Tag Archives: Cashflow

How much can you confidently spend in retirement?

By Robert Wright /July 16,2021/

So much happiness in retirement comes from peace of mind, not money. Of course, the two are intertwined. Understanding your monthly budget, whatever it is, and not worrying about running out of cash in retirement, enables peace of mind.

But the academic research throws in plenty of other factors – good health, social connections, having a purpose, still learning whether by doing a crossword every day or playing a musical instrument, and being optimistic.

Most of the factors are controllable, to some extent, by individuals. And the sooner they think about planning for retirement, the better chance they have of achieving peace of mind. When it comes to money, figuring out how much you’ll need to spend in retirement is a good start.  Achieving a ‘safe’ level of spending depends on the level of saving, investments and life expectancy.

What is a ‘safe’ spending level?

A spending level is considered to be ‘safe’ if the household has a high degree of confidence that they can continue spending their desired amount for at least as long as both spouses are expected to live (their life expectancy). You may have a different idea of the amount you can safely spend and still have confidence that your savings will last.

For example, a 67-year old person who has total retirement savings of $600,000 should be confident of being able to spend $40,000 each year. But if they chose to spend $60,000 each year, then their level of confidence would change as they’ll likely run out of money later in life.

For a couple with $600,000 each, they can be confident of being able to spend $60,000 combined and have enough money till the end of their lives. Understanding these numbers is important for peace of mind.

Using a retirement spending planner helps people understand what they need to meet basic living costs, and how much they want to cover for the discretionary, but not necessary, spending. Ideally, this combined matches closely to what an individual, or couple, can safely spend.

But what if it’s not? If the retirement planner tells you that you can safely spend more than what you are currently spending, there’s few concerns. But what if it’s the other way around?

Running out of money late in life is a big concern for many retirees. The latest research from National Seniors Australia, found that most older Australians (53%) are worried about outliving their savings, with women (59%) more worried than men (47%).

There are retirement products that can help fill the gap. While many retirees will have to rethink their spending plans, having an additional layer of protection in retirement that gives you guaranteed income for life (regardless of how long you live) in the form of a lifetime annuity, will be attractive to some.

A lifetime annuity provides guaranteed income for life. And it can help some retirees access more of the Age Pension. Combined, lifetime annuities and the Age Pension can ensure retirees can rely on guaranteed, regular income for their whole life. But perhaps the greatest benefit of all is peace of mind.

Securing your retirement income

As we’ve seen in the last year, things can change quickly and unexpectedly. Getting your retirement income sorted can help support a positive outlook in retirement.

Source: Challenger

6 steps to help you feel more positive about your finances

By Robert Wright /July 16,2021/

With one in four Australians reporting more financial stress after COVID, it’s no surprise many of us are concerned about the future. Between mounting bills, unexpected expenses and a lack of understanding around our needs in retirement, getting our savings on track and seeing the big picture can seem overwhelming.

It doesn’t need to be. If you break things down into small, manageable actions, you can create a simple plan to take immediate positive steps towards a healthy financial future.

Assess your debts

Debt is a reality for many Australian households, whether it’s a home loan, credit card, student loan, car finance or personal loan. It’s not uncommon to lose track of how much you owe and how much interest you’re paying as a result.

Understanding your debts can help you put a plan into action to pay them off sooner and in the optimal order, potentially saving you a lot of money. There are steps you can work through to manage what you owe and work out your priorities – such as making a list of all debts and their sums and categorising each as ‘good’ or ‘bad’.

Plan how to pay your bills

Some 14% of Australians report they have been unable to pay one or more bills on time in recent months, a reality that may be compounded through winter as extra heating sees utilities skyrocket.

One way to manage irregular bill amounts and unexpected rate spikes is to consider bill smoothing, a process where you establish automated payments of a set (and known) amount to cover utilities over the course of a year.

Establish an emergency fund

Putting aside extra money for that rainy day sounds simple, but it’s one that many Australians neglect – in fact, one in four of us believe we wouldn’t be able to raise $2,000 in a week if we needed to do so in an emergency.

If you are that one in four, it’s a good idea to set up an emergency fund as a separate account  – it acts as a buffer from debt, helping you prepare for life’s curve balls. Keeping it away from your day-to-day savings account means you’re not tempted to dip into it for known, budgeted expenses such as rent or mortgage, groceries or school fees.

