Cash flow and Budgeting News

Your income serves as the foundation for your lifestyle and financial goals. All of your income and spending must be identified, quantified, and tracked.

Read our insights on the latest news, trends and changes related to Cash flow and budgeting.

Pension Minimums to Remain Halved for the 2021/22 Financial Year

In somewhat surprising (but welcomed) news, a weekend media release from the Government has announced that the 50% reduction in pension minimums are to be extended for the 2021/2022 financial year.  

These measures were initially adopted for the 2019/20 & 2020/2021 financial years due to the impact of Covid. In the release it was noted that this measure “…continues to make life easier for our retirees by giving them more flexibility and choice in their retirement.” 

Is this necessary when investment markets have recovered? I’m not convinced, but happy to provide advice on the opportunities it presents to you.

Important: Remember that the reduced minimums are an option and not a mandatory reduction to your payments. You have the choice to reduce or retain pension payments, providing they meet or are above the reduced minimum.

For our clients on an ongoing service package, we will be in touch to discuss your options in the new financial year. If you want to have a chat sooner to understand your options then please get in touch, or book a chat with your adviser at our online booking page.

NOTES: 

  • This media release occurred over the weekend and didn’t provide a lot of detail. We expect more information to follow, and we will continue to provide relevant updates as they come to hand.
  • Also, a lot can happen in a month and we will have to wait until 1 July 2021 to assess exactly what this means for you and your minimum pension payments for the 2021/22 Financial Year. However a reasonable estimate will be possible from 1 July 2021. This estimate will become actual when your super funds 2021 accounts have been completed.

 

 

How do you work out your reduced minimum annual payment?
Use the percentage factors in the table below to calculate your minimum annual payment amount, using your age at 1 July of the financial year (or at the date your income account commenced, if later).

 

 

 

Read the Government media release here.

 

 

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5 Financial habits that will pay dividends in 2021 and beyond

After a tough 2020, we’ve been reflecting on what that means for you, your families and your goals. All things considered, I feel we have been lucky here in Australia, but given the continued unpredictability of COVID-19, it’s perhaps wise to remember the lessons we’ve learned that will be worth holding onto through 2021 and beyond.

 

1. Markets are all about probabilities and risk management.

Or let me say this more bluntly—markets cannot (unfortunately) be timed with precision—by you, me, or any other expert. Let’s say, hypothetically, we had anticipated there was going to be a global pandemic, avoiding the sharp declines in the global stock markets, as you decided to withdraw your investment(s). Even with this knowledge (without a crystal ball), it would have been extremely difficult to predict the timing and strength of the rebound in the market. In this case, the severe downturn has (in many instances) corrected itself within six months. Ultimately, you would likely still be sitting on the sidelines, waiting for a better entry point to get back in.

 

2. Reconnect with your goals.

The best financial advice is personalised and tailored with strategies to help you reach your goals. If you start feeling anxious about your finances or the state of markets, take a break from day-to-day market monitoring and check in on your financial goals. I’d love to be involved in this process. By reacquainting yourself with your goals, we can adapt and improve—including why you set them in the first place and how your current financial strategy can help you reach them. “Staying the course” is never easy amid volatility or market nerves, but goal setting can help slow down a racing mind, take a breath, and redefine what you really want in life.

 

3. Be your own devil’s advocate.

If you’re starting to lean toward a change in your financial circumstances (for example, selling an underperforming investment or chasing the latest popular investment trend), ask yourself why someone else might buy/sell that same investment. Our minds have an easier time remembering and noticing facts and ideas that support our opinions but forcing ourselves to take a different perspective before acting can reveal every angle of a decision. This technique can also help you when you’re sifting through information online. If you keep coming across evidence that supports your opinion, challenge yourself to find a site that convincingly shows the opposite. Or even better—come to me, and we can explore it together.

 

4. Get to know your biases and turn down the noise.

Reading or hearing about unexpected asset value changes can put any financially-minded person on edge. You’ve hired us to help manage this for you, so one useful tactic is to set a schedule for how often you check your portfolio to turn the volume down on that noise. The schedule should focus on the appropriateness of your investments in relation to your goals.

