Want Affordable Housing? A Super Idea Is Limiting Negative Gearing.

April 11th, 2017

Incredibly expensive housing in Australia is nothing new. For several years now we have had record or near record house prices across the country, combined with very low inflation. It means that the ratio of average income to average house price is such that I can’t work out how people are able to convince their lender that they can repay a mortgage.

The lack of affordability is something that has been discussed, but not addressed, by state and federal governments and is now hitting the headlines again. The latest harebrained idea is to allow first homebuyers to access their super to use as a deposit, and the average gen Y would think that would be great. Until they retire and realise that they had missed out on 30 or 40 years of their super compounding. Or perhaps they would twig when they see house prices continuing to increase as a result of all their peers having more money at the auctions. After all, increasing demand pushes up prices.

So what’s the answer?

This is where I get controversial. Firstly, abolish the First Home Owner Grants. They are a smokescreen designed to think that they’re helping young people when in actual fact all they do is push up prices. (How?! Go back and read that paragraph above).

Secondly, introduce an incentive to encourage first homebuyers to save as large a deposit as possible in the form of a grant for people who have at least a 20% deposit. Grant amounts could be for a maximum of 10% of the saved deposits, up to a maximum of, say, $150,000 (so that’d be a $15,000 grant). 20% deposits mean lower mortgages due to not having to pay Lender’s Mortgage Insurance, which in turn lead to reduced repayment times.

This would lower mortgage amounts and encourage buyers to look for cheaper first homes as well as providing a reason for builders to make smaller homes of 2-3 bedrooms rather than the 4-5 bed monsters you see in display villages.

And lastly (drum roll please because this is the really contentious bit), negative gearing must be limited to amounts over around $3 million. I’m not saying that people can’t own more than $3 million worth of property, just that you couldn’t claim a tax deduction for amounts greater than this.

The average Mum and Dad investor would not be affected but the few who exploit the system by claiming a tax deduction on 10, 20, 100 properties or more would likely be forced to sell their portfolios, freeing up housing stock at lower prices for first homebuyers.

For every winner there’s got to be a loser, right? Yes, and in this case it would be investors with more than 3-5 properties as well as banks and companies selling Lender’s Mortgage Insurance.

Yes there is every likelihood that this idea, if implemented, would lead to a housing market crash that would impact many more people than just those in the aforementioned groups, but this housing bubble is going to burst either way.

We just don’t know when.

2016 Changes

January 5th, 2016

One of the biggest changes to financial legislation that kicked in on January 1, 2016 is a change that will negatively affect bugger all people. But I am really, really glad these people will be put out.

Like most of the population, I accept that there are people in society who are a great deal smarter than me. They have cool qualifications, conduct important research and have a profound impact on all of us. They’re called scientists.

Scientists do research in areas like vaccinations, studying in great detail the intricacies of disease and herd immunity so that you and I can go about our day safe in the knowledge that we probably won’t catch Polio before dinnertime.

Scientists debunk myths created by homeopaths about how watering down a substance makes it more potent (homeopaths must be completely baffled by the concept of making cordial). Scientists also debunk myths created by scaremongers about vaccines causing conditions such as autism.

Occasionally, sensible politics prevails where politicians actually accept what the scientists say, like about how important immunisations are to the health of children and society as a whole. And sometimes these politicians get rid of loopholes that give benefits to people who really don’t deserve them. That’s what happened at the chime of midnight on January 1st.

When your child attends day care you are required to show that they are fully immunised before you can receive the childcare rebate and childcare benefit. Previously, parents who were “contentious objectors” to vaccinations for their child could send them to day care without the kid being fully immunised, yet the parents could still get the full rebate and benefit available to sensible parents. In 2016 I am very happy to say that is no longer the case.

It’s a win for parenting, a win for scientists and a win for politicians who need to reduce spending wherever possible to help bring a budget back into balance.

