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SMSF

Create your Financial Blueprint for a happy retirement

Create your Financial Blueprint for a happy retirement

When it comes to your retirement, it’s no use crossing your fingers and hoping for the best. You need to know exactly how much money you will need, and the steps you need to take, to achieve the retirement lifestyle you want. 

Your Future Depends on the Now

Your Future Depends on the Now

Part 3 - How to Become an Investorgetic®. The secret to becoming a Millionaire Series

Focus on Financial Liberation: Introduction and Step 1 

Your retirement may seem like a distant dream; something to worry about later on. Yet what you do now – how much you earn, spend, save and invest – determines how much money you will have in retirement.

How much money you will need depends on the kind of lifestyle you want. Do you want a frugal retirement, living week to week on the pension? Or do you envision yourself debt free, living in comfort off your own savings and investments? 

It is never too early to transform into an Investorgetic™. You can start working towards a financially liberated retirement no matter what stage of your life you are in. But the fluctuating global economy complicates matters. What is financially relevant now might not be in 20 years’ time.

For example, the erosion of investor returns has caused major economic upheaval. The rate of return for cash investments nosedived from 7.5% in 1995 to 2.5% in 2015. This has had a huge impact on people’s quality of life in retirement.  

So, when the world is faced with an uncertain financial future, how can you plan for your retirement in 20 or 30 years? And how can you plan for another 20 years after that?

Create your wealth road map 

No one can guarantee what their future will be. But you can understand and manage the risks by creating your wealth road map. A wealth road map considers various financial

scenarios – good and bad – and uses the numbers to create a sound financial strategy bolstered by wise investments.

Your wealth road map is not a one-off assessment. At the very least, it needs re-evaluation yearly and whenever you experience a major change in your circumstances.

Improve your current financial position

Before you can start planning for the long term, you must take an honest look at your present financial situation. What needs improving? What bad habits need nipping in the bud? Address these now to avoid financial headaches later.

1.     Reduce your credit card debt

Do you have credit card debt and little or no assets, equity or savings? Even a small amount of debt can snowball over time and ruin your chances of saving enough for a self-funded retirement. You must pay off – or at least reduce – your credit card debt before you start investing. It may even be prudent to refinance your debt by increasing your home loan. By doing this, you can reduce the credit card interest you pay by two thirds. However, you would also need to rein in your spending. Otherwise, you could fall into a vicious cycle of refinancing your home loan every few years to pay off your continuing debt.

2.     Finalise the family home

If you are renovating, building, selling or upgrading the family home, this must be finalised before you commit to a long-term financial plan. You don’t want to take on a hastened investment that ends up costing you dearly because you were too preoccupied with small to medium-sized goals.

3.     Manage your budget

At some point in the future, you will need to pay off your investment debts. If you currently struggle to budget and save, chances are you’ll struggle in the future, too. Failing to live within your means places long-term strategies and investments in jeopardy. To invest and build your assets, you must first work out your expenses, commit yourself to a realistic budget and regularly save money from your disposable after-tax income.

4.     Manage your bank accounts

Effective banking practices allow you to control your household expenses and manage your financial goals. For example:

  • Have no more than one credit card or debit card. Use this card to pay all the household expenses. Ensure the limit is no more than $2000.
  • If you have a spouse or partner, ensure both incomes are paid into your home loan/offset account.
  • Create separate accounts for holiday savings, household budget, education and investment/property. Set up monthly or fortnightly direct debit payments into each account.
  • The investment/property account can be where any rental income goes in and property expenses go out. If you don’t have a property, you can use this account to save for your own home, investment property, shares or managed fund.
  • The education fund can be a savings account or another offset account split against the home loan (where the balance offsets the home mortgage and the interest is calculated on the net amount). This allows you to save for your children’s education while reducing the interest on your home loan. Use money in this account for school fees, uniforms and books, and save for future private school and/or university fees. 

5.     Your age and retirement goals

If you don’t allow yourself ample time to grow your wealth and assets, you may need to adjust your lifestyle at retirement. People who start planning in their 40s have a 20-year horizon to work with. This gives them a much better chance of achieving their retirement goals than someone who is in their 50s with limited assets. However, when there is a will, there is a way. It starts with an honest money conversation.  

Once you have improved your current financial situation, you can start looking at ways to invest your money.

Stay tuned next week for how you can make wise investment decisions based on your attitudes towards risk.

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Susan Wahhab —CPA, SMSF Specialist, Entrepreneur, Working Mum, Small Business Supporter— is Australia’s leading Financial Strategist and Money Mentor. Susan is the founder and managing director of Accounting and Financial Services firm Winner Partnership Pty Ltd www.winnerpartnership.com  

Susan is the author of the transformational and practical book Money Intelligence®. Susan is passionate about helping people achieve financial liberation. At the age of six, she witnessed how her money-savvy mum (whom she calls the money manager) joined forces with her dad (whom she refers to as the money maker) to save the family business from bankruptcy and become financially free. Susan truly believes that people can become financially liberated by developing a healthy relationship with money. Buy the book in either printed copy or ebook and learn more about being money intelligent www.moneyintelligence.com.au

 

 

The Future is Super and Super is the Future!

The Future is Super and Super is the Future!

Think you’ve got plenty of time to worry about retirement? Think again.

The Turnbull Government recently passed legislation to change the definition and the objective of the superannuation system: “To provide income in retirement to substitute or supplement the age pension.” For comprehensive reading visit Treasury website

What does this mean? Well, it means the pension will not be available for most middle-income Australians as it is replaced with the superannuation system.