In relation to this, research shows that understanding our behavioural biases can help us spot them in our decisions. There is a saying that the best financial advisers are just as aware of psychology as they are financial analysis. Taking some time to read about the psychology behind our decisions and emotions is an advancement toward financial independence.

 

5. “The intelligent investor is a realist who sells to optimists and buys from pessimists.”

This saying is an old favourite that comes from Benjamin Graham, one of the founding fathers of value investing. We’ve seen the full spectrum of fear and greed in the past year—but it pays to be a humble realist. Humans have overcome incredible challenges throughout the centuries, and we are on our way to overcoming the latest challenge. But don’t be fooled into thinking the recovery will be smooth or doomed. It will have speed bumps, with each change in sentiment creating potential opportunities for the intelligent investor.

 

The Pekada team are well placed as your go-to resource to help you thrive financially, identifying opportunities, navigating future challenges and working towards whatever it is that is important to you. If you want to chat about the above or your personal situation then please get in touch with us.

 

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Budget 2020 – what you need to know

This is without doubt one of the most exciting times of the year, well at least for some of us. Last night the Treasurer, Josh Frydenberg, released the Government’s highly-anticipated 2020-21 Budget, featuring the bringing forward of tax cuts, superannuation reforms, measures for Centrelink clients and additional aged care funding.  After going into a record deficit of $213.7 billion to support individuals and businesses during the Coronavirus crisis, the focus of this year’s Budget is to regrow the economy by creating job opportunities and encouraging spending.

Pekada’s team have reviewed the Budget and prepared a summary of the key measures for you, and will be updating our the Federal Budget 2020 page here throughout the day.

NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.

 

TAX CHANGES

Personal tax cuts
The Government has announced that it will bring forward stage two of the previously legislated tax cuts that were due to take effect from 1 July 2022 by two years. As a result, from 1 July 2020:

  • the Low Income Tax Offset (LITO) will increase from $445 to $700. The increased LITO will be reduced at a rate of 5 cents per dollar between taxable incomes of $37,500 and
    $45,000. The LITO will then be reduced at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
  • the top threshold of the 19% tax rate will increase from $37,000 to $45,000, and
  • the top threshold of the 32.5% tax rate will increase from $90,000 to $120,000.

What this could mean for you

  • The following chart shows the tax cuts you might receive this financial year based on your income levels and the amount of tax you’re currently paying.

Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset (LMITO) was introduced in the 2018 Budget, to complement the existing Low Income Tax Offset (LITO). In 2019, the base rate for the LMITO increased from $200 to $255 and the maximum payment increased from $530 to $1,080. The Government had planned to discontinue the LMITO when the stage two cuts were to be introduced in mid-2022. However, even though the stage two cuts have been moved forward to the current financial year, the LMITO will also remain in place for the
2020–21 financial year.

What this could mean for you

  • If you qualify for LMITO you will receive payment after you submit your next tax return. Depending on your income, the maximum LMITO you can receive is $1,080. However, the LMITO is scheduled to cease next year. This means you could end up paying more tax in the 2021–22 financial year than in 2020–21. Dual income couples can both be eligible for the LMITO, up to a combined total of $2,160.

 

SUPERANNUATION CHANGES

Default super accounts
Currently, if you start a new job and you don’t let your employer know where you want them to pay your super contributions, they will open a super account for you. The account will be in your employer’s default super fund. This may result in you having multiple super accounts.

By 1 July 2021, your employer will be able to obtain information about your existing super account from the ATO. They will then pay your super contributions into this account, unless you instruct them to pay it to a different account.

For people who don’t yet have a super account, their employer will be able to open an account for them in their default
super fund.

