Politics. Sex. Religion. Money. For generations, we’ve been told to not talk about these subjects. Today, we probably talk about 2-3 of them more than we should, but we’re still really good at NOT talking about money. In many countries and cultures, we’ve been taught to NOT talk about money.

A 2016 research by finder.com.au has revealed that almost half of Australians would rather avoid the topic of money.

  • 42% of those surveyed find personal finances the most difficult thing to talk about, even more than religion (40%), sex (38%) and politics (23%).
  • Only 18% of Australians regularly discuss money and Gen Y (aged 18-34) appear to be the most comfortable talking about it when it does enter the conversation, with one in three (33%) often discussing personal finances.
  • Baby Boomers (aged 55-74) are the least comfortable generation when it comes to talking about money, with 56% never discussing it.

 

Finder.com.au survey image

But it’s so important that we break that taboo because failing to talk about money means we often fail to align the use of our money with what we say is most important to us. Even the “experts” can struggle to talk about money in their personal lives.

 

The 2016 survey also included three reasons for why it is important that money matters be discussed. These reasons are:

  1. Gain knowledge: Talking to someone who has more financial knowledge than you is a great way to learn new personal finance concepts.
  2. Take action: Having a conversation with a friend can prompt the listener to take action on financial matters like looking for a cheaper home loan rate or drinking one less coffee a day to boost savings.Take act
  3. Learn from their mistakes: Chances are that someone you know has learnt the hard way about a financial matter you are contemplating. By finding out what they would do differently, you then have a head start.

It is important that you help the people you love in your relationships and your family, to have these important money conversations, that will lead to quality decisions.

talking about money

 

 

 

 

 

 

 

 

 

 

 

 

 

Concessional contributions are those made with pre-tax income and can come in many forms, most commonly as

  • Superannuation Guarantee contributions made by your employer,
  • Salary sacrificed contributions made on your behalf, or
  • Tax-deductible contributions if you are self-employed.

Below, we’ve summarised a few important considerations regarding the cap changes that became law on 29 November 2016.

  1. A lower cap will apply from 1 July 2017

As part of the 2016 Federal Budget, the Coalition government announced plans to reduce the annual concessional contribution cap to $25,000 from 1 July 2017. The new cap will now apply to everyone regardless of age.

This will see the lowering of both the over-50s concessional (before-tax) contributions cap of $35,000 and the general concessional contributions cap (for under-50s) of $30,000. However, it’s important to note that the $35,000 and $30,000 caps still apply for the current (2016/2017) financial year.

  1. Making the most of your caps

If you are looking to increase your pre-tax contributions to superannuation, now is a good time to ensure that you are making the most of your concessional contribution cap. This may involve investigating a salary sacrifice arrangement with your employer or reviewing an existing arrangement before the cap decreases in July. But it is equally important to ensure that you take action from 1 July 2017 to plan for the lower cap in the 2017/18 financial year.

Another important change to note is that from 1 July 2017, anyone who is eligible to make voluntary super contributions will also be eligible to make personal concessional (tax-deductible) contributions. Currently, people earning more than 10% of their income as an employee (i.e. salary and wages) cannot make a tax-deductible super contribution, so this recent change should provide greater flexibility with:

  • end of year super top-ups by making personal concessional contributions to use up any remaining concessional contribution cap;
  • deciding how to contribute bonuses, annual leave, and long service leave; or
  • tax-effectively contributing lump sum leave payments received upon termination of employment.
  1. Future indexation

While we will have to live with lower caps from now on, the government will continue the practice of indexing these in line with average wage growth. Therefore, we can expect the caps to increase every few years in increments of $2,500.

  1. Carry-forward concessional contributions

There’s also good news for those with volatile or lumpy income, and those working intermittently. From 1 July 2018 onwards, if you fail to use your annual concessional contributions cap of $25,000, you can carry forward the unused portion for up to 5 years. Carry-forward concessional contributions may assist clients with breaks in employment to make ‘catch-up’ contributions when they return to work.

The provision applies on the condition that your total superannuation balance is less than $500,000 as at 30 June at the end of the financial year immediately preceding the financial year in which the contribution is to be made. Also bear in mind that as this new rule only takes effect from the 2018/19 financial year, you won’t be able to carry forward any unused concessional contributions cap until at least the 2019/2020 financial year.

  1. Exceeding the cap

An important consideration is what happens if you do exceed the concessional contribution cap. Since the 2013/14 financial year, excess concessional contributions have not been subject to excess contributions tax. Therefore, if you do exceed the cap, the amount will be included in your assessable income and taxed at your marginal tax rate. In addition, the ATO imposes the Excess Concessional Contributions (ECC) charge so that a person does not obtain a financial advantage due to the delay in payment of tax on their ECC.