After all, every dollar that is not spent on rebates and benefits is a dollar that can go into pay rises for politicians.

Never Been Better?

November 7th, 2015

If you believe our fearless leader, there has never been a more exciting time to be alive than today. Bummer for those who died yesterday.

To an extent, Turnbull is right. 3D printers can make everything from heart valves to cars, educational opportunities are as high as they have ever been and the TV coverage of test cricket is absolutely amazing. Things are great, unless you can’t get your head around the Internet as every service you need these days is either online or has an online element. If you’re anything like me, you’ve helped your parents set up their new laptop so they can use Skype.

If you don’t yet have a myGov account, sign yourself up for one. Do this as a once off and you can have your Medicare, Centrelink and Australian Taxation Office records accessible in the one place. You need a myGov account to do your tax online through either e-tax or myTax and these days you receive your Notice of Assessment online too.

One of the great things about myGov is that if you have never gotten your act together to roll all your superannuation into one account, myGov makes it easier than ever before.

When you are logged in to your ATO account, click on the Manage My Super square as shown below and follow the prompts. So long as all your super funds have your Tax File Number it’s a really simple and quick process (if they don’t all have your TFN you’re being slugged heaps of tax).

Screenshot from myGov account showing ATO account page and the superannuation button to press.Before you close a super account you want to ensure that the life insurance coverage it provided is at least as good as the fund you’re rolling your money into, or that you have adequate insurance outside of super. But fewer super accounts means less money spent on managing super which means more money in your hands at retirement.

You won’t regret doing that when you’re planning the next round of lawn bowls and Bridge!

Change Your Future

October 21st, 2015

How many times have you wished you could go back to some point in the past and do something different, like wished you could tell someone you loved them one last time, accepted a job offer that you knocked back or never smoked that first cigarette?

While very few of us own a DeLorean with Flux Capacitor capable of taking us back to a previous point in time, plenty have longed for the equivalent of a sports almanac to make a pile of money. (Yes, I’m watching Back To The Future II as I’m writing this!) While it’s not possible to go back in time and tell your younger self to invest a few grand in the world’s best investments it is possible to change your future. And it’s pretty simple.

It involves getting off your bum and doing what you wished you’d done years ago – sorting out your finances. It’s never too late to start and you have everything to gain.

If you regret not getting your act together years ago, imagine how you’ll feel years from now if you don’t make a positive change today.

A Bloody Good Reason

August 9th, 2015

There are plenty of reasons people have for setting up a self-managed super fund (SMSF), but bugger all of them are good.

According to the Vanguard 2015 Self Managed Super Fund Report, some of the bad reasons reported for wanting to start an SMSF included:

  • Following advice from my accountant (are they advising you because it’s in your best interest or for the extra work coming their way?)
  • Seeking more tax efficiency (shouldn’t be a difference between the tax treatment of a retail or industry fund and that of a self-managed super fund)
  • Wanting to choose direct shares (there are a growing number of retail and industry funds that allow you to invest in whatever shares you want, but if you wish to invest your super in direct property you do need to do it via an SMSF)
  • Saving money on fees (only really relevant for people who have a decent starting amount in super – see below)
  • Taking advice from a friend with an SMSF (probably the dumbest reason of the lot, unless of course the friend has the same amount in super, the same income, family circumstances and understanding of investments as well as the same ability to run an SMSF)

The number one reason people gave as to why they wanted to have an SMSF was to have more control over their investments. I can completely understand why a finance professional would want to take control of their super. Their knowledge and expertise would be greater than the average person’s and there is a fair chance they could achieve the same sort of return as a large super fund without the added expense of fees. But I just don’t get why there are so many people jumping at the complicated chance to handle their own super, especially those who are busy raising families and building careers. It’s a lot of work and the costs outweigh the savings unless you have at least $300,000+ in your super.

So next time a friend tells you that you should start your own super fund, politely change the topic.

 

Would Your Insurance Pay Out?