What this could mean for you

  • Over 4 million Australians currently have multiple super accounts, and this means they’re paying more than one set of super fees and possibly multiple insurance premiums as well. The Government estimates that this is costing Australians $450 million each year. The intention of this change is to keep people’s super accounts attached to them, so they can take them from job to job.
  • By having only one super account, you can stop paying unnecessary fees and insurance premiums that may be eroding your super balance. Having all your super together can also help your super savings accumulate faster.

Performance testing for MySuper products
MySuper products follow a strict set of government guidelines. They tend to offer their members lower fees, simple features and limited investment options.

The Government feels there are too many underperforming super funds in the market, and this is impacting members’ retirement savings. From 1 July 2021, MySuper products will be subject to an annual benchmarking test. If the fund is found to be underperforming, it will need to inform its members by
1 October 2021.

Further, if a fund is found to underperform for two consecutive years, they won’t be permitted to accept new members until their performance improves.
By 1 July 2022, all super funds will need to do the annual benchmarking test – not just MySuper products.
What this could mean for you

  • How your super fund performs can make a big difference to the amount of money you have when you retire. This change means that your super fund will need to tell you if your fund has underperformed compared to other super funds. You can then make a decision about whether you want to stay with your fund or change to another fund.

YourSuper online comparison tool
To help members easily compare super funds, the Government will release an interactive online comparison tool called YourSuper by 1 July 2021 which will:

  • rank MySuper products by fees and investment returns
  • provide links to super fund websites
  • show if you have more than one super account so you can consider consolidating them.

What this could mean for you

  • Choosing a super fund can be daunting. This comparison tool will make it easier to see what each super fund charges in fees and how they have been performing. However, it’s important to remember that past performance is not always an indication of future performance.

 

HEALTH, WELFARE AND JOBS

Additional support payments for welfare recipients
Government support recipients will receive two separate economic support payments of $250, to be paid progressively from December 2020 and March 2021.

This follows two previous payments of $750 to eligible recipients, with the new payments estimated to cost a total of $2.6 billion.
What this could mean for you

You may be eligible for the two payments of $250 if you’re currently receiving:

  • Age Pension (including Age Pension (Blind))
  • Carer Allowance*
  • Carer Payment
  • Commonwealth Seniors Health Card
  • Disability Support Pension (including Disability Support Pension (Blind))
  • Double Orphan Pension*
  • DVA Gold card
  • DVA Payments
  • DVA Seniors Card
  • Family Tax Benefit (fortnightly recipients)*
  • Family Tax Benefit (lump sum recipients)*
  • Pensioner Concession Card (PCC) holders (covers non- income and asset test PCC holders and people who have an extended entitlement to a PCC even though their payment has stopped).

 

Health services
Coronavirus has taken its toll on the mental health of many Australians. Therefore, the number of psychological services funded by Medicare will be doubled from 10 to 20, effective immediately.

The NDIS will also receive additional funding of almost $4 billion, to provide essential support to Australians living with a disability.

Women facing ovarian cancer will now be able to access the drug Lynparza through the PBS. Rather than costing $140,000 per course, general patients will now pay around $41 for a script while concession card holders will be charged $6.60.

What this could mean for you

  • If you currently access any of these services, or think you may need to in the future, it’s important to understand what you’re eligible for. As the first step, we recommend you speak with your doctor.

New jobs in key industries
The Government is committing $1.5 billion over five years from 2020–21 to support the building of competitiveness, scale and resilience in the Australian manufacturing sector. It will focus on six key industries of strategic interest:

  • defence
  • space
  • medicine and medical products
  • food and beverages
  • resources technology
  • recycling and clean energy.

Rural communities will benefit from $2 billion in funding over 10 years to improve water infrastructure, while regional businesses will benefit from an expansion of the instant asset write-off scheme. Regions that rely on international tourism will benefit from their share of $51 million in funding over two years to diversify their markets.

While the Budget doesn’t offer much financial relief to female workers currently impacted by Coronavirus, the government is committing $240 million over four years towards a range of employment initiatives for women. These include increasing female workforce participation in male-dominated industries such as construction.

