7 Ways to Invest in Your Future

January 16, 2019

One fact of life is certain, we don’t stay young forever. As we grow older, everyday tasks can become tiresome; we suffer inevitable aches and pains and often have difficulty remembering things. But the ageing process should be seen as a privilege. We have retirement to look forward to, access to good healthcare and the opportunity to spend more time with the people we love. To ensure we’re able to enjoy a long and happy retirement, it’s important to plan for this future..

Here are 7 ways to plan for what’s ahead:

1. Write a bucket list

It’s never too late to write a list of everything you’d like to do before you die. Always wanted to skydive? Eat in a top restaurant? Learn to play the guitar? Start a vegetable patch? Then start by making a list of everything you want to do so you can plan for which ones you want to tick off first. 

2. Invest in your super

With monthly bills and debts to pay off, investing extra money into your super is the last thing on most people’s minds. According to the ATO, ‘since July 1 2017, most people, regardless of their employment arrangement, will be able to claim a full deduction for personal super contributions they make to their super until they turn 75.’ If you have more than one super fund, the ATO offer a free consolidation service through myGOV. Alternatively you can speak to a financial adviser about how to roll them into the one fund whose risk policies most align with your needs. 

3. Start a holiday fund

Always dreamed of a big trip overseas? Use free online budget calculators to work out how much you need to save each month so you can plan for that once in a lifetime holiday. 

4. Write a will

According to ASIC, nearly half of all Australians die without preparing a will. For many people death is a difficult topic to discuss but it’s important to plan for the inevitable so your family are not burdened by financial hardship and legal issues. Having a legal will in place reduces the risk of leaving your estate in the wrong hands. Furthermore, it gives your loved ones time to grieve rather than contesting the distribution of your assets. 

5. Create a budget

Taking control of your money and income streams is the most effective tool there is to getting your finances under control. Many people think we need to earn more but really we need to spend less. Understanding what you are currently spending your money on and making small changes to these habits can instantly improve your financial position. 

6. Consider life insurance

Whether it’s a separate policy or through your super, the right cover provides peace of mind in the event of death or a serious illness. Most people have default life insurance through their superannuation. Super funds also allow you to purchase additional cover inside your super. We can help you ensure you have adequate life insurance for your lifestyle. 

7. Better health

Improving your health and wellbeing will give you more energy (and time) to focus on doing the things you enjoy most. Kick start a healthier lifestyle by making small changes to your day like introducing a five minute morning meditation to reduce stress, walking for 20 minutes on your lunch-break or introducing a green smoothie to get your daily intake of fruit and vegetables . Regular health checks will also help you stay on top of any health issues that arise. 

So start positive planning and look forward to your future.

ii https://www.ato.gov.au/super/ 
iii https://www.moneysmart.gov.au/life-events-and-you/over-55s/wills-and-power-of-attorney 

What Determines the Cost of An Insurance Policy?

There are a number of factors that determine the cost of an insurance policy. A cheap life insurance or income protection insurance policy doesn’t necessarily mean it’s an inferior one, and by the same token, the most expensive policy may not be the best to suit your needs.

The price of an insurance policy is generally a reflection of how the underwriter views the risk of you claiming on that policy. As each insurer will attribute their own measure of risk to each element of your lifestyle, personal habits and work situation, your overall risk profile can fluctuate between one insurer and another. 

Assessing risk

One insurer can decide you are a greater risk than others, which directly impacts the cost of your policy. 

The underwriter determines your overall risk by examining a number of factors, such as your age, gender, medical history, current health status, whether you are a smoker or non-smoker, your occupation, and your recreational activities. 

Once you understand how many elements are involved in assessing an individual’s risk, it’s easy to see how insurers can arrive at a different figure when determining your overall risk profile. 

Internal factors can influence the cost of your policy

From the insurer’s side, there are also a few internal factors that can affect the cost of your policy. Larger insurers may be able to offer a more competitive rate because of their economies of scale. 

If you already have another policy with the same insurer, they may offer you a better rate on any additional policies you decide to take out with them. 

Also, if a company specialises in a certain type of insurance, the volume of business they do in that specific area may mean they can offer a lower premium to their customers than insurers with a broader portfolio of products. 

Risky activities can add to the cost

Recreational activities can also result in variations in insurance quotes from one provider to another, as each insurer will attribute their own level of risk to each particular pastime. 

Risky activities such as scuba diving, skiing, skydiving, bungee jumping, and mountain climbing, may add to the cost of an insurance premium. 

Just how much each activity will add to the overall cost of a policy will differ from provider to provider, so shopping around to find out who provides the most appropriate cover for your particular interests could help you find the most comprehensive cover for you. 

Insurers tend to categorise risky activities into three areas:

  • Speeds
    i.e. skiing, motorsport
  • Heights
    i.e. skydiving, bungee jumping
  • Depths
    i.e. scuba diving

There are some insurers who do not offer plans for those deemed to be high risk, whilst there are others who offer plans specifically for those who take part in those types of activities. If you take part in a potentially high-risk activity, check if the insurer considers it to be risky and if it’s something they will cover when you’re looking to take out a policy. 

Credit Card Changes in the New Year

How you manage your credit card account and credit limits are about to get easier. The Australian government is rolling out four credit card reforms which are designed to protect cardholders over the next financial year. These changes kicked in with a ban on credit limit increase invitations from banks on 1 July 2018, and will also impact how cardholders can cancel their cards, change their credit limits and are charged interest.

