As property prices continue to rise, purchasing in a centrally-located or sought-after area is out of reach for the average working millennial. Instead, many are opting to rent rather than buy as it means not having to compromise their inner city or beachside lifestyle. But for those who are still eager to enter the market, there is a way to get the best of both worlds.

‘Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location and continue to live and rent in the area of your choice. An example of how the market is evolving, it is a wealth creation strategy that is popular among the younger generation due to the flexibility it offers in comparison to being an owner-occupier.

“Millennials aren’t interested in purchasing a property in the outer suburbs and then having to commute into the CBD,” says an MFAA accredited finance broker. “Rentvesting allows your rental income to cover the mortgage expenses, so you can maintain a lifestyle with less cost.”

For this strategy to work, you’ve got to be a good saver and there needs to be a focus on delayed gratification, advises the broker. “It’s all about living within your means. Don’t spend big at the start while you’re building it up. Step away from the mentality of negative gearing and tax minimisation and buy neutrally, or ideally, a positively geared property as this provides higher rental yields.”

“It’s still a foreign way of thinking,” says the finance broker. “In the past, the great Australian dream was to buy a home on a quarter acre block and then do everything you can to pay that down as fast as possible in the hope of living debt-free. ‘Rentvesting’ is quite the opposite. It says we’re okay with good debt as long as we stick to our budget and keep using the money to invest further. You’ve got to have an open mind and be comfortable with debt.”

To ensure you have the means to make ‘rentvesting’ work for you, us on 9836 8399 for advice on good debt and other strategies that will allow you to maintain your current lifestyle.

Source:
Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA)

Important:
This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Recent decades have seen huge gains made in the financial empowerment of women. However complete financial equality won’t happen soon and in some cases may be unattainable. So what are the areas where women lag financially, and when it comes to super, what can be done?

4 key issues

• Gender pay gap. Across all industries, including those in which female workers outnumber males, men are, on average, paid more than women. For non-managerial clerical workers the gap is relatively small at 8.8%, but in key management positions women receive 26.6% less than their male peers. Large gaps also occur in the legal and medical professions.
• Lower superannuation balances. While the pay gap is one reason why women have less in superannuation savings than men, another big contributor is time out of the workforce to raise children. Of 20 OECD countries, surprisingly Australia has the third lowest employment rate for mothers, particularly sole parents.
• More expensive disability insurance. While pure life insurance is cheaper for women, income protection and disability insurance is more expensive. This is because women have longer life expectancies than men, but they make more claims, and for longer periods, on both temporary and permanent disability policies. For trauma insurance younger women pay more than men of the same age, and older women pay less than their male counterparts. Future advances in medicine may help to even out these differences.
• Being single. Single women (and men) lose out on the financial economies of scale enjoyed by cohabiting couples. About 24% of Australians live in one-person households, and across all age groups, 55% of those living alone are women.

Focusing on super

While it will take significant social and political change to redress some of the financial imbalances between the sexes, there are things that women can do to improve their long-term financial position:

• Understand the situation. If you are planning on taking time out of the workforce, what are the implications? As an example, 35-year-old professional Simone earns $120,000 per annum and has a super balance of $60,000. She plans on having three children and expects to be a full-time mum for seven years before returning to full-time work. As a result she may likely have around $77,450 (17%) less in super at retirement at age 67[1] than if she didn’t take time off.
• Consider the options. Simone’s partner could plug some of this gap and potentially receive a tax benefit each year by making spouse contributions to her super fund while she is out of the workforce. This isn’t an option if Simone is (or becomes) single.

Another possibility is to increase contributions upon her return to work. If Simone salary sacrifices 2.9% of her pre-tax income to super, she could wipe out the estimated shortfall by the time she retires.

She could also consider changing her investment strategy or, less appealingly, delaying retirement.

Planning is the key

It certainly isn’t fair, but the reality is that more women, particularly single women, face greater financial hurdles than men. Planning for the range of scenarios is essential. To make sure you’re on the right track with insurance, superannuation and saving, talk to your licensed financial adviser.

Sources:

Homebuyers who make higher repayments than the minimum required are developing a valuable buffer to help cope with future rate rises or unexpected financial setbacks. A mortgage buffer makes much sense.

More than three years ago, the Reserve Bank reported that “anecdotal evidence suggests” that about half of households had not reduced their regular monthly repayments as interest rates had fallen. And it is likely that this buffer-building pattern has continued through the subsequent years of rate cutting.

