Tag Archives: Financial Health Check

How to make a financial plan

By Robert Wright /November 03,2020/

A financial plan can help you build wealth over time, aiding the protection of your financial future. If that sounds like a good idea, it could be good to find a trusted financial adviser who can help you on this journey.

Australians are increasingly recognising the value of financial advice with 27 per cent having received financial advice and 41 per cent of us intending to seek the expertise of a financial adviser in the future.

But that’s not all.

According to research by the Australian Securities and Investments Commission (ASIC), Australians are seeking financial advice for a multitude of reasons, including expertise in areas they might not have, their access to investments that are hard to find, as well as their assistance in helping to create a financial plan to build and protect wealth.

A financial plan helps to set out your future goals and outlines strategies to help achieve them. It’s a way to map your financial path to important events such as planning for a wedding, having a family, saving for a house or having a comfortable retirement – to name a few. Regardless of why you’re in need of one, a financial plan will be different for everyone, depending on life stage, priorities or financial goals.

Financial planning building blocks

The first part of the financial planning process is to find a financial adviser you’re comfortable with. A good place to start is the Financial Planning Association of Australia’s (FPA’s) Find a Planner web site, which hosts a range of different options in your local area, along with their specialisation to help you choose what’s right for you.

When choosing which financial adviser you’d like to work with, it’s a good idea to factor in their expertise and costs, as well as references from other clients or testimonials on their website.

Starting the journey

Once you’ve found a financial adviser you’d like to build a relationship with, sit down and discuss your goals, aspirations and attitude to money. This important fact-finding exercise will give your adviser information to help build out your financial plan.

During the financial planning journey, your adviser may give you advice on potential investments, as well as ways to increase your super balance when planning for retirement. They may also help pull together a budget or recommend insurance policies to suit you, and your family’s, needs.

Since that’s a lot to get through, for your initial meeting, it’s good to come prepared with basic information such as details about your salary, the superannuation you have already accumulated, as well as any debts or assets you have. If you can, also bring along your monthly budget and expenses so they have more visibility of your comings and goings.

It’s important this meeting is also a two-way flow of information, so you can ask questions such as:

The adviser’s own philosophy on wealth creation
How they will communicate with you, and, give you information about how your investments are performing
How and when they will review your plan
Any fees or charges.

After this initial meeting, the adviser may prepare a statement of advice, which will include a strategy for how you may be able to meet your personal goals and objectives. This will include:

A summary of your existing financial position and your life goals.
A list of recommended investments and an explanation for why they have been recommended.
Suggested insurance policies
Fees and charges, you will pay to the adviser.

It’s also a good idea to go through this with your adviser so you understand the consequences of accepting or rejecting their advice.

Protecting your position

Part of developing your financial plan is working out how to protect your assets and your income sources along the way. This will often involve taking out different insurance policies including:

Life insurance: to protect you and your family if you die.
Total and permanent disablement insurance: which may pay out should you suffer an injury, accident or illness that means you are unable to work.
Trauma insurance: which may provide cover should you be unable to work due to conditions such as cancer or heart attack.
Income protection insurance: which may replace your wage if you are unable to work due to illness or injury.
Insurance can help you meet your mortgage repayments and other obligations if you suffer an accident or illness or protect you and your family if you are unable to work.

It’s important to consider the right cover for you, your family and your circumstances as part of your financial plan.

Key considerations

It’s easy to assume you don’t need a financial plan because you don’t yet have substantial wealth or assets, or, even because you are too young. But the sooner you start taking control of your wealth, the more confident you will feel about your future and the financial steps you need to take to get there.

Source: BT

Aussies saving for a rainy day instead of a holiday

By Robert Wright /November 03,2020/

Not many people can say they’ve been unaffected by COVID-19. Whether you’ve lost work, had hours reduced or been fortunate to maintain employment, COVID has been a wake-up call for how we manage our money and set financial goals.

How are we managing?

Many of us are doing smart things such as:

29% are cancelling non-essential services
25% are reducing spending/expenses
42% are putting money aside for unforeseen events

But worryingly there’s been an increase in people relying on credit cards to pay for everyday expenses and taking out personal loans. And 23% of 18-35yr olds surveyed had also accessed some of their superannuation early.

How has it changed our goals?