The ECC charge period is calculated from the start of the income year in which the excess concessional contributions were made and ends the day before the tax is due to be paid under your first income tax assessment for that year. The ECC charge rates are updated quarterly on the ATO website, with the current rate being 4.76% (Dec 2016 quarter).

What’s next?

So there’s plenty to think about in managing your concessional contributions this year and the next, so why not ask your financial adviser how you can make the most of the new rule changes?

There are over 16 million credit cards in Australia, netting a national debt accruing interest of around $32.5 billion. Most of us have them. Most of us use them. Personal finance experts – spend a lot of energy trying to prevent us from using them – and with good reason. Many of us abuse them and end up in debt we may not be equipped to handle. After all, it is easy to lose track of spendings if you are not careful. But, when is the panic button pushed? When do we start to think “Oh, I better slow down” or “Eeek, I need to start paying more off my credit card”.

Well, a recent finder.com.au poll of more than 2000 people has found that the panic button scenario only creeps in when we rack up $4113 in debt.

Some more interesting stats from the survey:

  • According to the finder.com.au June 2016 survey, 70.19% of Australian adults own a credit card
  • The average credit card balance is just under $3150
  • The average purchase on credit cards is $120.97
  • People born between the mid-1960s and 70s are the most comfortable with credit card debt, saying $4357 was their tipping point

 

Demographics
How many Australians own credit cards by age group?

Finder.com.au Survey Demographics who own credit cards

 

With the new year here and the weeks flying by already, we’ve all been trying to keep our resolutions. Most of us set the usual each year; get fit, eat better, spend more time with the family. I hear the same kinds of things when I see clients each year; “I’ll keep cleaner records”, “I’ll come in earlier next year”, “I will keep track of my receipts”.

Without extreme motivation or an external driving force, both of these resolutions quickly fall back into the same habits of the year before.

I can’t help you stick to your New Year’s resolutions, but I can offer a little lifesaver when it comes to keeping track of your tax receipts for 2017.


Apps to keep track

cam scanner appiq boxy app receipts

A few of us around the office have been playing with a few different apps on both iPhone and Android devices and there appears to be a clear standout. CamScanner (Android) or iqBoxy (iPhone) offers the ability to “scan in” receipts via the camera and sort into folders within the application.

You can add relevant notes to receipts, which can be useful come tax time and a whole 12 months or longer after some purchases have been made.

These folders can then be exported to pdf and sent straight to your accountant for year-end preparation. The app also has the functionality to add in an extra collaborator, up to 10 on the free version, which can be extremely useful for small businesses to speed up expense claims or substantiate business purchases.

I usually clean out my wallet once a week, scanning in all of my receipts and sorting them into the relevant folders. It’s much more manageable for me this way rather than trying to set aside time each day, and saves my receipts from fading if I wait until year end.


It’s not too late to start

Even if you haven’t set any resolutions, it’s never too late. There’s no time like the present.

There are more apps out there in the marketplace than the time available to explore them all. If you have any other app needs or have discovered a great one that could be useful to others in similar situations, please don’t hesitate to let us know.

Arnold Horshack was the character in “Welcome Back Kotter”, who famously said, “when you least expect it – expect it!”.

It seems like 2016 will go down as the year of getting what we least expected, with outcomes that were even less expected!

Brexit and Trump were the two least expected outcomes, with grave concerns of what would happen to financial markets in either event.

Turns out the least expected outcomes are those that have come to pass.

Last weekend, Italy voted on changes to the constitution for the purpose of strengthening the lower house of parliament against the Senate. The government would then have some hope of actually passing some laws that would modernise the labour markets and other areas of sorely needed economic reform.

After a resounding NO, Prime Minister Matteo Renzi has resigned. There were concerns that the resulting political instability would turn attention back to the plight of Italian banks. Estimates are that Italy’s banks have EUR380 billion of bad loans, and continued political instability will make it less attractive for private capital to provide further support. But no, markets have completely taken that in their stride, and barely missed a beat. The Euro crashed to USD1.05 but then rebounded the same day to USD1.075.

The Austrian elections have installed a Green Party leader. Voters have turned their backs on major parties, and that market was up 2.5% in the following two days.

Next year, the big event is the first round of voting for the next French President on 23 April.  Socialist president, Hollande, has decided not to run, leaving many questions open and the far right ‘National Front’ leader, Marine Le Pen, gaining in popularity.

Whatever the outcome, we do need to be prepared for, and not spooked by, the accompanying volatility.

