Tag Archives: Financial Planning

Good news – Super contribution caps to rise

By Robert Wright /June 11,2021/

On 1 July 2021, both the concessional and non-concessional superannuation contribution limits, also known as ‘super contribution caps’, will rise.

This is good news because this is the first time these limits have changed since 1 July 2017, when the concessional contributions cap was reduced to $25,000 pa for the 2017/2018 financial year and onwards.

Since that time, the non-concessional contribution cap hasn’t changed either, currently $100,000 pa.

What are Concessional contributions?

These are super contributions made by your employer, from your pre-tax income (salary sacrifice contribution) or contributions for which you claim a tax deduction. They are generally taxed at only 15 per cent instead of your marginal tax rate.

What are Non-concessional contributions?

These are super contributions made from your after-tax income. Since you’ve already paid income tax on these contributions, they are tax-free going into your super.

Due to indexation of Australians’ average weekly ordinary time earnings (AWOTE), the concessional cap will increase to $27,500 from 1 July 2021.

What are the current and new contribution caps?

Current concessional contributions cap	New concessional contribution cap
$25,000	$27,500

Current non-concessional contributions cap	New non-concessional contribution cap
$100,000	$110,000

What does this increase mean for you?

Any increase in the super contribution caps means you may increase how much you can contribute to super. The tax benefits plus the compounding of returns can make a substantial difference to your final super benefit.

Additional concessional contributions to super can be made by ‘salary sacrificing’ through your employer or via ‘personal deductible contributions’.

You should consider whether to make non-concessional contributions or maximise your concessional contributions.

Concessional contributions

Additional concessional contributions can reduce your taxable income and your end-of-year tax liability. Concessional contributions are subject to just 15% tax on entry to your super fund compared to your upper marginal tax rate which could be as high as 37% or 45% (plus 2% Medicare levy) if you’re in one of the highest tax brackets.

Note: an additional 15% tax may apply to concessional contributions if your income is over $250,000.

How to make concessional contributions

Additional concessional contributions to super can be made by ‘salary sacrificing’ through your employer or via ‘personal deductible contributions’. Both methods have the same tax benefit so the method you choose comes down to what suits you:

Salary sacrificing comes out of your pre-tax salary and reduces your net taxable income meaning you may pay less tax on your personal income.

Personal deductible contributions are paid by you, and you can then claim a tax deduction when completing your tax return. If you choose this method, you need to submit a form to your super fund by a certain time advising your ‘intent to claim a deduction’ on your super contribution.

Making the most of ‘catch up’ contributions

‘Catch up’ contributions may allow you to use up to five previous financial years’ unused contribution caps in the current financial year if you meet certain requirements. The 2018/19 financial year was the first financial year you could accumulate unused concessional contributions. Unused carried forward concessional cap amounts expire after five years.

Non-concessional contributions

Non-concessional contributions do not entitle you to a tax deduction, but you won’t pay any additional tax as you’ve already paid tax via your personal income tax liability. Earnings on the contributions are taxed at only 15% and are tax-free once you access them as either a lump sum or a pension after age 60, when you satisfy a condition of release such as retirement.

Making non-concessional contributions to super might benefit you if you are seeking to contribute larger lump sum contributions.

Making the most of the ‘bring forward rule’

If you were age 64 or less at 1 July 2020 you may be eligible to use the ‘bring forward rule’, ie bring forward and use up to two future years’ worth of your non-concessional contribution caps.

Depending on your total superannuation balance this may allow you to contribute up to $300,000 (3 x $100,000) into super this financial year. However, if you wait and the cap increases from $100,000 to $110,000, the bring forward amount will increase to $330,000 next financial year.

You generally need to meet a ‘work test’ if you are 67 to 74 years old at the time of contribution.

Legislation is pending to increase the age at which you can trigger the bring forward rule from age 64 or younger as at 1 July of the relevant financial year to age 66 or younger.

With increases in the contributions caps on the horizon, 2021 may be a good year to revisit how much you are contributing to super and make a super plan for the future.

Source: IOOF

Five Financial habits to start

By Robert Wright /April 16,2021/

Like any habit, our financial behaviours are formed by doing the same actions repeatedly until they’re second nature. That’s great if you’ve got into the routine of saving regularly – but not so good if you’re one to whip out the credit card on impulse.

With the right approach, you can turn those less-than-helpful financial habits into healthy behaviours.