For starters, more of us are actually setting goals than before COVID. It’s made us more determined to gain control of our money and be better prepared for whatever life throws our way. And the goals we’re aiming for now are all about paying down debt and saving.

Goals we’re mostly on track for:

73% have reduced spending/expenses
65% have paid off the mortgage
61% have paid off personal loan/credit card
60% have put extra money aside for retirement

However, the COVID curveball has meant we’ve had to do a bit of fine-tuning. We’re extending the timeframe it’ll take for us to reach our goal, or we’re abandoning it altogether if it no longer suits our situation.

43% have stopped saving for an investment property
40% are no longer saving for a big-ticket item like a holiday
35% postponed investing in the stock market
31% decided to put on hold saving for a house deposit

Goodbye holiday, hello rainy day

Pre-COVID, saving for a holiday was a priority goal for almost half of us. Whether it was an annual trip overseas or regular cheeky getaways, Aussies were big travellers. But with the world shut down and travel greatly restricted, we’re realigning that goal to something that makes us feel more secure – saving for a rainy day.

Because we’re more focused on saving, we’re watching our spending more closely too. Things we used to think we needed have been recategorised as nice-to-haves. And it’s not just the overhanging threat of job losses that have made us feel this way. Stay at home orders and have allowed us space to take stock and start appreciating the simple things in life once again. We’re valuing time with our family, a slower pace, and being debt free over buying things for the sake of it, or that we might not be able to afford.

Whatever your situation, now could be an ideal time to revisit your financial goals and decide if they’re still right for you.

Source: AMP

Six steps to building good financial habits

By Robert Wright /November 03,2020/

How financially secure do you feel? Recent research into Australians’ financial wellness – which is a person’s satisfaction with their current and future financial situation – revealed that people with good financial habits feel more financially secure.

It sounds like a no-brainer. But adopting good financial habits isn’t always as easy as it sounds, start building good financial habits with these six steps.

Make your own fresh start

Why do we always start a healthy eating plan or new exercise regime on a Monday? It’s called leveraging the context. And while we find it easier to form new habits during a significant life change like moving house or having a baby, there’s nothing to stop you finding opportunities in your day-to-day routine to instil your new habit.

Review household costs as they crop up. For example, can you reduce the amount spent on groceries when doing the weekly shop? If your health insurance premium is due, check the plan still meets your needs. Starting a new job? Consider if it’s right for you to consolidate your super. By committing to reviewing one thing at a time, you can start building good financial habits as you go.

If you’re now working from home, consider transferring your weekly travel allowance into your savings account each Monday morning.

Piggyback to an existing habit

It’s often easier to tag a new habit onto the end of an existing one. Think about how much easier it is to remember to floss after you’ve brushed your teeth.

When doing your yearly tax return, why not review your financial goals for the coming year?
When it’s time to renew your car insurance, take some time to check you’re getting the best deal from your utility providers too.

Make it easy

If we think something’s going to be hard, we often give up before we start. Keeping it simple and making sure we have the tools to succeed can help.

Tackle one area of your finances at a time to avoid feeling overwhelmed.
Dedicate a consistent time each week or fortnight to do your financial admin and block it out in your diary.
Use technology like banking and budgeting apps and direct debits to make things quicker and more automated.

Cues and rewards

When we start a new habit, it’s important to use cues to remind us to perform the new habit and feel rewarded for doing it.

You might decide to tackle your finances every Wednesday straight after dinner. Then you can reward yourself with a yummy dessert afterwards.

If you’re saving for a new car, you might consider transferring surplus cash from your current account into your new car fund each time you fill up with petrol. You’ll be rewarded with your new car even sooner.

Don’t underestimate the power of ticking something off a list. This simple act can make you feel great.

Practise and repeat

It takes an average of 21 days to form a habit when we’re focused and want to achieve it. Regularly practising your new good financial habits is key to making it stick.

Pop a daily, weekly or fortnightly reminder in your phone or diary. It can help until you remember automatically.

Mentally commit. If we have enough time to be on social media, we have enough time to form good financial habits.

Use meaning for motivation

Think about the meaning behind your new habits to help keep you motivated, both while forming the habit and once it’s part of your routine.