July 5th, 2015

There is no point in having insurance that won’t pay out in the event you make a claim. That would be a complete waste of money on premiums paid and potentially disastrous for your financial situation when you needed the money you thought you were covered for. Can this actually happen? It can and does.

When you get insurance you are legally obliged to be honest about your past. If they ask, you must tell a car insurer about that time you lost your licence and past claims you have made. A travel insurance company will want to know where you intend to travel to and, again, if you have made a previous claim.

Life insurers need to know about your medical history in a process called underwriting. Before they will give you life insurance, an insurer will usually ask about your medical history and that of your family. They need to know if you are a smoker, how old you are and your sex. They should also ask if you play contact sports or like to do a bit of skydiving on the weekends. Once they have all your information they will do one of three things: 1) offer you cover with a base premium; 2) offer you cover with a loading attached to the base premium; or 3) refuse to cover you.

The underwriting process can take some time as the insurance company looks into your medical history and may ask you to provide evidence of examinations you’ve had. These companies really are very comprehensive as it’s in their interests to not provide cover to customers who pose the biggest risks to their profits. However, some life insurance companies don’t do their research when you sign up with them.

In recent years daytime television has been showing advertising for income protection and life insurance with very affordable premiums, almost too affordable. Compared to life and income protection insurance premiums sold through financial planners, the offer sounds too good to be true. Well, if it sounds too good to be true, it probably is.

The daytime advertisers don’t have the same attention to detail when it comes to their underwriting as their more expensive cousins. They tend to have a significantly lower bar and therefore allow a greater number of high risk customers to purchase a policy. But when the customer comes to make a claim, the claims department then goes through the policy holder’s background to find a reason not to pay up. The percentage of claims that are knocked back by these companies is around 50%, which is so low it makes you wonder why anyone would sign up with them in the first place.

Until legislation catches up with these cheap life insurance companies, you would undoubtedly be better off seeking a policy with a reputable organisation. Because when you need to make a claim against life or income protection insurance, you really need to get that money.

Will The Property Bubble Burst?

June 4th, 2015

You would have to be living under a rock to not know that property in Melbourne and Sydney is very expensive and that houses and units in other major centres are not very affordable either. That’s not news. What is news is the recent talk about the property bubble and whether continual price rises are a good thing. As with any argument, there are two sides to it.

Firstly the case for. Most property investors will want the value of their investment to go up. The average landlord is negatively geared, that is they pay out more in maintenance costs and interest on the property loan than they are receiving from their tenants in rent. They rely on the increase in the property’s value to rise so that they can make money out of it.

The owner occupiers (people who live in their own homes) like to see an increase in the value of their homes but they don’t really need to. A rise in the property’s worth will make them feel better and will mean they have more equity in the home. This allows the homeowner to borrow more money against the property to spend on a new car, holiday or to invest. Borrowing for consumables that don’t rise in value is something I am very strongly opposed to, while borrowing for investment carries with it significant risk.

Now the case against. Anyone who does not own property sees the home-owning boat sail further and further away every time prices go up. It is simply not sustainable for house prices to continue to rise at a rate faster than the incomes that go towards paying for those houses. Eventually it has to get to the point where only those on the highest incomes will be able to afford to buy. As those people in society on the lower end of the income scales are so highly represented in younger generations, Australia is coming to terms with growing numbers of people who believe they will never own their own home.

None of this is new, and yes, I realise I’m preaching to the converted. But I reckon it’s a kick in the guts for generation Y to hear very highly paid politicians talking about the benefits of rising property prices while seemingly ignoring the people who are paying for it.

The only consolation is that one day it will have to come back to equilibrium. When the bubble does burst, those who are currently saving up a deposit will be the winners.

Shocking Week

November 29th, 2014

Two things relating to money shocked me this week, one pleasantly, the other not so.