The central bank’s latest half-yearly Financial Stability Review, published in October, records that mortgage buffers held in lenders’ offset accounts and redraw facilities remain high at about 17 per cent of outstanding loan balances. This equates to about two and a half years of scheduled repayments at current interest rates.

“However,” the bank cautions, “these aggregate figures mask significant differences across individual borrowers. Many borrowers have little or no buffer, especially the newest borrowers and those considered more at risk of experiencing financial stress, such as borrowers with lower wealth and income or higher leverage.”

A loan with a redraw facility enables borrowers making extra repayments to withdraw the money if needed. And a mortgage offset account is a saving or transaction account attached to your mortgage with the current credit balance offset against your mortgage, reducing interest payments.

Some financial planners liken the making of additional mortgage repayments to making a higher-yield, tax-free investment that involves no risk.

Take the example of a homebuyer with a 39 per cent marginal tax rate (including Medicare) and home loan with a 4.5 per cent variable rate.

For such a homebuyer, the making of extra repayments is the equivalent of earning a pre-tax return of 7.38 per cent on a fully-taxable investment. There is no risk involved because the repayments had to be made anyway.

The mortgage calculator on ASIC’s consumer website MoneySmart shows how much a homebuyer might save in interest by making even relatively modest additional repayments every month. Take a homebuyer with a $300,000 capital-and-interest loan with a current variable rate of 4.5 per cent. The loan term is 30 years.

Based on certain assumptions, MoneySmart calculates that by repaying $100 extra a month, this homebuyer will cut the term of loan from 30 years to 26 years and five months while saving more than $34,000 in interest.

One of the calculator’s assumptions is that the interest rate will remain at the extremely low rate through the life of the loan, which, of course, is highly unlikely in the real world. In practical terms, this means that making higher monthly repayments than required while rates are so low is likely to produce significantly larger savings that suggested by the calculator.

Keep in mind that the Reserve Bank has cut the official cash rate 12 times since the beginning of November 2011 when the official rate was a much higher 4.75 per cent (against 1.5 per cent today). This opportunity to build-up a solid mortgage buffer is hard to ignore – if you can afford it.

If you would like to discuss, please call us on 0.3 9836 8399

Source: 

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

Did you know that there are over 900,000 Australians who own small parcels of shares that add up to in excess of $93 million? If you are one of these investors, you might be very interested in this unique service that will not only save you money but help those in need.

ShareGift Australia provides a unique opportunity for people who own a few shares, or even a lot, and want to make a difference. A not-for-profit organisation and registered charity, ShareGift Australia provides investors with a convenient and cost-effective way to sell small parcels of shares that would normally be expensive to trade and then donates the proceeds to charities.

In just nine years, it has been responsible for donating over $1,357,000 to more than 400 Australian charities.

How does it work?

It is really quite simple. ShareGift Australia facilitates the sale of shares at full market value on behalf of the shareholder (via its supporting brokers) and then distributes the funds to eligible Australian charities. If the proceeds of the sale exceed $50 the shareholder can nominate a charity to receive a distribution.

It is an excellent way of donating because the benefactor doesn’t pay brokerage plus they receive a tax deduction of the full sale proceeds (if the donation is over $2.00).

Who benefits?

In a nutshell, everyone involved. Here’s a true story to explain…

A shareholder, let’s call her Anne, received a letter from her adviser about ShareGift Australia and was extremely interested in how it all worked. Anne was a generous but cautious person so decided to test the service with a few shares worth around $100. As the donation exceeded $50, she was invited to nominate a charity. Anne was impressed with how easily it all worked and not only did she save money by not having to pay brokerage on such a small sale, her charity received a distribution in that quarter.

She was impressed by how easy the process was and so decided to donate a larger parcel of shares valued at just over $24,000. Anne chose to donate shares directly rather than go to the trouble of selling the shares herself and donating the cash that was left over. As part of its due diligence, a representative from ShareGift Australia called Anne to confirm the donation and was delighted by her generosity. On this occasion the ShareGift Australia Board determined that the entire amount be distributed to Anne’s recommended charity. Anne was over the moon to learn that her charity received almost $25,000, not to mention how pleased the charity was to receive this wonderful gift.

Other options

ShareGift Australia is a flexible service because every share makes a difference. You can donate one or 100 shares, you can bequeath shares in your will or you can even donate cash.