If you’re saving for a house, it doesn’t just mean having your own place to live. It’s creating a home, providing security for yourself and your family into the future, and it shows you have the willpower and commitment to achieve long-term goals.

Likewise, for putting money aside for emergencies. It doesn’t just mean you have the funds to cover a burst pipe. It means you have greater peace of mind and are better protected to weather times of financial uncertainty.

COVID has made us value feeling financially secure, and staying on top of your money can be hard. However, with a little work and commitment to creating good habits, you’ll soon be on the road to taking control.

Source: AMP

How is your credit score affected by COVID-19?

By Robert Wright /August 28,2020/

If you’re one of the many Australians financially impacted by COVID-19, who have deferred $218 billion worth of payments this year – fear not. Your credit score is unlikely to be affected by payment deferrals or mortgage holidays due to the current state of the world.

While that’s good news, it’s still important to maintain a high credit score by understanding how it’s calculated and what you can do to maintain it in future.

So, what is a credit score?

A credit score is a number between zero and 1200 that reflects how much money you have borrowed, the way you use credit and your history paying off any loans and credit cards. This is calculated based on many sources of information including:

Your personal details like your age, income and living arrangements.
Financial information like how many loans and credit cards you have.
Your bill paying history for expenses like energy and phone bills.

While your credit score is a record of positive information, such as your track record making repayments on time and in full, it also encompasses negative information such as late payments, court adjudications, bankruptcies and insolvencies.

All in all, the higher the score, the better and the more likely lenders will be to approve loan or credit card applications you might make. The lower the score, the riskier you will be perceived by lenders, making them less inclined to approve your application for a loan, which is why having a high credit score is important.

How is it calculated?

Credit bureau are responsible for consumers’ credit scores, which are calculated across the bands below:

Excellent: 841 – 1,200
Very good: 756 – 840
Good: 666 – 755
Average: 506 – 665
Below average: 0 – 505

What is a credit report?

A credit report sits alongside your numeric credit score and contains all the information used to determine that number. The report includes detailed information about the way you handle credit, such as your repayment history, as well as any defaults or overdue payments. It also encompasses information about your active loans and credit cards such as their value and repayment amounts.

Be aware your credit report will include a record of any defaults if you miss a payment valued at $150 or more that’s overdue for more than 60 days.

What’s it used for?

Banks and other financial institutions check your credit score and your credit report to see how likely you are to be able to make your repayments on new loans or credit cards for which you apply. Banks, telcos and energy companies also check this information every time you apply for credit with them.

What might cause your credit score to drop?

There are a range of reasons your credit score could drop, such as when you pay off a loan or cancel a credit card. While this might be confusing, this is because lenders have less information to assess how reliable you are at paying off debts or assessing loan applications.

Your credit score can also drop when you successfully take out new credit. This is because the average ‘age’ of your debt drops with the new loan. Over time, when lenders see you making regular payments on your new card or loan, your credit score should increase once more. Your credit score will also drop if you miss a payment, are routinely late making payments, or, if you go bankrupt.

How can I improve my credit score?

There are lots of steps to take to improve your credit score, including:

Pay your bills and loan repayments on time, and, in full. It’s an idea to set up direct debits so all of your obligations are automatically paid. This could help minimise the risk of missing a repayment and having this affect your credit score.

Don’t apply for too many new lines of credit, for instance multiple credit cards, at the same time. Lenders can take this as a sign you’re experiencing a cash flow crisis and need access to money fast, which can put you in the higher-risk category as a borrower.

Lower your credit limit. Lenders like to see borrowers using credit responsibly by paying off their repayments on time, and, in full.

Will my credit score be affected if I have deferred my mortgage repayments?

Banks have allowed borrowers who have been affected by COVID-19 shutdowns to defer loan and mortgage repayments for up to six months. Rest assured your credit score will not be affected if you have deferred your loan repayments.

This means that your credit report will not include a record that you have missed a payment as a result of deferring your repayments due to COVID-19. However, your credit score may be impacted if you have missed a payment on a loan or credit card for other reasons.

What should I do if I think my credit score is wrong?

You can take steps to correct your credit score if you think it’s wrong. Contact the credit reporting agencies to amend details such as your name and address. If the error involves incorrect defaults or information on your file that is a result of identity theft, contact your credit provider.

Source: BT