FINANCIAL PLANNING
What is Financial Planning?
The aim of financial planning is more than just managing your savings
and investments. It’s about ensuring that your future lifestyle is as good
as it can possibly be. You work hard so why not make sure your money
is working as hard as you are.
Whether you are in your carefree 20s, consolidating 30s, comfortable 40s or cruising
50s,the advice of a professional financial planner can be critical in helping you achieve
your financial goals by developing a strategy that will work for you.
How financial advice can help you
Financial advice can make a big difference at every stage of life.
A financial planner can help you with different investment strategies
for different circumstances, such as:
- Managing your investments tax effectively
- Planning for the costs of marriage and the benefits of combined income and savings
- Making your income go further by investing wisely
- Structuring your assets in the most effective way if you are self
employed
- Planning for the birth of children and the loss of a regular salary whilst on maternity
- leave
- Making the most of your superannuation
- Planning your finances following a redundancy or when changing jobs
- Making the most of a financial windfall, such as an inheritance or a maturing term
deposit
- Maximising your eligibility for government benefits
- Planning the retirement lifestyle you want
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About Bridges
Bridges is a leading and highly respected wealth management business which
can provide you with advice on wealth creation, pre and post retirement planning,
risk insurance, estate planning, margin lending, stockbroking services and much
more. With over 60 offices and more than 160 planners, Bridges is one of
Australia’s largest financial planning and stockbroking groups and has been
providing financial planning services to credit union members since 1985.
Many people are aware that they need professional financial advice but are
unsure of where to start.
The quest isn’t simply to find a planner but more importantly, to find a planner
you feel you can trust. A Bridges financial planner will provide you with advice
that meets your needs and will continue to offer advice and service, long after
the initial investment has been made.
Visit the Bridges website to find out more about Bridges and the vast range of
services available.
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Budgeting
Do you know how much you spend – each week, each month, each quarter?
If your money seems to disappear, try setting yourself a firm but achievable
budget and start taking control of your money.
There are many ways you can get your money working harder:
- identify your medium to long term personal goals and prioritise them
- take a hard look at your bills to see how you have been spending your money and work
out where you can cut down
- identify debts that have the highest interest charge and pay these off as a priority
- consider having part of your salary regularly deducted from your savings account
(ie. a salary sacrifice arrangement) and transferred to an investment account
- create a realistic but firm budget to help determine your saving capacity
- reward yourself when you reach budget milestones.
A Bridges financial planner can help you assess your individual needs, explain suitable
investments and develop appropriate strategies.
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Saving versus Investing
The terms ‘saving’ and ‘investing’ are often used interchangeably but
actually are very different.
Saving is putting money aside for some short-term goals or as a back-up
in case of an emergency. While relatively safe, savings are generally
placed in a basic savings account earning relatively low rates of interest.
The return on your savings may be outweighed by inflation and account
charges.
Investing, on the other hand, is putting your money to work strategically
for the longer term, to build wealth and increase your financial security
over time. Reinvesting dividends utilises the magic of compounding
interest, making your money work even harder.
There are many factors that will determine the nature of the investments
that are suitable for you. These include:
- your objectives – what do you want to achieve?
- your timeframe – how long do you have to invest?
- your risk tolerance – how comfortable are you with fluctuations in the value of
your investment?
All investments carry a level of associated risk. Generally, those
investments with higher rates of return over the long term have a
greater level of risk over the short term. Similarly, those investments
with lower risk usually have a lower long-term return.
Diversification is a strategy that spreads the ‘risk’ across a variety
of different asset classes. Minimising the overall risk helps build the value
of your portfolio.
There are many types of investments available to help you build your
wealth:
- Cash
- Fixed interest
- Property
- Australian shares
- International shares
Everyone’s situation is different and a Bridges financial planner can help
identify appropriate strategies and investments just for you.
Tips to help build your wealth
- Consider having part of your salary regularly deducted from your savings account and
transferred to investments with a higher rate of return
- Invest for the medium to longer term which will help smooth out the short term volatility
of some investments
- Growth investments such as property and shares, although higher risk, generally offer
a higher return over the longer term than lower risk investments such as cash and fixed
interest
- Avoid investments that sound too good to be true, as this is often the case
- Consider investments that are more tax effective such as Australian shares
- Contribute more to super as this is one of the most tax effective investments available
- Diversification helps to reduce risk by investing across a range of asset classes
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Superannuation
Superannuation is important because it may be your only means of
financial support in retirement.