Ban on credit card limit increase invitations

Card card issuers can not contact customers to offer credit limit increase invitations. This includes all forms of communication (including email, phone and in-branch). This applies even if customers have previously provided consent to receive these invitations.

The following Reforms will take place from January 1st, 2019.

Credit card limit assessments

If you’re applying for a new credit card or requesting a credit limit increase, the card issuer must assess your application based on your ability to repay the entire credit limit within a three-year period.

Online card cancellations

Credit issuers must give customers the option to cancel their accounts or reduce their credit limits online. When a customer makes a request, the credit issuer must take reasonable steps to help the customer meet their request. This means that card issuers can no longer offer contrary suggestions when you’re trying to close your account or reduce your credit limit.

Ban on back-dated interest charges

Banks and credit card providers can not retroactively charge interest on credit card balances. This will impact on the interest-free days feature many cards offer. Previously, if you didn’t pay the full amount listed by the due date on your statement, interest would be back-dated based on when purchases were made. This will not be the case from 1 January 2019.

How these changes affect you?

Previously, the 2012 credit card reforms stopped card issuers from making unsolicited credit card limit increase invites. So cardholders had to opt to receive credit limit invitations either at the time of applying for the card or by contacting their bank directly. Opting out of these invitations didn’t stop banks from contacting cardholders electronically or over the phone.

However since 1 July 2018, credit issuers can no longer invite cardholders to increase their limit over any form of communication and the consent exemption has been removed. If you have assessed your finances and decided you do need to increase your credit limit, you’ll need to contact your bank to do so. You can check out our guide to increasing your credit limit for the steps you’ll need to take.

The stricter eligibility assessments during the application approval process could also impact how much credit you can access. This means that you may be approved for lower credit limits than you have been in the past. This is especially important to remember if you’re planning to apply for a balance transfer. If you get approved for a credit limit that’s lower than the balance you’re transferring, the remaining amount will stay in your old account and continue to collect interest.

Household Debt Review

January 14, 2019

Fuelled by rising house prices and low interest rates, the level of personal debt in Australia is relatively high compared to many other countries.i

The largest proportion of this debt is often used to purchase a valuable asset – the family home. With careful planning, you might be able to control your household debt and use it to grow wealth and secure your future. 

Multiple factors drive debt levels

The debt to income ratio of Australian households recently reached 200%ii – the highest in history – and is expected to peak at around 205%iii

The level of debt has been driven by several factors, largely the record housing prices reached in the property market, a period of low interest rates and relaxed lending standards for home loans. As this chart from the Australian Bureau of Statistics demonstrates, the vast majority of household debt is in property loans. 

Mean household debt by type of liability, 2009-10 to 2015-16

*In 2015-16 dollars, adjusted by the Consumer Price Index 
Source: ABS Survey of Income and Housing

The level of debt is also becoming more challenging due to household income failing to increase at the same rate. 

Keep stress to a minimum

Low interest rates have been a boon for the housing market and a blessing for those who aspire to own their own home. This has seen average household mortgage debt-to-income ratio rise from 120% to 140% between 2012 and 2017.iv

While housing prices are starting to slow down, interest rates are expected to increase which means that some may start to feel the pinch of mortgage stress. By getting ahead of the trend, you may take control of your household debt and minimise financial stress in the future. The key to achieving this is understanding which debts are good and which are bad. 

Not all debt is bad

There is a common misconception that all debt is bad, but this isn’t true. Good debt allows you to invest in assets that could increase your wealth. Loans to purchase shares, student loans for education that increases your income-earning potential, and home loans all fall within the category of good debt. 

Bad debt is incurred to purchase items that decline in value or do not contribute to your wealth. This may include credit cards and personal loans, particularly if you’ve used them to purchase, holidays or a motor vehicle that declines in value the minute it’s driven off the lot. 

Regardless of the type of debt you have, it’s possible to have too much of a good thing. Debt in any form carries a level of risk. Losing your job, borrowing beyond your means and interest rate hikes can all place your household in financial stress and make it difficult to meet repayments. 

Keep your debt in check

There are some things that you could do now that may help you get your household debt under control. These include:

  • Create a budget: Understanding what money you have coming in and going out each week is the first step in understanding debt.
  • Identify and categorise debts: You may have some debts that have gone under the radar – like that credit card you make the minimum monthly repayment on. Identify all the debts that you have and then classify them as either good or bad debts based on their potential to increase or decrease your wealth.
  • Prioritise debts: Trying to manage multiple debts at a time can be overwhelming; prioritising your debts will provide direction and keep you on track. Initially, you could try and reduce the level of bad debt, taking into account the nature of your loans including applicable interest rates and relevant fees.
  • Consolidate debts: Sometimes it may make sense to roll all your debts into one facility. This could make them more manageable because you only have one debt to pay down and can potentially reduce the number of fees or the amount of interest you’re paying.

Controlling your household debt is not always easy but it could generate great rewards. Talk to us if you’d like a hand managing your household debt. 

ii http://www.abc.net.au/news/2018-01-18/household-debt-extremely-elevated-and-tipped-to-grow/9340880
iii https://www.businessinsider.com.au/australias-household-debt-is-now-one-of-the-highest-in-the-world-2018-1.
iv https://www.rba.gov.au/speeches/2018/sp-ag-2018-02-20.html