Research shows one way to avoid falling back into old ways is to replace them with healthier habits. Other useful strategies include:

• Making smaller changes rather than big, dramatic ones.
• Choosing specific actions like ‘I’m going to transfer $100 into a dedicated savings account every fortnight’ rather than vague goals, such as ‘I want to feel financially secure’.
• Triggering new behaviours with visual or sound cues – that’s why social media with its notifications can be so habit-forming.

Here’s how to use those strategies to set you up for a financially successful 2021.

1. It’s time to get organised

Knowing where you are financially gives you clarity around your money. This makes it easier to workout your financial goals – and what you need to meet them.

Start by having a place for everything. If you receive your bills electronically, save them in one place. Scan any other financial paperwork – or set up a folder if you prefer hard copies. Consider setting up direct debits or create calendar alerts to ensure you pay bills on time – and avoid late payment fees forever.

You can’t control your money if you have no idea where it’s going or how much is coming in. Using a budgeting app can help you easily track your expenses and get an accurate record of your monthly spend. You can use this information to create a realistic budget. You can also use your bank’s app to manage your day-to-day expenses and check your balance.

Don’t forget to record expenses as you go and photograph or scan receipts, so when tax time comes, you’ll have all the documents you need in one place.

2. Name your goals – And break them down into steps

What are your financial goals? Some common ones include:

• Buying a property or starting a business
• Going on a dream holiday
• Paying for the kids’ or grandkids’ education
• Leaving money for loved ones
• Retiring early
• Being free from debt/paying off the mortgage

Enjoying financial freedom. Once you know what your goals are, break them down into small, actionable steps. For example, say your goal is to buy a property. Work out first how much your ideal home will cost, how much you’ll need for a deposit and when you hope to purchase it. Next, decide how much you’ll need to set aside each fortnight for that goal. Don’t forget other sources of income that could add to your savings – like a tax return, bonus, or income from a second job.

3. Pay yourself first

One of the most important financial behaviours you can develop is the habit of saving regularly. You need some savings as a safety net – covering unexpected expenses like home or car repairs, or a trip to the dentist. You can then use additional savings to cover your financial goals, or to invest in assets like shares or property.

One of world’s most successful investors, Warren Buffett offers this advice on saving: “Don’t save what is left after spending; spend what is left after saving.” In other words, pay yourself first.

One way to do this is to automatically transfer a regular amount into a savings account each pay day. By taking the same amount out at the beginning of the pay cycle, you’ll get used to not having it. If money is tight, make the amount small.

Check the balance of your savings account regularly. This will give you the visual reward of seeing your savings account grow – helping motivate you to stay on track.

4. Set a debt repayment strategy

If you have credit card debt, try to pay off as much as you can each month. Make sure it’s more than the minimum, or you could end up paying a lot of money in interest.

If you have multiple debts, they may be easier to manage by consolidating them into one debt. Alternatively, pay off the debt with the highest interest rate first. Some people find paying off the smallest debt first, then moving onto the next smallest debt more motivating.

To avoid getting into more debt, try to avoid impulse buying. Consider having a credit card for emergencies only and relying on your everyday account to pay for groceries and other expenses. Even better, build up a rainy-day account and avoid credit cards altogether.

5. It’s never too late to learn

Do you find finances confusing, boring or stressful? Learning more about finances can take the hard work and mystery out of managing money.

Source: Colonial First State 

How to save for retirement in your 50s

By Robert Wright /April 16,2021/

For many people, your 50s are your golden years, a time when you may be at the pinnacle of your career and some of the big expenses you needed in your 20s, 30s and 40s have levelled out. But, while it may be easy to slip into a comfortable pattern of splurging on yourself and your children, this is the final stretch towards reaching your financial goals – a time when you should be maximising your financial know-how.

Shift your mindset to your saving goals

You might have a regular income now (in fact, statistics say you’re likely to be earning your highest income between the ages 45 and 51). But how will your life change when you retire, and your finances are potentially reduced or more sporadic? What happens when you need to prioritise saving overspending?

An important tip for saving for your retirement in your 50s is to change your mindset early and focus on what’s essential, rather than nice. Now is the time to prioritise your needs over your wants so you can reach your savings goals. The first step is to use a retirement calculator to help get an idea of how much you’re likely to need.

Hold your nerve

If you’re like many Aussies, your retirement savings and other investments might have been hit by the effects of the coronavirus pandemic.