For full information about this brilliant concept, visit the ShareGift Australia website. If you have any share odds and sods you want to sell, this could be the perfect solution.

Contact us on 03 9836 8399

Sources:

Share Gift Australia website www.sharegiftaustralia.org.au

It’s a widely known fact that Aussies love to travel, and although the majority return home, over 420,000 Australians left our shores, for the long-term or permanently, in the twelve months to August 2016. For those who decide to make another country home, superannuation preservation rules apply to most, but what about those who have a self-managed super fund?

Generally speaking, provided you satisfy the work test, and your objective is to eventually retire in Australia, there are few restrictions to making contributions to your Australian super fund. However, if you are the trustee of your self-managed super fund (SMSF), the rules of the game no longer apply.

According to the Australian Taxation Office (ATO), SMSF trustees may travel overseas, but when planning an extended stay – more than two years – or a permanent move, trustees may be in breach of SMSF regulations which can incur criminal and financial penalties. In addition, funds that don’t meet SMSF criteria may be taxed at the highest marginal rate.

Members of a SMSF must be either a director or trustee, and whether you’re a trustee or not, you may wish to consider your options for super before you make the big move.

One option gaining favour among expats is Small APRA Funds (SAFs). As the name suggests, these funds are regulated by the Australian Prudential Regulation Authority (APRA) and provide a superannuation environment for funds with up to five members where the fund does not meet the normal definition of a SMSF.

The main feature of SAFs is that it provides a super fund with an independent trustee, ensuring arm’s length governance, although trustee fees do apply. Other benefits of SAFs include:

• the ability to acquire business real property at market value from related parties;
• members not involved in the decision making process, are protected under a ‘culpability test’, the test applied to a SAF in place of the compliance test applied to a SMSF. SAFs failing to pass the culpability test generally do not lose tax concessions;
• provision of a member enquiry and complaints mechanism.

You may consider a SAF if you feel a SMSF is not appropriate for you, for example, you may believe you’re too old for the extra responsibility, or you have a legal disability.

Conversely, the Superannuation Industry Supervision (SIS) Act, prohibits ‘disqualified’ persons from acting as trustee, in which case a SAF might be more suitable.

Disqualified persons are:

• an individual who has been convicted of an offence involving dishonest conduct – shoplifting is included in this definition;
• bankrupts;
• those who are insolvent or under administration.

Australian superannuation is terribly complex. If you are planning an extended overseas trip or permanent move, whether or not you’re a fund trustee, you must seek professional tax and financial advice.

Making the wrong decision may have results that span continents.

To discuss your SMSF planning needs contact us on 03 9836 8399. 

It’s an old saying but it will be forever true – “the only constant in life is change”. Whether it’s due to economic downturns, new technology or extreme weather disasters; no business, job or career will ever stay the same.

And it’s impossible to know what might happen in the coming months or years in your career or industry. Although the thought of planning now for a time when your skills might become redundant or your employment suddenly ends for other reasons might sound depressing, it is good financial management.

Here are some points to consider that will put you in a better position – just in case.

Debts

Managing debt is often the greatest concern for people whose jobs are made redundant. The key debt management techniques are consolidation and reduction. Consolidation refers to rolling debts together into the loan with the lowest interest rate. For example, you might be able to re-draw against your lower interest rate home loan to pay off high interest credit card debt. This can significantly cut your expenses.

Then it’s a matter of allocating any spare cash to the outstanding loan. Being able to make extra repayments will put you in a better position if your income is lost or substantially reduced. Then if the worst happens, you will have more leverage when working out a new repayment plan with your lender. The earlier you talk to your lender the more assistance it may provide.

If you have multiple credit cards with high balances but no mortgage, an option is to transfer all of your credit card balances to just one card. Many providers offer initial low interest rates to roll over debt. Just make sure you destroy your other cards and pay off the full balance before the end of the “honeymoon” period.

Budget

In the good times, it’s easy to spend without thinking. When things get a bit tighter, it’s crucial to sit down and work out what you need to spend, and what you can do without. There is a plethora of simple templates available online and phone apps to make preparing a budget easy.

Don’t wait until money is in short supply – do a budget now and you will probably be surprised at how much extra money you can invest wisely for that rainy day.

Opportunities

There is no doubt about it, redundancy is stressful – one day you have a steady income and dreams and the next day you have lost both. But it can create opportunities.