Our first chart helps to visualise the impacts of the Brexit and Trump surprises.

A familiar pattern shows up. Polls favouring the ‘expected’ result in a buoy in the market in the days leading up to the event (first green arrows). Then, the unexpected shock hits the market (down arrows in red). Lastly, we get the realisation that maybe it ‘won’t be so bad after all’ and markets get back on track.

 

Market update november

 

As an aside, right now the market is having a struggle breaking through the highs that were made after the post Brexit rally.  A move above 5500 on the ASX200 or 5580 on the All Ords is required to confirm the rally that is underway.

Another chart we want to share this month is the USD index (basket of the USD vs trade weighted currencies) and its relationship to the gold price.

Since the Trump win, the USD has strengthened (again – unexpectedly) while gold has sold off. The strong dollar/weak gold is a traditional relationship, and you can see this very emphatically since the early November Trump surprise. The strong dollar run does however show some early signs of easing. Australian gold stocks have sold off heavily in the last three weeks, so it will be interesting to see if the dollar is topping and whether gold can find a bottom at these levels.

 

quill group market update

 

The other chart we wanted to share is that of the ten year US Treasury bond, where the rise in yields has resulted in a sell-off in yield sensitive sectors.  We (and others) previously identified these as the ‘expensive defensives’ that we wanted to avoid, or at least restrict to low exposures to in our portfolios.

graph-update-2

In our fixed interest portfolios, the primary position has been to hold short maturities in preparation for this exact risk.  The funds we use in this sector generally have a mandate to shorten or lengthen the duration, taking advantage of sell-offs like these.

The other big event that is yet to come this year is the Fed meeting on 15/16 December.  It is widely expected (92% odds) that the US Federal Reserve will hike the short term rate to 0.50% at that meeting. That rate hike is fully factored into markets already. It will be a matter of how many hikes follow in 2017 that dictates whether the sell-off in yield assets is a buying opportunity, or just the start of a larger rotation into cyclical stocks.

All we can say is, “expect the unexpected’ or, in the words of Arnold Horshack “when you least expect it – expect it!”.

Our portfolio management strategies are positioned to be resilient in the face of volatility, and in many cases to take advantage of it.

Whether it’s for diversifying the investment pool or even for the trustees fearing the next financial ‘doomsday’ event, a common question we get asked is “can an SMSF buy gold? And are there any rules we need to be aware of?”.

In short, yes and yes!

The first thing to consider is what type of gold we are analysing; are they collectable gold coins or bullion bars?  For the purpose of our blog, we look at bullion bars. Please refer to ‘collectable rules’ via the ATO website for more details on collectables.


Gold bullion bars

Since they are not defined as a collectable, when an SMSF buys bullion bars, the key issues to consider are as follows:

 

  1. Where will it be stored?

    • Whilst there are no specific rules around this, it’s the trustee’s responsibility to make sure the gold assets are securely protected. We recommend it is not stored in the trustee’s home and instead, stored in a dedicated vault service.
  2. Does it need to be insured?

    • Again, there are no specific rules around this so it comes down to the discretion of the trustee as to whether it is insured or not. If insurance is arranged, it cannot be part of a personal insurance policy, such as the home and contents.
  3. What records need to be maintained?

    • The trustees should keep a record of the purchase and sales documents (invoice etc) in the name of the SMSF as proof of ownership and for the calculation of (hopefully!) gains or losses.

When it comes to the annual accounts reporting, we will request for details on the above 3 matters. Then, for record keeping purposes, we will prepare an asset declaration for the trustees to sign confirming these key details.

There’s always a moment, when I start a new task, where I wonder, “What’s the consequence or what effect will this have on my time?”.

Specifically, does my decision to work on that new task create a conflict between what’s urgent and what’s important?

tick one task off your list

As we work through our daily “to do” list, the urgent things demand our attention RIGHT NOW, however, in the process, we defer other important and usually personal tasks. I see this situation quite frequently when clients are trying to organise their financial lives but other day-to-day tasks take priority.


Prioritising can be tricky

Every day, we are faced with a list of urgent demands for our attention and I know from personal experience just how difficult it can be to prioritise.

In the interim, we set aside those personal things that are so important to our personal and family’s needs. We defer implementing or updating our will, insuring our income, or rebalancing our investment plan, and the list goes on and on.

All these things are vitally important to us, however, inevitably they never get our attention until something happens.


Take advantage of the holiday period

I know that December and January are holiday months and you may have blocked out a week or even a few weeks for a holiday during this period. I am sure that the last thing you want to think about is any important decisions and you’re looking forward to turning the brain off and catching up on some much-needed R&R. However, it could be the perfect time to check one important thing off your list;

Consider using this time to talk about one important financial matter with your partner that you have set aside for other reasons. Agree that it is important to both of you and that when you return from your holidays, you will take action to get that important something checked off your list by Australia Day 2017.