You may, however, need to re-evaluate some of your retirement plans and consider pushing back your retirement by a few years if you can.

Transition to retirement

Still keen to exit the workforce sooner rather than later? Another option to consider is transition to retirement, a stepped pathway into full retirement that lets you access some of your super funds while you’re still working.

This scheme is open to those aged between 55 and 60 who are still working and comes with a range of options that could help you leave full-time employment behind.

Aim to be debt-free

Your focus for the next decade should be on how you can enter retirement with as little debt as possible. The average mortgage in Australia is $384,7003, according to the Australian Bureau of Statistics.

Imagine if you were able to retire without having to make monthly repayments on sizable amounts like this? There are numerous strategies for shrinking your mortgage fast, from setting up offset accounts to making lump-sum repayments.

Don’t forget other, smaller debts as well. While your home loan likely comes with an interest rate of between 2.5% and 5%, credit cards and personal loans often have much higher interest rates attached to them. The sooner you get rid of this debt, the sooner you can channel money into your retirement finances to help you build a comfortable retirement income.

Teach your kids to be independent

A recent report found that more than five million Australians provide support to their adult children, and now is certainly a time that many parents will be thinking about it. If your children were among the 3.1 million people who withdrew money under the early super access scheme and you’re in a position to be able to help, consider working out a way that you can help them to repay the money over the coming months.

Source: AMP

Budgeting tips for students

By Robert Wright /April 16,2021/

Surviving on a student budget isn’t easy, but don’t worry, it can be done. Whether you’re studying remotely this year, or returning to campus, we have some great tips to help you manage your finances.

Create a budget (and stick to it)

No matter what your income, having a budget is the first step towards financial wellbeing. It’s even more important when you have limited resources, so you can avoid overspending.

Not sure how to create a budget? Start by recording your income and spending in a budget planner or spreadsheet. Try to use the most recent figures you can find, taken from your latest utility bills, bank statements and tax returns.

What does your budget tell you? Does your income cover your essential expenses? Are there areas where you need to cut back? Revise the figures until you’re comfortable you’ll be able to make ends meet.

Avoid overspending

Now that you know what you can afford to spend, it’s important to stay within your budget.

If you do find yourself spending more each week than you have coming in, don’t be tempted to use credit as a bridge. Trying to cover your spending gap with a credit card can lead to a lifetime of consumer debt that’s hard to shift.

Get thrifty with your shopping

With so many ways to save on shopping, you need never pay full price again.
Here’s just a few ideas:

• You can find almost anything on second-hand marketplaces like Gumtree, eBay, and Facebook Marketplace. Second-hand doesn’t always mean ‘worn’ either. You can often pick-up items in excellent condition that no longer suit their original owner.
• New textbooks can be very expensive, so buy second-hand, or check whether there’s an online version available through your library.
• You can often find a better price just by shopping around online. Black Friday sales are another great time to save on bigger purchases. Just make sure to look out for any hidden fees, like shipping charges.
• Never use Buy Now, Pay Later services. This form of debt can become hard to pay back if you overspend.

A (cheap) place to call home

A good home life can really make or break your student experience. It’s also one of your biggest expenses, so weigh-up what’s most important to you and what you’re willing to sacrifice. For example, you might find that living closer to campus is more expensive but cuts down on your transport costs. Or, you may be able to find cheaper accommodation further out, with a longer commute. House sharing websites and student accommodation providers are a good place to start looking for affordable options.

Plan and prep your own meals

If last year’s lockdown/s taught us anything, it’s that eating at home is a big money saver! While it might be tempting to grab a takeout for lunch or dinner, the cost of eating out quickly adds up. Get Googling for some delicious low-cost recipes and plan out your meals for the week. Then invite a few friends around and swap that pub meal for some tasty home cooking.

Negotiate a better rate

Did you know you can often get a better deal, simply by asking? It’s possible to negotiate a better rate on just about anything these days, from your phone or internet bill to electricity and subscription services. Some providers will even offer special rates or discounts for students. So, pick up the phone and get dialling.

Financial assistance

Finally, it goes without saying that you need to make the most of any financial assistance you’re eligible for. That could be government support, student loans or scholarships (they’re not just for the high achievers after all).

Living on a student budget means being realistic about what you can afford. Just remember that it’s not forever and one day soon all your hard work will be worth it. Developing good spending habits now will go a long way to setting you up for a future of financial freedom.

Source: Money and Life