A basic retirement versus a great retirement
Wouldn’t you like to enjoy your future without having to
worry about money? Unfortunately most people have a huge
shortfall in their retirement savings: the average Australian’s
superannuation balance is just $63,000*, not much
considering a comfortable retirement can cost
up to $35,789# pa for a single person and $47,967# pa for a couple.
Your employer’s compulsory 9% Superannuation Guarantee (SG)
contributions are unlikely to give you a comfortable retirement.
But if you start contributing to your super now you can make more of
your retirement later.
* Australia’s exploding DIY funds, Eureka report, February 2007
# ASFA Retirement Living survey
Super tax advantages
Superannuation is one of the most tax effective ways to save for your
future.
Your contributions are taxed at up to 15% which is much lower than most
of the marginal tax rates. If you contribute part of your pre-tax income to
super (salary sacrifice) you will be taxed at 15% rather than your marginal
tax rate, which may be as high as 45%.
The tax paid on the fund earnings again is only 15% instead of up to 45%
on other investment earnings outside of super. If your super is then taken
as a lump sum or converted to a retirement income stream there
are further tax concessions.
Contributions from the Government
Do you earn less than $58,000? If so, you may be eligible to receive a
co-contribution from the Government? For every dollar you contribute to
super, the Government will contribute $1.50, up to a maximum of $1,500,
if you earn up to $28,000 pa. This Co-contribution reduces by five cents for
every dollar of income over $28,000 pa and phases out completely
at $58,000 pa.
Investing super wisely
It is beneficial to understand where and how your super is invested
because you do have a choice.
Eligible employees can choose the super fund to which their employer’s
compulsory contributions are made. Your super may be portable now so
you no longer need to change funds when you change employers.
It is also important to ensure your super is invested in line with your
personal circumstances and objectives, including your risk profile,
performance objectives and investment timeframe.
If your super is primarily in cash or other conservative investments you
may be missing out on higher returns that could be generated from a
larger allocation to growth investments (such as shares).
Consolidate your super
Do you have more than one super account, perhaps from changing jobs
over the years? Consolidating your multiple accounts could save you
money in fees and charges. A larger combined account balance may also
generate a greater return.
For more information on managing and building your super, organise an
appointment with a Bridges financial planner.
Self-managed super funds (SMSF)
Self managed superannuation is a vehicle that gives you freedom of
investment choice allowing you to take greater control of your retirement.
An SMSF, also known as a DIY fund, is a super fund with four or less
members, where each member of the fund is a trustee.
Each trustee therefore controls the investment of their contributions and
the payment of their benefits.
Over the last decade, the growth in SMSFs has been phenomenal and
is one of the fastest growing segments of the superannuation industry.
The impetus for this growth is threefold: the desire for more control by
fund members, the advent of Super Choice, and the increased focus on
retirement planning. There are now over 317,000 self managed super funds
registered with the ATO which hold in excess of $208 billion in assets.
Over 1,500 new funds are being established each month.
Whether an SMSF is suitable will depend on your circumstances.
Part of the attractiveness of SMSFs is that they give you access to a
large variety of investments not typically available through other
superannuation funds. For example, you can invest in private assets
such as artwork.
They also provide a way for family members (as the trustees) to combine
their retirement savings in the one fund.
If you have your own business, an SMSF can be attractive because you
can roll your business property into the fund.
However, the changing legislation for SMSFs can be complex.
Obtaining financial advice can help you understand what is required.
It is also important to note that an SMSF may involve a lot more
administrative work for you and the compliance requirements can be
onerous. You also need to ensure that the costs of running your SMSF
do not outweigh the returns. General guidelines suggest SMSFs
are more cost effective for those with $250,000 or more to invest.
There are many things to consider before setting up an SMSF including:
- understanding how an SMSF differs from other super funds
- the roles and responsibilities of the trustees
- the establishment process for an SMSF
- how the fund is structured and what investments are permitted
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Retirement Planning
Retirement is a time of life for you to relax and do the things
you have always wanted to do. Therefore, careful planning
can help ensure you are financially comfortable.
Prior to retirement, there are some important questions you
need to ask yourself, including:
- What do I want to do in retirement?
- How much money will I need to do it?
- Do I need a regular income?
- Where will this income come from?
- When can I retire?
- How and when will I be able to access my super?
- What Government support will I be eligible to receive?
Planning ahead can assist you in making the most of whatyou have and
help you achieve financial security, reduce uncertainty and enjoy your
retirement.
There are many different options available to help fund
your retirement. These include taking your super as a cash
lump sum, purchasing an income stream product to give
you a regular income or a combination of both.