What this could mean for you

  • With the pandemic causing massive job losses around the country, these measures are designed to get as many Australians back to work as possible. While some industries may currently offer more opportunities than others, it’s likely that many industries will be in a state of flux for years to come.

 

For our ongoing service package clients, your adviser will be in touch with any specific actions or impacts to your situation.

If you have any queries in the interim or would like further clarification in regards to any of the above measures outlined in the 2020-21 Federal Budget, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail.

 

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The investment income drought continues in the 2021FY

The trend for investment income to decline, is a trend which has continued into 2020. The most recent reduction reaching point so low it is challenging the patience of most investors. It is in July, the month following the end of the financial year, when many investment funds pay their largest distribution of income. However, this July, investors experienced a significant (and not so welcomed) drop in income distributions. Why? There isn’t one single cause, with some of the factors including:

  • The continued fall in interest rates.
  • The decline in the value of growth assets in the March quarter, which has removed the majority of capital gains that may have been available for distribution.
  • The reduction in company dividends as a result of falling corporate earnings.

Interestingly, the change in the pattern of investment returns following the COVID-19 crisis contrasts to that which took place around the time of the Global Financial Crisis (GFC). In the GFC period, income levels proved to be far more stable than capital valuations, with equity prices remaining substantially below pre-GFC peaks for many years. In the more recent COVID-19 crisis, equity valuations have bounced back very quickly (at least for now), whereas income levels are anticipated to be depressed for a more extended period.

 

Is a change in strategy required?

Before considering whether the fall in income should trigger a review of your investment portfolio strategy, it may be appropriate to assess the reasons why income is valued so highly by investors. Leaving aside any taxation considerations (which tend to favour returns in the form of capital gains), in theory, investors should be agnostic as to whether investment returns are in the form of income or capital gains. I appreciate that franking credits do sway the needle back towards income, especially for those in superannuation pension phase.

But we can’t lose sight of the fact that, what matters is the total level of return after tax (capital gain + income).

As much as it might not “feel” the same, if withdrawals are required to fund living expenses, the impact on wealth is the same. This is irrespective of what ratio of capital/income return is.

However, many investors pursue income as a portfolio objective. While in a pure economic sense, the pursuit of income as a priority ahead of total return may be irrational, a focus on income can still serve a useful purpose in wealth management. Linking or benchmarking investment income with living expenses can provide a source of discipline in spending and also give some indication as to the long term sustainability of an investment strategy. By definition, if living expenses are always equal to, or below, investment income, then the investment strategy is infinitely sustainable.

In reality, however, many investors who previously were able to fund living expenses from investment income will no longer be able to do so. For some, the change will be temporary as the current period is hopefully an outlier and higher income will return in future years. For others, the improvement in income in future years will be insufficient, and an extended period of lower interest rates will require capital withdrawals to be the new normal.

Accepting that capital withdrawals will become a necessary evil will shift the focus of impacted investors from income objectives to total return objectives.

This shift in investors mindset is a far healthier approach than the alternative of changing a portfolio strategy and risk profile to meet an arbitrary income target. Inevitably the pursuit of higher income will lead investors to higher risk investments. Within the fixed interest asset class, this can encourage investors into assets that have a higher level of credit risk where capital loss can occur if corporations or mortgage holders default on their borrowings. Within the equity asset class, this income pursuit can lead to what are termed “dividend traps”. A dividend trap occurs when a stock’s yield appears highly attractive based on past payout levels; however, the reason the yield is attractive is that the market has already priced the stock at a discount on the likelihood of future reductions in earnings and dividends.

 

Low income is not permanent

Given the expectation of continued low interest rates in the years ahead, income on interest bearing investments is unlikely to recover quickly from current lows. Led by banking stocks, Australian dividend payouts are expected to fall by approximately 35% this year. Associated with the decline in dividends will be a fall in franking credits, which have become an increasingly important source of income for many investors as interest earnings have dwindled.

