A Smart Financial Future Guide

Whilst this is not an extensive list it is at least a place to start to grow, manage and protect your wealth

Contact us if your need guidance or assistance on how to set up or manage any of the below.

Savings Plans and Investment - It’s never too soon to start!

Role Models: adults in the house need to set a good example as children emulate behaviour and your attitudes towards saving and spending are likely to become theirs!

 Pocket money: children around 6 or 7 can be encouraged to spend a little of their pocket money now and save the rest for something they really want, discouraging instant gratification and enabling them to experience that rewarding feeling when you purchase something you’ve been longing for.

Allowances and earnings: some families introduce allowances for their children for helping with household chores, which makes them feel as if they are contributing to family life. It also gives you the opportunity to start talking about saving and investing.  Kids can be encouraged to save say 10 or 20% and then choose to spend or save the rest.   You could also double the amount they choose to save, to incentivise them to save a larger portion.

 Introduce investing concepts and the power of compound interest: as your child begins to earn more money, with a part-time job or baby-sitting and lawn mowing, it’s a good time to introduce them to a bank!  This presents a good opportunity to shop around and look at where the best savings rates are, again re-enforcing the concept of compound interest.   A savings account is more formal and encourages good money management practices.  When money is given as a gift for birthdays or special occasions, some of it can be saved for more expensive items or something that they may want in the future. They quickly understand compound interest and how powerful it can be.

Get teens started investing in shares: Introduce the concept of investing by encouraging them to choose a company that owns a brand they’re interested in…it may be sports related, a games manufacturer or owner of high fashion labels then look at that company’s performance over a few months and consider the reasons why there may have been growth, a fall or fluctuations in the share price.  Perhaps consider recognisable brands such as Telstra, Woolworths, CBA, Kathmandu, Billabong, Event Hospitality and Entertainment and A2 Milk.

Suggest a company whose products or services they use, that appears to be growing and has scope for further growth.  This encourages an analysis of the market and target audience.   It also helps if it’s a company that they feel passionate about or at least like, which will encourage share tracking and this can be related to activities which the company may be engaged in or external factors affecting the company.

Our “Get Started: Introduction to Investing in Shares” has a fixed advisory fee of $220.00 and is available until you’re 25 years of age.  And the first 10 equity trades with CommSec have no brokerage fee!

Call Heather Leung on 02 9496 2300 to make an appointment. This service would make a great present for a young relative and could set them on the road to an early retirement! Heather is a senior financial analyst who can meet with your young people, explain the basics of investing and help them to set up a Commsec account and purchase their first shares.

ASIC’s compound interest calculator is an easy tool to help explain the compounding effect of interest to your teens.   www.moneysmart.gov.au

Q: I have sold some of my shares that I purchased last year. What is the tax effect on that?

A:

• If you purchased the shares for investment and held them for less than 12 months then any capital gain you make on the shares is a taxable capital gain and the full gain is included in your tax return as assessable.
• If you held the shares for more than 12 months then any capital gain you make on the shares is discounted by 50% such that only 50% is included in your tax return as assessable.
• If you made a loss on the sale of the shares it is carried forward indefinitely and can only be used to offset against future capital gains.
• If you buy and sell as a ‘business’ and therefore are considered a ‘trader’ of shares then the income is assessable and the loss is deductible as it is considered normal business income or loss.

Investment: There are really only three investment classes:

• Lending money to someone usually a bank as one wants to be certain that one gets repaid;
• Property which can be residential, commercial or industrial and can also be in the form of property trusts; and
• In businesses which can be one’s own or other peoples which is usually done via the stock market. 

Superannuation

• Super is about saving tax. Thus the aim is to keep your wealth in a super fund as long as possible.
• Making a pension reversionary to a spouse stops the wealth coming out of the fund too early.
• In complex families you need to consider who are the trustees or directors of the trustee company and is there a need for binding death nominations.
• Binding death benefit nominations must be considered as they take the responsibility from the trustee.
• Industry and retail super funds have public service types as trustees. Trustees are not permitted to have their exercise of decision making influenced in any way.