A regular income in retirement
Allocated pensions
An allocated pension is purchased with super monies and
provides a flexible, tax-effective, regular retirement income
stream. It is not guaranteed, however the payments are
flexible and can be adjusted within maximum and minimum
limits set by the Government.
Any capital remaining upon death is distributed to
your estate or dependants.
Annuities
An immediate annuity on the other hand is an investment
of a lump sum, usually with a life insurance company,
that provides a regular guaranteed income for a specified
period. The income will depend on the initial investment,
frequency of payments and the prevailing interest rate.
The income you receive is generally set at the time of
investment and will not change.
A complying pension or annuity is one that meets certain
conditions and may provide partial or full exemption from
the Social Security Assets Test
(although not the income test) and receives favourable
treatment under the Reasonable Benefit Limits (RBLs)
system. This allows you tax-effective access to your
super savings.
Each type of income stream has different features.
The 2006/2007 Federal Budget also proposed many
changes that may affect income stream products and
your retirement.
A Bridges financial planner can help you with these
changes and your retirement planning by identifying
income options that best suit your circumstances and
goals.
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Insurance
Building your wealth is important and so is protecting
it.
What would your family do if something happened to you?
Illness, injury and death can have a huge impact on your
family and your finances. Most of us insure our car and
home etc, but what about your most important assets: your
life and your ability to earn an income.
Make sure you look after your loved ones and protect
them against these risks.
Income protection (salary continuance)
Covers the loss of income, during an extended absence
from work due to illness or injury.
Trauma insurance
Provides a lump sum payment as a result of a specified
‘trauma’, such as a heart attack, stroke etc.
Total and Permanent Disablement (TPD)
Covers the permanent loss of income through illness or
injury that prevents your return to work.
Life insurance
Provides financial support for dependants in the event
of your death.
Business expense insurance
Covers the costs of running your business in the event of
extended illness or injury.
A Bridges financial planner can help you identify:
- areas where you may need protection
- appropriate insurance for your circumstances
- the level of cover required
Is it worth the risk? Without insurance the risks are high.
For more information on protecting your wealth, contact
us to arrange an appointment with a Bridges financial
planner.
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Share Investing
Direct investments versus managed funds
Investing your money is an effective way to build your
wealth. You can choose whether you invest directly,
indirectly (through a managed fund) or a combination of both.
If you prefer to control where your money is invested you
can purchase shares directly. However, it is important to
conduct thorough research before investing directly
as there are many factors that will influence the
performance of shares.
Alternatively, managed funds pool the money of multiple
investors into a single investment vehicle with a common
objective and strategy. Just as their name suggests,
managed funds are managed by investment professionals
for you. They give you an easy way to invest in one or
multiple asset sectors such as shares, property and fixed
interest.
Everyone’s situation is different and it is important to work
with a professional to identify which investments may be
suitable for you. Bridges is one of the few financial planning
groups that offers a full stockbroking service to help you
with both direct and indirect investment options.
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Redundancy
Redundancy can affect anyone from the chairman to the
trainee. In this situation, there are many things to consider.
It is important to understand how you can manage a
redundancy payment so you can make the most of it.
Money to live on
You need to assess how much money you require to live
on and how much you will be able to put aside from
your payout.
Reducing the tax on your payout
Part of your payout may be tax-free. There are also ways
to reduce the tax you pay on the taxable component.
Some components of a redundancy must be taken as a
cash payment while others can be rolled over into super,
which may be more tax effective.
Social Security
You may be eligible for some Social Security support
following a redundancy. The structure of your assets and
income may increase your eligibility for Government support.
Make sure you get the right advice so that your payout
provides long term benefits, for example you may choose
to reduce your mortgage or invest it for the long term in
growth assets such as shares or contribute it to your super.
The 2006/2007 Federal Budget proposes changes that may
affect redundancy payments. Bridges financial planners can
help you plan for redundancy to make sure your payout is
used wisely. For more information contact us to arrange an
obligation free appointment with a Bridges financial planner.
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Tax Minimisation
No-one likes paying tax but it is a given. Minimising tax is the key.
When it comes to investing, there are many investment strategies that
you can utilise to minimise the amount of tax you pay.
Contribute more to super
Salary sacrifice contributions to super can reduce the amount of tax you
pay and build your retirement savings. The contribution is made prior to
income tax being taken out of your wages.
These contributions are taxed at a maximum of 15% instead of your
marginal tax rate which may be as high as 45%.
