Superannuation – Out of Sight, Out of Mind

Outside of ownership of your home your superannuation account is generally one of your largest investments.

So why is it that a large majority of Australians fail to manage this important investment?

Is it because your employer is usually the one making regular contributions and therefore it is out of mind? Or perhaps it’s because it will be a long time before you need to access the funds?

Whatever the reason it’s not surprising that a survey of baby boomers in 20151 revealed 35% were ‘completely unprepared’ for retirement, 51% were ‘somewhat prepared’ and only 14% were ‘financially prepared’.

It’s astonishing the percentage of Australians that realise – often when it’s too late – that they won’t have sufficient savings to pay off their mortgage or fund their retirement.

Most of us can expect to spend 20+ years in retirement but for many of us the money will run out after 10 years.

It is never too early to start preparing financially for your retirement! This means taking charge of your financial security sooner rather than later.

Your super account

In July 2005 new laws were introduced that allowed you to take a greater interest in the performance of your superannuation (super) fund. These changes allow you to have control over where your super contributions are deposited.

Most super funds now have a number of investment options with different risk profiles depending on your stage of life and tolerance for risk. Each fund will perform differently over time. Regardless of the fund you choose you will need to regularly review your fund’s performance and risk profile to determine if they are still appropriate for your personal circumstances as these will change over time.

Remember, your super is YOUR money!

Quick quiz…. Tick the box if you can answer these questions.

  • How much do you currently have in your super account?
  • Do you have more than one account? If so, how many?
  • What investment options do you have for your super?
  • What fees apply? How much are your total annual fees?
  • How much does your employer contribute annually?
  • Do you have insurance cover included with your super? If so, what type(s)?
  • How much are you paying for this insurance and what is the level of cover?
  • When can you access your super?

How did you go? If you could answer all or most of these go to the top of the class!

In fact, 6 out of 10 people don’t know how much super they have AND 45% of working Australians have more than one super account.

Does that sound a little more like you?

There is no time like NOW to take a greater interest in your super.

In reality, the earlier you engage with your super the more you may be able to improve your financial future.

Other options

Taking a more active interest in your super is only one of the many steps you could take towards achieving financial independence.

Establishing a household budget that creates surplus funds for investment is always the first step.

Your surplus funds could then be applied to a range of options from starting to pay down your mortgage, investing in an additional property to making extra contributions to your super.

Remember you don’t always need to pay off your home before you buy an investment property! You may use the equity in your home as security if you are able to demonstrate a capacity to service the loan.

Take charge of your own financial security NOW! After all, if you’re not willing to take responsibility who will?

School’s out! The end that opens new doors.

Some of us are excited by the end of the year as it means warmer weather and maybe even a summer vacation. For others it can be an emotional time as children finish the school year for the last time and enter the adult world of more responsibility, employment or further education.
Letting go of the apron strings and facing the prospect of a less busy home can leave a big gap in the lives of many parents. It DOES however come with some benefits. After years of personal and financial support of your children you can now refocus on your own personal and financial goals. Remember those? You used to have them!
A new start for parents
As children leave school – and in most instances start on their own path to financial independence – parents may find they are in a position to take advantage of savings now they are no longer funding school fees, text books, uniforms, tutoring, sporting activities etc. We all know we should create a budget at least annually but often fail to do so. As kids complete schooling there WILL be a change in your budget – make sure your new found savings don’t get swallowed up in your daily lifestyle resulting in a missed opportunity.
How could these additional savings be used to create a successful financial future?
  • Make additional mortgage repayments to pay off your loan sooner and save thousands in interest.
  • Reduced expenses means improved serviceability for a new loan that could fund an investment property. You could use the equity in your home as security for the deposit.
  • Take advantage of superannuation thresholds that allow you to make additional contributions into super.
  • Concerned about your level of debt? Talk to us about debt consolidation. A combination of lower interest and extra payments could see you get on top of debt in no time.
There are many other options, but regardless of the option you choose there is no smarter decision at this time than investing in your future financial independence.
Don’t forget the children
This time SHOULD also mark the start of the journey to adulthood for our kids. While many will go on to tertiary education it is never too early for them to learn financial skills for the future.
What are some ‘mistakes’ we make with our school leavers that may undermine THEIR path to financial independence while continuing to impact our OWN finances?
  • We pay for everything!
    We think letting them live at home at no cost helps them get ahead when in fact we’re giving them a false sense of reality. Kids NEED to learn about everyday expenses and how to manage them. Solution? Charge board and have them contribute to utilities. Still want to help them? Save part or all of the money to assist with a home deposit down the track.
  • We pay their HECS-HELP loan
    With student loan schemes currently interest free, does it make sense to use your cash to pay a debt that attracts no interest? Even with an upfront discount it pays to do the sums. If you were to consider purchasing an investment property instead, you could not only be building your own wealth but also it may put you in a better financial position to help your kids later. The other plus? Your kids will learn the concept of ‘user pays’ if they are responsible for their own student loan.
From school to independence
Personal finance is not taught at school or university – much of what we learn comes from our parents. Below are some of the basics every teenager should learn BEFORE they start earning money. They are:
  1. Create a budget
    As a rule of thumb you should divide take home pay into 50% to essentials, 30% to lifestyle and 20% to savings.
  2. Avoid ‘dumb’ debt
    Credit cards can lead to financial disaster – it pays to be disciplined about use and repayments.
  3. Look after your credit rating
    Poor financial habits COULD impact your ability to qualify for a home loan in the future.
  4. Talk about superannuation
    Ensure your kids know about the role super will play in their future. It should be a focus from their 20s – not their 40s.

Bargaining power: How to negotiate your purchase price

No one wants to feel like they’ve been taken for a ride, so when you’ve found the right property, how do you get it for the right price? Here are some things to consider when it comes to purchasing negotiations.

Do your homework
Property prices are influenced both by demand and how much other potential buyers are willing to pay. Before you make an offer, research similar properties that have sold recently in the same area. Also consider organising a pre-purchase building report, as any issues with the building may give you leverage to negotiate a lower price.

Investigate the seller’s motivations
It pays to investigate the seller’s circumstances. The more you know, the more negotiating power you will have. Ask questions such as:

  • “Why is the current owner selling?”
  • “Have there been any offers?”
  • “How long has the property been on the market?”

Keep your cool
Play your cards close to your chest and don’t reveal your position. This includes keeping the maximum amount you’re willing and able to spend confidential. Otherwise, the agent may try to push you closer to your maximum, even if your current offer is a fair one.

If you’re serious about the property, it might be worth making an offer slightly above estimated market value, as long as it is still within your means. But don’t risk significantly overpaying just because you’ve become attached. New properties are being listed all the time, so something else will always come along – and it might even be better.

Most importantly, try to keep your emotions separate from your negotiations. Don’t let competitiveness or fear of losing the property push you past your limit.

Counting for Life program update!

Just a quick update on the Learning Links Counting for Life program that we sponsoring!

The children have thoroughly enjoyed the first two learning sessions and really look forward to seeing their Counting Buddies each week. They love the one on one attention and getting help with their math. They are particularly enjoying a game called ‘Space’ and like writing the book provided. Children are describing the program as fun and exciting!

Here is a photo of one of the completed sheets by a participating child.

Stay tuned for our next update in a fortnight!

Melanie and the team at Indigo Finance.