Archive for June, 2012

Happy New (Financial) Year!

Friday, June 29th, 2012

It’s new financial year’s eve and there are plenty of reasons to pop the champagne at midnight. A bunch of changes that take place as of tomorrow means good news for consumers.


Anyone who holds a credit card or who applies to get a new one will be better protected by changes to credit laws. For holders of existing cards, credit card providers will no longer be able to send you offers to automatically increase your credit card limit (unless you have already given them the thumbs up to send them to you). You will start to see changes to your monthly statements too, including information to show how long it would take to pay off your balance if you only make the minimum payment (I guarantee this will shock the hell out of you), and for holders of cards with an interest free period, info explaining how your interest free period works.


People applying for a new credit card have the added protection of choosing their credit limit rather than just having to accept the one the lender sets. Fees for going over this limit will be banned on new cards and they’ll now have to tell you when you have hit your limit. And if you have a balance attracting different interest rates (highest rate for cash withdrawals, lower rate for purchases and possibly a zero rate for balance transfers) the new laws will mean that your repayments will go towards paying off the highest interest rate components first. Makes total sense for consumers but I reckon the banks will either be spewing about these changes or will just claw back lost profits through other means.


If your bank tries to screw you too much, you can now switch transaction accounts to another provider by filling out a single form. It’s now up to the financial institutions to swap over all those direct credit and direct debits you have set up, rather than the onus being on individuals to ensure it’s all sorted to avoid problems with bills and wages not being paid.


There are laws starting in the new financial year to tighten up the financial planning industry, although they come with a crazy 12 month period where planners can continue to ride the gravy train of commissions on investments they recommend to new clients. If you are looking for advice, the first question to ask a planner is “Have you implemented the new laws?” If they balk on that one, take your business elsewhere.


Tax rates change tomorrow to see a tripling of the tax free threshold from $6,000 to $18,200 – a big win for low income earners. The 30% tax rate goes up to 32.5%, but the tax free threshold rising so much means people in this bracket will actually be better off. And, of course, the much debated carbon tax starts. I reckon there will be less impact from this than there was from the GST when it was introduced 12 years ago. Time will tell.


So lots to think about as you do the countdown and sing Auld Lang Syne. Or not.

Question Or Belief?

Friday, June 22nd, 2012

I’m bloody annoyed. I have just spent 48 minutes on the phone and I know that people are going to be ripped off. I hate when people get ripped off.


Yesterday a good mate forwarded me a text message he’d received from an old acquaintance. It was for a “tele workshop” which is where invited people ring a number and listen to, well, basically a lecture. It’s kind of like a webinar over the phone.


In the text message were the words ‘Five Steps To Financial Freedom’, so naturally I was interested to know what it was all about. The truth is I am always on the lookout for good quality information that can help people in generations X and Y with their finances. When I find something good I include it in my website. When I find something sub-standard I ignore it, and when I find a con job I get angry.


Thirty minutes into the phone call (and not a word about how to actually do a few things like save money, avoid debt or what to look for in investments) and it was time for questions. The first person who pressed *2 on their phone so they could be heard by the tele workshop presenter was asked “Do you have a question, or would you like me to have a look at your beliefs?” “Beliefs, definitely beliefs please” came the reply. Pause. “Let me have a look.” Pause. “Well, a bit of the belief that’s come in – money goes out as fast as it comes in, sort of what you’re experiencing at the moment. Would you say that’s the case?”


“Hang on,” I thought, “has the person presenting this tele workshop got access to a whole heap of info about those listening that I don’t know about?” The next person who came on the line also had a “belief”. The same thing happened again and I realised that the person running the show was making this crap up. Ok, now is probably the right time to inform you that I do not read my daily horoscope. I do not believe that someone on the other end of the phone who knows nothing about you other than your first name can tell you anything about your financial state, be it mental or numerical.


Unfortunately it was apparent that the other people taking part in this phone call were not as cynical as I am. And here’s the ultimate hook. Mentioned briefly in this workshop was the opportunity to sign up to a 9 week course, consisting of 9 x 1 hour tele workshops and a 15 minute one on one session with an expert. I had to go to the website to find the cost – $1,275.


Anyone trying to sign you up for a finance course that costs more than a couple of hundred dollars should be dealt with very warily. Any price over $500 and you can just about be assured that the person selling their success is making their money from selling it, not from taking heed of their own advice.


In the end, I guess I’m glad the phone batteries died. I’m glad I didn’t waste any more of my time listening to a con rather than reading a story to my little chicken before she went to bed. And I really feel for those who are about to part with plenty of their hard earned for a load of crap.

What Does Financial Freedom Mean?

Friday, June 15th, 2012

A few searches on the internet will show you that there is not only one or two definitions for financial freedom. In fact, there are a lot of people who define financial freedom as being linked to an expensive investment they’re selling, being a multi-millionaire in your 30s, or having a passive stream of income so you don’t need to work. And some people don’t define it all.


Obviously the term financial freedom is not something that is the same for everyone, and for me it’s not about having a lot of money.


Personally I see financial freedom as being a number of things. It’s about not ever having to worry about the bank knocking on our front door and demanding we leave. It’s about choices that make life more comfortable and special family memories. Recently Claudia and I have made a few choices that fit with our definition.


We replaced all of the windows and a glass sliding door in our house with double glazing. It was a big job, but the results have been quite dramatic. Not only do we have a house so well insulated by noise that the neighbour’s parties don’t disturb us, but it’s warm. In winter. In Canberra!


It was pretty cool to leave for work early one morning, look back at the house to see frost on the roof and be shocked it was that cold outside. We have woken a couple of times over the last month to subzero temperatures and not needed to turn the heating on. Even when we do have it on, it stays on for an hour at 21°C, which warms the house for about 12 hours.