Don’t let the title fool you, even if you are not a Millennial you may benefit from these fantastic apps. These tools could help you save for your first home, new car or your next holiday adventure. But most importantly, they can help you build your wealth which seems to be an area that millennials are struggling with the most.


GOODBUDGET BUDGETING APP

goodbudget app millenial

GoodBudget is a budgeting app that allows the user to create a budget that is easy to stick to, making saving money a lot easier. GoodBudget uses a virtual form of the old envelope system where you put your money into an envelope for each expense and when an envelope is empty to stop spending. You start with a savings envelope then allocate funds to your expenses. You have planned your savings before your expenses so you don’t overspend.app millenials budget

GoodBudget comes with a free plan that includes 10 regular envelopes and can be used on 2 devices. This allows you to share your budget with your partner to ensure you are both aware of your spending. The free plan will save 12 months of your spending history to show patterns so that you can correct any bad spending habits.

 

The “Plus” plan will cost you $5 USD per month or $45USD per year and will give you unlimited envelopes and accounts. It can be used on up to 5 devices and will track 5 years’ worth of spending.

If you are struggling with your budget, Goodbudget may be the key to saving up for your first home deposit. For more information, Click Here to view their website.


ACORNS INVESTMENT APP

app millenials acorns investment

Acorns is an app that allows you to instantly invest your savings and does so in its own unique way. It is essentially a virtual piggy bank, except your spare change gets invested. It uses your “round ups” meaning they round up the cost of each purchase you make to the highest dollar and invest the difference in one of their investment portfolios.

You will need to link your bank account to Acorns to make this happen automatically. However, if you choose to use the round up system, you can set up recurring daily, weekly or monthly payments so that you can control exactly how much and how often you invest in Acorns. Or, you can also simply transfer lump sums when you feel like it and you have unlimited deposits and withdrawals from your Acorns account. acorns investment app

Finally, you do have some choice in how your money gets invested as Acorns has 5 portfolios to pick from. They range from conservative to aggressive investment portfolio. Acorns will provide you with an infographic that allows you to see the projected value of your Acorns Investment in X amount of years based on your monthly investment into Acorns.

Acorns will cost you $1.25 per month for accounts under $5,000 or 0.275% for accounts over $5,000. You will not be charged any transfer fees and can withdraw your money at any time. A review of the software by The Wealth Guy revealed that to get the most value from your Acorns account you should aim to have $2,000+ so the annual fee is 1% of the value of the portfolio.

If you are wanting to invest but have no idea where to start, this could be your solution. I have been using the app for 4 months now and it has worked so well that I don’t even notice that I am saving money. For more information, Click Here to view their website.

 


SIMPLY WALL ST INVESTMENT APP

simply wall st invest app

If you would like to invest with more control but need something to give you the information you need to make decisions, Simply Wall St is one of those apps that could be for you. Simply Wall St allows you to do away with the mind-numbing spreadsheets to provide the highest quality of data on stocks from various stock exchanges and presents them in an easy to follow infographic.

Simply Wall St uses a unique “Snowflake” graphic (shown below) to show the 5 key areas to researching stocks: value of the investment, the future and history of the investment; the health of the company and the income the investment can provide.

simply wall st investment app

Simply Wall St also provides estimates of the stocks’ future to give you an understanding of that company’s potential direction. It starts with a free plan for you to learn how to use the software and then there are two more plans which offer greater functionality and more benefits to your research at affordable prices.

Portfolio analysis and research has never quite been so easy and Simply Wall St will absolutely make you a better investor. In my opinion, Simply Wall St is a must-have for any self-directed investor.

Simply Wall St also comes with a beginner mode which helps you learn about investing whilst staying in control.

For more information, Click Here to view their website.

 

If you would like to start building your wealth and need some advice on how to start, the exceptional team at Quill will definitely be able to help.

In today’s society, with advancement in communications technology, the use of scams to trick unsuspecting victims to part with their hard earned savings and personal details is becoming more prevalent.

The malicious impersonators behind these scams are collating the information to access bank accounts, take out loans in other people’s names, lodge false tax returns and claim Centrelink or other benefits.

A number of contact methods are used to trick people into providing this information including phone calls, emails, and SMS.


So how do you know if you are being targeted?

Phone Scams

The ATO will, on occasion, phone to speak to you, but be aware that they will never:

  • ask you to pay money to receive a refund or payment from them
  • ask you to pay a debt via a prepaid credit card or voucher
  • ask you to provide personal information like your TFN or credit card number, via email or SMS
  • request your credit card details to process a payment on your behalf.

