A POPULAR saying in financial planning circles is that “people don’t plan to fail, they fail to plan”.One of the hindrances to good planning is that many people simply don’t know where to start.
A POPULAR saying in financial planning circles is that “people don’t plan to fail, they fail to plan”.
One of the hindrances to good planning is that many people simply don’t know where to start. We are bombarded with numerous investing, banking and tax planning opportunities.
Steve Davis, national manager financial planning for Perpetual Private Clients, said the only time that most people assessed their finances was when they com-pleted their annual tax return.
“In reality, people should have mapped out their financial position well before now to avoid any hasty, last-minute decisions,” he said.
Mr Davis recommends that people take advantage of the work they have done for their tax return to complete a thorough self-audit of their financial position.
To help with this task, Perpetual has prepared a checklist of issues.
At a broad level, it is handy to compare your current financial position with that of 12 months ago. Has you level of debt increased or decreased? Have your savings increased? If so, is this a result of extra investment or only because of asset appreciation?
If you are still trying to build wealth, have you got a budget in place or established a disciplined savings approach? The key to budgeting is not how much you earn, it is ensuring that you spend less than you earn and save the difference.
If you have substantial investments and are planning to purchase more, have you considered alternative ownership structures like a family trust? Trusts can provide a variety of benefits, including protection of assets and efficient transfer of wealth from generation to generation.
How much equity do you have in your home? Depending on your circumstances, you could use the equity to secure additional borrowings to invest in shares or a rental property.
What is the status of your mortgage? The interest rate you are paying may be higher than rates currently on offer. It could make sense to switch to a fixed rate loan, re-finance with a new lender, or simply squeeze a better deal from your current lender.
Can you afford to increase your mortgage repayments? Interest rates have come down by more than 1 per cent during the past year. The faster you pay off your mortgage, the more interest you will save.
When was the last time you reviewed your insurance needs? Are your home, contents, life and disability insurance policies still adequate? And do you have income protection insurance, to provide continued income if you are off work for an extended period?
Have you assessed salary packaging opportunities? One of the most popular options is ‘salary sacrifice’, in which your employer makes regular pre-tax contribu-tions to your superannuation.
Similarly, if you are due to receive a bonus at the end of the financial year, you may want to get your employer to contribute the bonus to your super fund.
These options can lead to big tax savings.
If you are self-employed, what is your taxable income? Can you make extra superannuation contributions?
Do you have multiple superannuation accounts? If so, consolidating these accounts can result in substantial fee savings.
Are you aware of how capital gains tax affects you? Are you keeping records of transactions as they happen so that you can calculate your CGT liability in future? Are you aware that there is more than one way of treating both gains and losses from a CGT perspective?
If you don’t choose the best method, you could end up paying more tax than you legally have to.
Last, but not least, is your will up to date? Mr Davis said the vast majority of Australians either do not have a will or, if they do, it no longer reflects their current intentions or circumstances.
They may have bought or sold various assets, there may be new family members through birth or marriage, they may have divorced or have an executor who is no longer appropriate.
One of the hindrances to good planning is that many people simply don’t know where to start. We are bombarded with numerous investing, banking and tax planning opportunities.
Steve Davis, national manager financial planning for Perpetual Private Clients, said the only time that most people assessed their finances was when they com-pleted their annual tax return.
“In reality, people should have mapped out their financial position well before now to avoid any hasty, last-minute decisions,” he said.
Mr Davis recommends that people take advantage of the work they have done for their tax return to complete a thorough self-audit of their financial position.
To help with this task, Perpetual has prepared a checklist of issues.
At a broad level, it is handy to compare your current financial position with that of 12 months ago. Has you level of debt increased or decreased? Have your savings increased? If so, is this a result of extra investment or only because of asset appreciation?
If you are still trying to build wealth, have you got a budget in place or established a disciplined savings approach? The key to budgeting is not how much you earn, it is ensuring that you spend less than you earn and save the difference.
If you have substantial investments and are planning to purchase more, have you considered alternative ownership structures like a family trust? Trusts can provide a variety of benefits, including protection of assets and efficient transfer of wealth from generation to generation.
How much equity do you have in your home? Depending on your circumstances, you could use the equity to secure additional borrowings to invest in shares or a rental property.
What is the status of your mortgage? The interest rate you are paying may be higher than rates currently on offer. It could make sense to switch to a fixed rate loan, re-finance with a new lender, or simply squeeze a better deal from your current lender.
Can you afford to increase your mortgage repayments? Interest rates have come down by more than 1 per cent during the past year. The faster you pay off your mortgage, the more interest you will save.
When was the last time you reviewed your insurance needs? Are your home, contents, life and disability insurance policies still adequate? And do you have income protection insurance, to provide continued income if you are off work for an extended period?
Have you assessed salary packaging opportunities? One of the most popular options is ‘salary sacrifice’, in which your employer makes regular pre-tax contribu-tions to your superannuation.
Similarly, if you are due to receive a bonus at the end of the financial year, you may want to get your employer to contribute the bonus to your super fund.
These options can lead to big tax savings.
If you are self-employed, what is your taxable income? Can you make extra superannuation contributions?
Do you have multiple superannuation accounts? If so, consolidating these accounts can result in substantial fee savings.
Are you aware of how capital gains tax affects you? Are you keeping records of transactions as they happen so that you can calculate your CGT liability in future? Are you aware that there is more than one way of treating both gains and losses from a CGT perspective?
If you don’t choose the best method, you could end up paying more tax than you legally have to.
Last, but not least, is your will up to date? Mr Davis said the vast majority of Australians either do not have a will or, if they do, it no longer reflects their current intentions or circumstances.
They may have bought or sold various assets, there may be new family members through birth or marriage, they may have divorced or have an executor who is no longer appropriate.