I discovered on Wednesday morning that a colleague who’s on contract had been informed the afternoon prior that her contract was not being renewed. She was quite distressed at the thought of having no more income in only a fortnight’s time. Listening to her story I was stunned when she said to me that, as she had just signed a lease on a rental property as well as a loan for a car, she’d have to go bankrupt. I told her immediately that was not a good idea, neither was contacting one of those companies that promise to roll all your debt repayments into “one easy monthly payment”, because of the excessive fees they charge.

I then showed her the list of lenders’ phone numbers for people in financial hardship on our website. These numbers are the ones you need to call straight away if you find yourself in difficulty. If you wait until you’ve missed a loan repayment before you make a call to the general enquiries number at your lender you won’t get a sympathetic ear. You really need to speak to the staff on those hardship lines who are trained to deal with people in trouble, rather than the random employee you get on a general line.

One call later and my colleague’s lender had given her a six month repayment holiday. Six months! Well done Westpac, seems you have a heart after all, albeit one you need to know how to find.

B&W photo of two girls sitting on a trampoline with hair going in all directions due to static electricity.The second thing to surprise me was a moneybox I saw today in the window of our local chemist. Shaped like a poker machine, this moneybox is a coin-operated game that does nothing to discourage children from thinking that playing the pokies is a normal thing. If you’re after a responsible moneybox that actually teaches your kids to put money aside for charity as well as for things they want to buy, the Moonjar Moneybox is a ripper.

Super Unhelpful

October 6th, 2014

APRA stands for a few things: Australian Professional Rodeo Association, Arizona Pylon Racing Association and Australian Prudential Regulation Authority. The boring sounding one is the one I’m interested in as their job is to oversee banks, insurance companies and most superannuation funds. Recently APRA released a report into the fees of MySuper funds which makes for fairly dry reading, even for those of us who like graphs, charts and all things superannuation. According to moneysmart.gov.au, MySuper funds are designed to be simple and cost-effective to make things as easy as possible for those who choose not to get informed and engaged with their super. They’re a really good idea as they are the default fund for employees who don’t choose their own fund, and as they are “cost-effective” it means that you could expect your MySuper fund to not rip you off when it comes to fees.

Surprisingly, the APRA report showed fees being charged on MySuper products was over a huge range. On a member balance of $50,000 the cheapest MySuper fund in the survey charges fees of $265, which is really good value for money. The most expensive fund charges fees on a $50,000 balance of a whopping $1,322. That’s an enourmous range for a product that really shouldn’t differ much from one provider to the other, and it’s another reason to ensure that you are aware of how much your fund charges you.

So, you may ask, which MySuper fund is charging the lowest fees? I dunno. Despite the APRA report going to 20 pages, it doesn’t actually tell us the names of any of the funds.

Thanks APRA. Super job.

Debt Free

September 28th, 2014

We have done it again. After starting a mortgage when we moved from a townhouse to a freestanding house just under three years ago, Claudia and I are once again debt free.

Unlike the other three, paying off this fourth mortgage feels particularly special. Claudia and I have managed to pay this mortgage off while simultaneously having two children, paying for daycare, renovating and with Claudia completing full time study. And for most of that time on one, slightly above average wage.

As this time we own the roof over the heads of the two most precious people we will ever know, the feeling of security and achievement is enhanced. The worry and stress of having a mortgage is gone, allowing us to be able to focus on other much more important things associated with our family.

If you’re reading this and thinking to yourself “How the hell did they do it?” I recommend you read over the course on our website. I first wrote Financial Freedom For Gens X and Y 10 years ago, putting the course online in 2010. I wrote it not as a way to make a few extra bucks (our website is totally free and, unlike others, contains no advertising) but to get the message out about how much easier life is with your finances sorted.

Essentially, I wrote the course for you.

Every now and then you come across something genuine and without an agenda, something that can help you enormously. All it requires is for you to take advantage of the information we have and start experiencing what a debt free life feels like.