These callers can be very convincing and intimidating.  They can often catch you off guard if you are not ready for them so be aware!

The following is an example of a recent phone scam that has been going around:

You receive a call from a person saying they are from the ATO. They say that due to ‘errors’ on your tax return, there is a warrant for your arrest. The police will be called unless you attend the local post office and make an immediate payment.

In a variation of this scam, the caller asks you to buy a ‘Load and Go’ card, a pre-paid visa card or department store gift cards. Or pay into a personal bank account.

Key indicators of this scam:

  • cold calling (unsolicited call)
  • you are advised that there is a warrant for your arrest
  • the callers use an aggressive tone
  • you are asked to make a payment without having received any prior advice or correspondence from the ATO
  • you are asked to pay via non-legitimate payment methods
  • you are asked to make a payment without a personal payment slip.

Email Scams

Emails that claim to come from the ATO offering a tax refund are more than likely a scam.  The email usually links to a fake website which will ask for your personal and credit details.  If you receive an email from the ATO, do not respond, click on any links or open any attachments.

Emails that contain attachments can infect your computer with malicious software once opened.

SMS Scams

The ATO will, from time-to-time, contact you via SMS however, they will never contain links to click on or ask you to reply with your Tax File Number or your personal bank account and BSB number.


How can you avoid being scammed?

Unfortunately, this type of crime is on the increase so we all need to be more vigilant in protecting our personal information.

Your Tax File Number is used to identify you in your dealings with the ATO so always keep it safe.

Only give your Tax File Number to people with a legitimate reason for having it – your registered tax agent, your bank, or your employer after you begin work.

If you are ever in any doubt as to the legitimacy of a call, email or SMS, you can contact our office and we will assist you with the process for reporting the scammers, and provide you with further information on how to avoid them in the future.

Compound interest has been famously described by Albert Einstein as ‘the most powerful force in the universe’. In a recent submission to the Productivity Commission1, the Association of Superannuation Funds of Australia (ASFA) likewise highlighted the virtues of compounding, indicating that investment returns will account for about 70% of the final value of an individual’s superannuation balance at retirement. ASFA’s assessment is based on an individual with average earnings who makes “contributions throughout a full working life”. Under this scenario, the remaining 30% of super saving by retirement age would be funded by the fund member’s own contributions.


The power of compound interest

Compounding interest is simply interest earned on not only your capital, but also on previously earned interest. To see how this works and how powerful it can be, let’s look at a simple example. In the table below we invest $1,000 into a managed fund earning 10% per annum. We can choose to either take the earnings each year or reinvest these by adding them to the account balance.

 Interest paid outInterest compounded
YearInvestment AmountInterest Paid OutInvestment AmountPlus Interest Re-invested
1$1,000$100$1,000$100
2$1,000$100$1,100$110
3$1,000$100$1,210$121
4$1,000$100$1,331$133
5$1,000$100$1,464$146
6$1,000$100$1,611$161
7$1,000$100$1,772$177
8$1,000$100$1,949$195
9$1,000$100$2,144$214
10$1,000$100$2,358$236
Total interest earned*$1,000 $1,594


* For simplicity, the illustration has not taken into account taxation, volatility, and the investor’s cash flow needs.

While simplistic, the impact of compounding investment earnings is clear. When reinvested, the interest earned each year is added to the carry over account balance. Over ten years, the reinvestment strategy generated more than one and a half times the value of the pay-out option. If we extend the calculation over 30 years (below) our investor would be $13,449, or 548%, better off by compounding the returns.

kick for your portfolio compounding interest

Pretty impressive! But what if you just want to work out how long it will take for your money to double while quietly compounding away?

Well, luckily there’s a handy little approximation technique known as the Rule of 72 which lets you quickly estimate this if you know the rate of return.


The rule of 72

Say you have an investment with an annual return of 8%. How long would it take for your initial investment to double in value? To estimate this, simply divide 72 by 8. And presto, the answer is 9. So, with an annual return of 8%, it will take approximately 9 years to double your initial investment.


Start now

So, regardless of the rate of return you aim to achieve on your investments, if you have time on your side the effect of compounding will provide a huge boost to the end result. Starting early and staying committed to regular saving is a proven way of creating long term wealth.

Now, all that’s a lot to take on board! So, why not ask your advisor how you can make the magic of compounding returns work best for you!

1. Quoted in the Productivity Commission draft report: How to Assess the Competitiveness and Efficiency of the Superannuation System.

Quill Group

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