Tax, Super & Retirement: The topic of tax comes up and then this leads to superannuation and how one uses super to save tax. A lot of this is driven by investment advisors who like to produce financial plans and charge advice fees on devising investment plans in lots of hard to understand trust investments.

However little has been written about the depressing forecast as our savings diminish, as we get dementia, our partner dies and our children can’t cope with our foibles.

The first thing to consider is the date of our death. Very few of us have an exact date in mind. The current life expectancy for Australia in 2021 is 83.64. This means that half the population will live longer than that age. And what about if you reach 113 and you only thought that you might reach 95 and planned your drawdowns accordingly? What do you live off for the next 18 years?

You thus need to stay working as long as you can. Once you stop earning a full income then you begin to start drawing down on your savings. Savings diminish in the same way that savings compounded. At first the drop in your savings is fairly small but then it becomes noticeable. And you only see your savings going down.

Some 50 years ago you retired at 65 and died at 67. On retirement you cashed in all your assets and put them in the bank. You did not want to get caught in the down part of the investment cycle.

Times have changed if you plan to retire at 75 and you are ensuring that your money will last till 105 you have 30 years of spending with no income and this will go over 3 investment cycles. This is long term investing. Being at the mercy of inflation and tax over 30 years will kill your capital.

At this stage it is important to give your family an enduring power of attorney so they can deal with your affairs in the event that you can’t or you run the risk of handing over all responsibility to the public guardian, which can make life exceptionally difficult.

Wills: Writing a will is the job of the lawyer. However the accountant needs to have an input.

• One client had most of the shares in their family company in their spouse’s name. On death there was little in the estate.
• One of our clients died and because she thought that she was immortal left no will, more income for the lawyers.

A will has no effect on a superannuation fund, whether an SMSF or other fund.

• If you have complex or blended family issues you need to take similar action in respect of the super fund as you have in your will.
• We had one case where dad left his estate to mum and the 3 kids in equal shares. Sounds fair but mum could not live off the income of one quarter of the assets. Ultimately it meant that the children (adults in middle age) had to forego getting their distribution unless they wanted mum to starve, which they did not so they waited.
• Had one autocratic client who set up a life interest in the income of the estate with the kids getting the remainder on the second wife’s death. The widow is expected to have a further 30 years of life and the accountancy fees for the estate will thus last 30 years.
• It is nothing unusual these days for your parents to live in a different county to their children, in the event of death and assets in various countries probate may need to be obtained in each country. 
• Remember there is still at least one country where the wealth goes automatically to the eldest son and not the wife.
• Before the birth of a great grandchild one parliament had to change the law just in case it was a girl so the girl might inherit. It was a boy anyway and granny is now over 90.

 Do You have the Right Answers for these Questions to Protect Yourself, Your Business and Your Family’s Assets?

• What happens if you get dementia? Has someone got your enduring power of attorney?
• You need a will and you need to give your super fund a death benefit nomination if you have a complex or blended family. Accidents can happen and you could lose all or part of your family’s income.
• Will there be a life insurance benefit to be received?
• Your estate needs to be prepared for your unexpected death.
• Got a complex trust structure or lots of contractors?
• Will the Office of State Revenue have an opportunity to challenge these arrangements in a payroll tax audit?
• Are you paying your tax and employee’s super on time?
• Do you risk being declared bankrupt?
• Have you got well-written contracts with your customers?
• Do you risk not being able to sue for payment of outstanding debts?
• Are you monitoring the size of your customers’ accounts with you?
• Will your account grow so big that the customer does not have the resources to pay you?

If you are unsure of the answer to any of these questions and need professional advice talk to us @ PVBG (02) 9496 2300

_{Advice provided by Peter Vickers and Associates Pty Ltd Chartered Accountants Liability Limited by a Scheme under the Professional Standards Legislation ABN 60003466813. Authorised representative of Peter Vickers Insurance Brokers Pty Ltd trading as Peter Vickers Investment Services Australian Credit Licence and Australian Financial Services Licence Number 229302}