This is a time when you can change your whole world – learn new skills or do something you’ve always wanted to do. You may be offered assistance with finding a new job or retraining. Make the most of every offer.

If you have done some simple planning, job redundancy may not be a negative experience – you might actually be able to enjoy the break and look forward to a new, exciting future.

Contact us on 03 9836 8399 to discuss how you can plan ahead.

Entering the property market is no easy feat for a first homebuyer, but even parents who aren’t prepared to hand over cash for a deposit may help by being a guarantor on a loan. Before taking the plunge however, it’s crucial to be aware of the implications involved.

Here are three questions to ask yourself to see if a family guarantee is right for you:

1. Am I financially fit to be a guarantor?

The very first thing you should be certain of is whether or not you are in a financially capable position to pay off the loan if the borrower finds that they can no longer do so. There can be many disruptions to an income, such as loss of employment or a serious accident, and some types of guarantor loans hold the guarantor legally accountable to ensure the mortgage is paid off.

You need to be in a strong financial position and have enough equity in your property to be a guarantor. Some banks even want to make sure that the guarantor can service the full debt as well, so it’s always advisable to get independent legal or financial advice if you’re considering it.

2. Do the benefits outweigh the risks?

It’s no secret that it can take a long time to save for a deposit and by becoming a guarantor, you offer the borrower the chance to enter the property market sooner.

Lenders may treat the loan like an 80 per cent lend, so you avoid the costly lender’s mortgage insurance (LMI). You also don’t have to save up for a full deposit for the purchase, or sometimes any deposit at all.

However, any time you borrow money or a bank places a mortgage over your property, there are definitely things that need to be taken into account. While in some instances it may be suitable, it’s definitely not a first option as there are certain factors that can put you or your property at risk. Your ability to borrow will also be reduced after using a guarantor.

3. Are there other ways I can help without being a guarantor?

If contributing to a deposit is an option, it allows you a little help without needing to put yourself or your property at risk, but there are some extra hoops to jump through if a deposit includes gifted funds.

With gifted funds, if [the deposit is] less than 20 per cent of the property’s purchase price, then the banks will most likely want to see five per cent of genuine savings. Having said that, there are a few lenders that will allow you to use rent as genuine savings. So, if you’ve been renting for a while, it shows that you have the propensity to make repayments and then the reduced (less than 20 per cent) deposit may be used in that regard.

We can provide access to tailored loan products and expert knowledge, and meet the highest educational and ethical standards. Contact us today on 03 9836 8399.

Source:

Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA)

Important:

This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

The marriage and divorce statistics for 2015 sadly suggest that 43 per cent of Australian marriages may end in divorce. Significantly, this number-crunching does not include separations of de facto couples.

Unfortunately, the breakdown of a relationship is a reality for many couples and it is a reality with typically damaging financial and emotional consequences.

We face a series of widely-shared financial turning points during our lives. Yet how we handle them obviously differs widely.

ASIC’s personal finance website MoneySmart has long published a comprehensive feature, Life’s events – last updated this month – with tips about how to deal with our financial turning points, the good and not-so-good. And unsurprising, the breakdown of a personal relationship numbers among the life events on ASIC’s list.

Financial turning points include receiving our first pay, joining our first super fund, leaving home for the first time and entering a personal relationship. Among the others are buying our first (second or third) home, dealing with serious illness in our families, coping with a partner’s death, losing our job and eventually retiring.

A decision to begin saving seriously to meet our long-term goals and the creation of our first financial plan are high among our key financial milestones.

Thinking about the feasibility of ‘downsizing’ to a smaller home as we age is becoming more common and finding suitable age care is climbing higher in the list of life events with the ageing of the population.

There are straightforward ways to help prepare for financial turning points such as budgeting, saving, investing, obtaining adequate insurance, considering quality professional advice when necessary and estate planning.

How we cope as investors with sharply rising or sharply falling investment markets can be a life-changing event. Investors who set an appropriately-diversified strategic portfolio, and who remain disciplined and focused on their long-term goals are best-placed to cope with market upheavals.

It is critical to try to stop one life event having negative implications for another life event. For instance, a failure to remain disciplined during a fall in share prices of the magnitude that occurred during the GFC may reduce your standard of living in retirement – even though that retirement may be many years away.

Planning for life’s financial events is at the core of sound financial planning.

If you would like to discuss anything in this article, please call us on 03 9836 8399.

Source: 

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.