Look at your super

The government’s Early Release Scheme in 2020 saw 3.5 million Australians take advantage of the ability to dip into their super early. For many, having access to these funds helped ease immediate financial stress. If you’re not sure how to build this money back, you’re not alone – 30% of those who accessed their fund report a lack of awareness of how to recover their balances.

A good first step is to calculate how much money you’ll need in retirement – there are various online tools to help you do this – then you can consider some of the ways you could rebuild your super and work out which one suits your circumstances.

Work on a savings plan

Deciding to pay yourself first – say, 10% of your income – is one simple way to boost your savings and improve your financial future, making you contribute a set amount of money into a savings account before you manage other household expenses.

 It’s also a good idea to set up a separate savings account with a high interest rate. Then make sure that set amount of your salary, as well as any surplus in your day-to-day account, is automatically rolled over into your savings at the end of the month. Automating your accounts allows you to set and forget, so your nest egg will automatically grow every time money is deposited.

Think about any long-term financial goals

At what age do you want to be able to buy your first house? When do you want to retire? Do you know how much you need in your superannuation fund to retire comfortably? Many of us sweep these big questions under the carpet, but understanding them can help you prepare for your financial future.

Once you’ve mapped out your current financial position and established your long-term goals, you can use a range of online tools and calculators to help you get there.

You can also speak with your financial adviser to help get your savings goals on track and make sure you head toward retirement with peace of mind.  Source: AMP

What you can claim when working from home

By Robert Wright /June 11,2021/

Setting up a home office? Here’s how to create a comfortable workspace, while offsetting the extra costs of working remotely. If you’re among those who’s decided to say ‘so-long’ to the office, you’ve probably also realised that having the right home-office set up is essential for your productivity – and sanity.

As many of us learnt during lockdown, trying to fit in a full day’s work at the dining room table isn’t always the most productive option.

You might also have noticed what many freelancers have known for years: Working from home comes with extra costs, as does setting up your home office.

So, what do you need to do to get your workspace set up for productivity – and comfort – and how can you offset the extra costs that come with working from home?

Getting ergonomic

For most computer work, there’s a few key areas you need to customise to suit you:

  1. The height of your desk and chair. You’ll know you’ve gotten this right when your forearms are parallel to the ground, with your wrists either straight, at or below shoulder level. Your knees should be level with your hips and feet flat on the ground, or on a footrest.
  2. Your monitor set up. Your monitor needs to be straight in front of you, an arm’s length away. The top of the screen should be at or slightly below eye level. Use a monitor riser if needed to get your monitor to the right height. Also consider the brightness of your display – it should be just a little brighter than surrounding ambient light.
  3. Location of key objects. Place your keyboard and mouse on the same level surface and keep other items you use often within easy reach. If you use the phone a lot, put it on speaker or use a headset to avoid neck and shoulder strain.
  4. Light sources. You’ll need sufficient ambient light to illuminate your workspace, so that you’re not straining your eyes. Beware of indirect lighting from windows that can cause glare on your monitor screen.

Getting (and expensing) equipment

Setting up an ergonomic workspace can involve a bit of gear, even if there are some inexpensive home solutions. At the very least you’ll need a computer, decent office chair, full size monitor, keyboard, and mouse. You may also need to add in a footrest, monitor riser, laptop dock or stand, headset, lighting, and any other office equipment you use regularly, like a printer.

This can add up to quite a hefty price tag! But don’t worry, it’s unlikely you’ll need to foot the entire bill yourself.

If you’re a company employee, start by speaking to your employer. Many companies will offer to either source equipment for you, lend it to you or reimburse you for purchase/s you make.

Under Workplace Health and Safety Laws, employers still have a duty to ensure the health and safety of workers, even if they’re working from home. In fact, some companies will already have occupational health and safety policies that mandate an ergonomic set up using a certain type of office equipment.

Tax deductions: What can I claim?

While you can save money by working from home (less transport costs, homemade lunches, no need for fancy clothes) it does come with other costs (and paperwork) you may not have thought about.