Back in 1999 I fell in love. With a 70-200mm zoom lens. Oh, how I longed to hold one in my arms again. Until I finally bought one the other day. Yes it costs about three times as much as the average person would spend on all the camera equipment they would buy in a lifetime, but the quality of the image it captures is second to none. I will use it to spoil our little chicken, filling her bedroom walls with photos of her over the years to come.


Another way Claudia and I plan to spoil our family is with another trip to Germany. All Claudia’s side live in Germany and travelling there doesn’t come cheap (or easy as we discovered last time when our chicken was only ten weeks old and I couldn’t help with the bags after just having had my appendix out). We are planning our next trip over Christmas this year, which will be our fifth since Christmas 2006.


I guess if I had to boil it down to one thing, financial freedom to me is about family. It’s about providing them with a secure home, keeping them warm in winter and cool in summer, capturing their happy faces the best I can and travelling with them to see our overseas relatives.


How would you define financial freedom?

Don’t Believe The Hype

Friday, June 8th, 2012

Australia has the best developed economy in the world, and the sixth lowest level of taxation in the OECD, but you wouldn’t know it by listening to the absolute shit that comes out of the mouths of the naysayers.


On Monday the share market dropped 2% and it was one of the first items on the news. To believe the reports, our superannuation was doomed and we were all destined to eat cold cat food in our old age. On Tuesday it bounced back by 1.5% but only got a mention in the finance reports just before sport. Then on Wednesday it was up by 0.3% again, largely on response to the GDP figures showing economic growth in Australia is at an amazingly high 4.3%. This is despite Tony Abbott saying on Tuesday, after interest rates dropped again, that Australia’s economy is weak.


If you believed the crap that is fed your way you could be forgiven for thinking that superannuation is a massive waste of money and that it is, in fact, just some conspiracy to make fat cats richer and provide taxation revenue for the government. It’s not. Super is one of the things that sets Australia apart from the rest of the world. When the system hits maturity it will set us up for life, despite short term movements in the share market.


If you have more than five or six years ‘til you retire, you should not give a rat’s about what the share market does from one day to the next. You only need to be concerned with what happens over the long term. Although it’s no guarantee as to what will happen in the future, the past has shown us that shares outperform all other assets over the long term. I guarantee that you won’t even remember Monday’s stock market events in a year, let alone in 10, 20 or 30 years when you learn to play bridge. That is, if you ignored the hype and hysteria of the crap media reports and didn’t touch your super or any shares you may hold.


If you don’t know anything about GDP figures, here’s a quick lesson. Negative numbers are bad, positive numbers between zero and about 1.5% are not great. 1.6% to 2.5% is ok, and anything above 3% is better than what Australia has averaged over the last 20 years of golden economic activity. Wednesday’s 4.3% result is incredible. Even when you take off 0.5% that economists predict will be the impact of introducing a carbon price, it is still way above trend.


I know that those figures of economic growth are largely because of the two speed economy with mining companies dragging the country along, however the economies of seven of our eight states and territories are growing, and there’s not a lot of mining in Tassie, the ACT, NSW, Victoria and SA.


Yes, there are a large number of individuals in Australia doing it tough. Kind of. Take a visit to a developing country for a bit of perspective as to how tough someone has it living in a country with access to free healthcare, education and social security as well as the right to vote. And just think – if you are reading this, you have access to the internet, something that billions of people around the world don’t know anything about.


We have a very strong economy, albeit with short term movements in our share market. We enjoy very low inflation, very low unemployment, low taxation, high average wages, and a standard of living that is the envy of the world. And all this despite the federal opposition’s dog whistling that we’ve never been worse off.

Tax Time Tips

Friday, June 1st, 2012

It’s that time of the year again when we are bombarded with ads telling us to take out health insurance before June 30. Here is something they probably won’t mention in the ads – many health insurance companies allow you to prepay next financial year’s premiums (in fact Medibank Private is allowing members to pay up to 18 months in advance). “So what”, you say. As there are changes in the new financial year for individuals earning more than $84,000 and couples/families earning above $168,000, if you are earning these amounts you will be better off locking in this year’s premium and the 30% rebate attached to it before that rebate drops to 20%. For high income earners the rebate drops to 0%. So if you can lock in a once off saving, now is the time to do it. Most people take the 30% health insurance rebate, as reduced premiums during the year. If you are not “most people” don’t forget to claim when you do your tax.


Families need to have a look at a few things around tax time, including checking to see if your children’s immunisations are fully up to date so that you can continue to qualify for Family Tax Benefit Part A.


Be careful with claiming expenses like interest on a mortgage if you have worked from home. It means that your house will be hit with capital gains tax when you sell. Let’s say you claim 20% of your mortgage interest for 2 years when you work from home. It means that 20% of the increase in value of your house when you sell (apportioned over those 2 years) will be subject to capital gains tax. It doesn’t matter that the value of your house may not have risen in those 2 particular years (it may even have gone backwards in value over that time) as it’s worked out as an average over the time you own the home. Claiming the home office expense (a massive 34 cents for every hour you work at home) will not affect any capital gain on it.


Don’t forget to claim any work related deductions, especially if you have had a break from the workforce during the financial year. And of course there are the usual deductions of things like bank fees for any accounts you hold that earn interest during the year.


In the event you have some spare cash and wish to top up your super, a $1,000 contribution from your bank account will be matched dollar for dollar by the government for people earning under $31,920. It tapers off until it cuts out completely for those earning $61,920 for the current financial year. Next financial year the scheme drops in its generosity to be 50 cents contribution from the government for every dollar you put in, and the cut off mark drops to $46,920. So you will only get a maximum of $500 for your grand.


As always, if your tax is too hard for you to do yourself, speak to an expert.