So, if you are not saving at least 20% of your income, whether inside or outside of your super fund, you will not have enough money to retire on.

To survive, you will need to take drastic measures – such as a reverse mortgage. This is where you borrow against the home you spent 30 years paying off. Brilliant idea? No!

But it’s not all bad news. This Christmas, I come with good news!

To retire comfortably, you need to save 20% of your income. But you only need to start actively saving 10.5% of your income now.

You see, your employer/business already saves 9.5% of your income into your super fund. So, all you need to do is tweak your budget to find a further 10.5% of savings.

That 10.5% will tip you over the line from being a Consumerholic (someone who consumes as much as possible with no regard for their financial future) to an Investorgetic® (a term I coined to mean someone who thinks long term and is passionate about building their wealth). It is the difference between suffering in retirement and thriving.

Is it going to be hard to save 10.5%? No!

Truth be told, it will hurt a little in the beginning. But you’ll be surprised at how quickly saving becomes a habit!

You may be thinking: “How, Susan, how? I can barely make it to the month’s end!”

Here are 3 easy ways to start saving now:

1. Begin with Savings in Mind®: start by putting aside $50 a week. Place it into an interest-bearing account you aren’t allowed to touch. Add an extra $5/$10 a week, every second month, and see how quickly your savings grow. 

2. Work on your budget. Know what your monthly expenses are and manage your accounts on a monthly basis. 

3. And before you go Christmas shopping, make a gift list and don’t blow your budget!

Remember, if you want to become an Investorgetic®, download the first three chapters of my book Money Intelligence here: http://www.moneyintelligence.com.au/free-stuff/

Susan’s upcoming event on Money Intelligence – How to Take Control of Your money is on 7th December 2016 at The Grace Hotel. Here is the link to register on Eventbrite 

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Susan Wahhab —CPA, SMSF Specialist, Entrepreneur, Working Mum, Small Business Supporter— is Australia’s leading Financial Strategist and Money Mentor. Susan is the founder and managing director of Accounting and Financial Services firm Winner Partnership Pty Ltd www.winnerpartnership.com  

Susan is the author of the transformational and practical book Money Intelligence®. Susan is passionate about helping people achieve financial liberation. At the age of six, she witnessed how her money-savvy mum (whom she calls the money manager) joined forces with her dad (whom she refers to as the money maker) to save the family business from bankruptcy and become financially free. Susan truly believes that people can become financially liberated by developing a healthy relationship with money. Learn more about being money intelligent www.moneyintelligence.com.au

 

Hands off my super!

In December 2014, David Murray, head of the Financial System Inquiry and former Commonwealth Bank CEO, presented his super report to the government. One of his recommendations was to ban self-managed super fund (SMSF) borrowing to buy property. (You can still smell the dirty tricks of the large super funds! They don't want to lose revenue with so many people withdrawing their super to set up their own SMSF).

Murray asserted in his report that SMSF borrowing increases risk in the financial system. The government is currently considering his recommendation.

I am sure you have read and watched the news regarding SMSF borrowing and property issues. The journalists, of course, have no idea how the system works. They studied journalism and communications at university – not accounting or finance! They are fed manufactured information by the financial system and PR companies that work for the big end of town.

I totally disagree with Murray and anyone who asserts that SMSF borrowing rules are risky and should change.

I am a passionate advocate of SMSF and property investments. When done correctly, as part of a well-planned investment strategy, I believe property in your SMSF will deliver long-term growth and security for your retirement. I have laboured over hundreds of intricate and comprehensive financial calculations for clients, who want to buy property and borrow in their SMSFs. I have always based these calculations on conservative figures (and worked out worst-case, best-case and neutral scenarios), and I can assure every client that the rent plus adequate super contributions will pay off the mortgage over a 20-year period. Many of my clients are paying off chunks of their mortgages and are five years ahead of paying their super loans.

I understand there are risks in investing. But there are also risks when people borrow to the max to buy their dream home – especially when banks are lending up to 95% of property values. Those buying their own homes could lose their jobs, too! Risk is part of life and we need to mitigate it. My risk analysis, financial strategy, property research, selection process and 20-year spreadsheet calculations ensure my clients make informed, intelligent financial decisions.

Remember, there is also risk in doing nothing and facing an impending retirement with not enough super.  

Further adding to risk mitigation, I believe banks are more prudent in their lending to SMSFs than to other structures, such as personal home loans and investment property loans under personal names. For example: 

1.    Banks do not lend more than 70% of the value of the property to ensure there is a buffer.

2.    When the banks work out how much they can lend you, they will base their calculations on the current interest rate + 2% (currently, the rate they use to work out if the SMSF can afford the property is between 7% – 8%).

3.    The banks will only take 80% of the market rent into their calculations, anticipating either a decrease in rent or the property being vacant at some point during the year.

4.    The banks will only take 85% of the super contributions that are usually deposited into your SMSF by your business/employer. They usually take into account the last financial year’s contributions. They work on real figures, not projections.

5.    The loan the banks offer you is a limited recourse loan. If anything goes wrong, the bank cannot take your other super-fund assets. The lender’s rights are limited to the property being secured.

I love property and I love having my own SMSF. It’s the right of every Australian to make their investment decisions with the help of an independent, trusted adviser. Some people might think it’s OK for them to have their super in a big super fund managed by the big boys. I don’t think it’s OK. I am not waiting for another global financial crisis when I retire in 15 years, and neither should you.

You must become your own money manager. I urge you to take control of your financial future and consider setting up your SMSF, if it's appropriate for your financial situation. Get informed, get educated, and focus your priorities on the future.