Fortunately, you’re allowed to offset many of these costs against your earnings by claiming a deduction in your annual tax return. According to the ATO, expenses you can claim a deduction for include:

  • the cost of electricity for heating, cooling, and lighting the area you’re working in, and running items you’re using for work.
  • cleaning costs for a dedicated work area.
  • phone and internet expenses
  • computer consumables (for example, printer paper and ink) and stationery
  • home office equipment, including computers, printers, phones, furniture, and furnishings. You can claim either the
    • full cost of items up to $300
    • decline in value (depreciation) for items over $300.

To make a claim, you need to have spent the money and have a record to prove it. You can’t claim a deduction where you’ve been reimbursed by your employer for the expense.

Tax deductions: How do I claim?

Because it can be tricky to track and report on your expenses when working from home, the ATO has introduced a temporary ‘shortcut method’. This is now in place up until 30 June 2021 (and may be extended further).

The shortcut method allows you to claim a deduction of 80 cents for each hour you work from home. It covers all the deductible expenses listed above. You’ll need to keep a record of the hours you worked, in the form of a roster, diary, timesheet or similar.

With remote work now widely accepted, many people can’t wait to give hour-long commutes, open plan offices and office politics the flick for good. Just make sure you take the time to get your office set-up right and avoid those nasty repetitive strain injuries in years to come.

Source: FPA Money and Life

How to reassess your spending and budgeting habits

By Robert Wright /June 11,2021/

There’s no denying the pandemic has significantly affected the finances of many Australians. Some of us are spending more, some are cutting back on non-essential spending and for others, the uncertainty has challenged us to save money for a rainy day, like never before.

According to AMP research, around one in 10 Australian employees feel that 2020’s unusual economic circumstances have had a positive impact on their financial health. However, 42% of employed Australians believe COVID-19 has had a negative impact on their financial health, whether through unemployment or underemployment.

Whichever category describes you, it’s likely you’ve seen your spending habits change over the past 12 months. This means that if you’re still working with your pre-pandemic budget, now might be a good time to review your situation and reassess your spending, so you can manage it with a revised and more realistic budget.

Changing spending habits

Over the past 12 months, have you been spending less money in restaurants, bars and department stores but more on food deliveries, online shopping and streaming? Or have you cut back across the board and started a savings surge?

With lockdown orders forcing many of us to stay home more, it’s unsurprising to learn that in December, our spending on transportation was 41% lower than the pre-pandemic norm. We did less eating out in restaurants and bars (down 30%) and are perhaps prioritising outdoor or in-home fitness over going to the gym (spending for this is down 19%).

But – stuck at home – we are spending on home improvements, 25% more than before the pandemic, plus we’re kitting out our home offices and spending on furniture, with these categories up 58%. We’re also consuming a lot more alcohol and tobacco (up a notable 53%) and relying on food deliveries – these have surged a staggering 245% on pre-pandemic figures. (All expenditure figures have been taken from the AlphaBeta and illion research.)

It’s generally thought to be a good idea to take a deep dive into your overall financial health at least once a year. And at a time when circumstances are changing so fast, there’s an opportunity to review your spending and saving habits and reassess your goals and budgets.

How to track your spending

Think about your spending habits; there’s likely to be a variation each month depending on how much you’ve earned and what your expenses are for things like rent, mortgage, car maintenance and insurance. So, to get a well-rounded picture of income and expenditures, try tracking your spending over a two to three-month period, then apply it to a full year.

How to do it? First, choose a method that’s convenient for you to quickly and easily maintain. This could be as simple as a paper ledger or Excel spreadsheet. Get into the habit of noting every dollar you spend. The simplest way is to review your bank and credit card statements, but don’t forget cash transactions such as a coffee or the vending-machine snack you grabbed on the run. Make a note of the item, amount, date and category, plus whether it’s an essential expense or a discretionary one.

If you want help tracking and analysing your data, there are plenty of apps and software that can help, depending on your goals. Some apps enable you to sync bank accounts, credit cards, loans, superannuation and more, with additional features to monitor larger expenses including bills and insurance payments. Others notify you of possible tax deductions and churn out easy-to-read spending habit reports. A number of these apps are free, while some have monthly charges – it depends on the depth of insight they offer.

How to create a budget

Once you have a good understanding of your new spending habits, it’s time to reassess that pre-pandemic budget and plan your financial future. If you’re not sure where to start, brush up on the basics and learn how to create a working budget.

Source: AMP