Whilst your money is in super, the earnings are also taxed favourably at
just 15%, again, instead of your marginal tax rate.
Tax-effective investing
Some investments are more tax effective than others. Growth investments
such as shares and property often receive more favourable tax treatment.
The capital gains tax and earnings tax, particularly on shares may be
lower than the tax on fixed interest investments, for example.
Investment loans
Borrowing money to invest (gearing) is also a good way to manage
your tax. You can receive a tax deduction if the cost of borrowing exceeds
the income generated by the investment.
If you have an investment loan you may be able to prepay the loan interest
up to 12 months in advance and claim a tax deduction.
Selling assets
Timing the sale of assets can affect the amount of tax you pay. Try to
avoid selling shares within the first 12 months of the purchase date.
After this time only 50% of the growth in capital will be subject to capital
gains tax.
An unused capital loss can be carried forward to a financial year when
a capital gain applies therefore incurring less tax on that gain.
If you would like advice on tax-effective investing, please contact us to
arrange an appointment with a Bridges financial planner.
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Estate Planning
Who will look after your family when you have gone?
You have worked hard all your life, so don’t let it all be for nothing.
Equally important as creating wealth is planning for the distribution
of it to your loved ones after you have gone. First and foremost, this
means having a current and valid Will in place.
Did you know that dying ‘intestate’ (that is, without a Will) means that
your assets (known as your ‘estate’) will be distributed according to a
statutory formula which, perhaps, may not be in line with your wishes?
The importance of a valid Will
A valid Will is fundamental, but there is so much more to consider to
ensure that your intentions are fully carried out after you’ve gone.
Many life events such as marriage, divorce, the birth of children and the
buying or selling of assets will impact your Will.
To account for such circumstances, it is important to ensure that you
not only review your Will regularly, but your estate plan as well, to ensure
that they both remain appropriate.
Have you considered who would manage your affairs if you were to
become incapacitated?
A Power of Attorney is a legal document that allows you to appoint a
person you trust to make financial decisions on your behalf.
A Power of Attorney however, ceases to have effect if you lose mental
capacity. An Enduring Power of Attorney on the other hand, will continue
to have effect, whatever your mental capacity.
Whilst a person appointed under an Enduring Power of Attorney
can make financial decisions on your behalf, an Enduring Guardian
can be appointed to make personal or lifestyle decisions for you,
such as where you should live, what doctor you should use and the
medical treatment you should receive, particularly if you do not want your
life artificially prolonged.
Estate planning not only ensures your wealth is managed and transferred
according to your wishes, but also in the most financially tax efficient way.
When it comes to distributing your assets, it’s hard to please everyone,
particularly family members. However, the right planning can minimise
the likelihood of claims being made against your estate.
A trust created within your Will can provide significant flexibility, together
with tax minimisation and asset protection, for those who will benefit
from your estate.
You have paid tax throughout your life but you don’t want your family to
pay unnecessary tax once you have gone. It is important to make sure
your estate is structured appropriately to avoid paying unnecessary tax.
A testamentary discretionary trust, for example, is established within
your Will as a structure that can hold your assets for your beneficiaries.
As it does not take effect until after your death and is managed by a
trustee, the distribution of capital and income can be made at any time
and in any proportion, thereby providing flexibility for your beneficiaries.
A testamentary discretionary trust could also provide some protection
for your assets. As none of the assets are legally owned by the
beneficiaries, to a certain degree, they are protected in the event
of legal proceedings, such as marital breakdown or bankruptcy for
example.
A testamentary discretionary trust structure can also provide other
advantages for your beneficiaries such as tax-effective distribution of the
income generated. Beneficiaries will pay income tax on their allocated
share of income according to their marginal tax rates.
Unlike other trust structures, beneficiaries under the age of 18
are taxed at adult rates rather than penalty rates, thereby allowing
you to take advantage of a substantial tax-free threshold.
As legislation varies from state to state, a Bridges financial planner
can help you determine which documents are appropriate for your needs.
With an effective estate plan in place you can reduce your family’s tax
liability and maximise their benefits.
Social Security
There are ways to reduce the impact of an inheritance on a beneficiary’s
Centrelink benefits.
A Bridges financial planner can show you how to preserve and
manage your assets with an effective estate plan.
For more information, contact us to arrange an appointment.
This is general advice only and has been prepared without taking into account
your particular objectives, financial situation and needs.
Before making an investment decision based on this information, you should
assess your own circumstances or consult a financial planner.
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Financial Planning Tools
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