do make to super will be preserved, and unable to be accessed until you meet a condition of release from super. Most commonly this would be reaching your preservation age and then retiring.
In addition, it’s worth considering if you are in an appropriate super fund, which meets your needs, including the level of insurance cover you have and whether you may reduce this if you no longer need it.
Consider the fee structure of the super fund and also pay attention to how your super is being invested, for example – if you have a long time until retirement, you may benefit from increasing your exposure to growth assets.
For women in relationships, a problem shared could help close the retirement gap. This is because your spouse can split up to 85% of their concessional contributions each year with you.
Furthermore, if you earn less than $40,000 per annum, your spouse may be eligible for a tax offset of up to $540 for a $3,000 contribution (made with after-tax money).
Take control of your super as soon as possible; little changes early can potentially make a big difference in the long-term.
Source: BT
Creating an emergency budget that works for you
By Robert Wright /September 08,2021/
It could take months, even years, to clear debt – especially if you used your credit card and you know you’ll be slugged with snowballing compound interest each month you don’t pay it off.
Things might get worse if another emergency comes up and you don’t have the means to pay for it. Before you know it, you’ve dug yourself into a deep financial hole that can be hard to get out of.
That’s why it’s no surprise that financial experts recommend creating an emergency fund. It’s a pool of money you always have on hand to cover any unexpected expenses.
Any fund is better than no fund
The figure most often cited by finance media personalities is six months’ salary. So how much do you really need?
The best way to decide on a figure is to look at your personal situation, and then create a budget accordingly. Consider possible future expenses, how much you earn, what your weekly costs are and how much you could realistically live without. It will take time to build your emergency fund, but it will be worth it in the end.
Think about it – even a few hundred dollars set aside now could mean not dipping into your credit card balance later on. This can help you avoid the rollercoaster of debt.
Work out what your unexpected costs could be
Think about the types of expenses that could come your way when you least expect them. List anything that’s outside your normal budget. This might include urgent car or home repairs, medical appointments, vet, or dental bills, or even an unexpected interstate or overseas trip to visit a sick family member.
While it’s unlikely you’ll get hit with all these expenses at once, having an idea of your potential future costs can go a long way in helping you decide your emergency savings target.
Revisit your budget
Once you know what you’re aiming for, look at your budget and work out how much you can afford to put away each week. If you don’t have a budget already – today’s the day to start one.
Consider your current financial commitments, then decide on a percentage of your wage that you’d like to put aside. For example, you might commit to saving 10% of your take-home pay until you reach your emergency fund goal.
If you’re financially stretched at the moment, putting aside money each week for something that might not happen in the future can seem like a big ask. But it may not be as tough as you first think.
Be consistent with your savings
Consider creating two separate bank accounts – one for your weekly expenses and ‘fun’ money, and another for your emergency fund. Then set up an automatic transfer so the money earmarked for emergencies goes straight into that account each payday. This way, you’ll barely even notice the money that’s gone. And over time, you’ll get used to having slightly less in your weekly expenses and ‘fun’ money account.
Replenish your fund after use
With your emergency fund now set up, you can relax knowing that you’re financially prepared for the unexpected. But remember – your fund is there for urgent, necessary costs only.
If you do need to dip it into it for a real crisis, then that’s fine – that’s what it’s there for. But make sure you top it back up again when you’re financially ready to do so. This way, if another unexpected bill comes your way, you’ll be prepared.
Talk to an adviser
Everyone’s financial situation is different. That’s why talking to a financial adviser can be so useful. They can show you how to create a budget and savings plan tailored to your needs, including an emergency fund. An adviser can also help you find the right insurance to protect your finances in the future.
Source: Colonial First State