However, for growth investments (equities, property and infrastructure), much of the current decline in income should be viewed as temporary. Company earnings and dividend payouts will recover, and Australian equities should return as a relatively high yielding asset class. Dividend yields in the vicinity of 4% over the medium term are a realistic expectation. At least another 1% in franking credits may flow from this. Hence the margin between income earned on Australian shares and that from interest bearing investments is likely to be historically wide – given the current overnight cash interest rate is at the record low level of 0.25%.

 

Have you allocated to infrastructure?

Infrastructure is also an asset class that offers some attractiveness from an income perspective. Still trading at valuations some 20% below its pre-COVID level, infrastructure appears cheap on a relative basis. The majority of infrastructure assets (e.g. toll roads, power utilities) produce stable defensive revenue streams and also provide the benefit of often being linked to inflation, which can assist investors in protecting the purchasing power of their income stream.

 

What should you do with your portfolio investment strategy?

For some investors a re-weighting of portfolios away from interest bearing investments towards growth investments may be an appropriate response to current return projections. In a low interest rate world, the role of interest bearing investments may increasingly shift from wealth creation to wealth protection. If a shift towards growth investments is being considered, a total return focus should be taken, incorporating individual risk tolerances and appetite. Income levels, whilst potentially supporting some important discipline and cash flow management, should not be the primary determinant of an investment strategy.

If you are unsure if your investment strategy remains appropriate for the 2021FY and beyond then please get in touch and make a time to chat with one of the team.

 

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Decision fatigue and wealth creation

Over the last two months as we have attempted to navigate this storm that is Covid-19, it has become especially apparent the value of having a trusted partner/adviser in the area of overall financial management. Given the amount of noise and sheer number of changes, it has been an information overload and there is a real risk now that the wrong decision – or no active decision – can have a lasting affect on your financial trajectory.

It made me think of a blog post written a number of years ago now about Decision fatigue, which I have reposted below with some tweaks given what we are currently facing.

“Which brand of Olive Oil should I buy out of the 15 types on the shelf”
“Should I buy organic carrots at $7 or non-organic at $4”
“What will I have for lunch today”
“The market is down/up/sideways, what should I do”
“Should I pay off my mortgage or put money into super”

A couple of years ago I read an interesting book which spoke about the concept of decision fatigue, and how the brain gets tired after making a series of decisions. Decisions use the same willpower that you use to say no to things like cupcakes and other temptations, and by making decisions you are incrementally using up your mental energy for the day. The more tired this ability is, the more risk of making a poor decision. What was interesting is that the brain can’t distinguish between important/non-important decisions. For example, choosing which carrots to purchase can use the same energy as what you should do with your finances.

Given the plethora of choices we are all faced with on a day to day basis (albeit a few less choices right now), it got me thinking about a phenomenon I see with clients all too often when it comes to matters related to their money – too much choice, therefore I do nothing.

As an example, a group of Stanford researchers created a sampling booth within a supermarket, with one afternoon having 24 jams, the following week 6 jams. They found that more people liked the idea of having a lot of choices, more customers approached the 24 Jam booth than the 6 jam one. However, those visiting the 24 jam booth tried 1-2 Jams, and only 3% purchased. Those at the 6 jam booth also tried 1-2 jams, and 30% of people purchased. From this, researchers concluded that those with copious choice shut down and did nothing, and called this choice overload.

So when I speak to clients who have at least started the process of making decisions about their money, from budgeting to investing to debt management to insurance etc, there is sometimes fatigue with the array of choices and information, and also the fear of then making the wrong decision which stops them from taking action.

So how can this be combatted? In terms of the book, which was talking about productivity, reducing the amount of inconsequential choices you make in your life can preserve this mental energy. I.e. I am going to do a work item at this set time everyday.

Outsourcing to someone else to navigate the choice and either present you with a final decision or a narrow set of decisions can also assist. For example, many people I know who are juggling the working/schooling will being in isolation have turned to prepared meal delivery. This takes a whole raft of decision making elements out of the equation so you can focus on what is really important right now. And if you are in a position where you still have this choice in discretionary spend – keeps the often small business alive during this economic hibernation.

We as financial planners should be your outsourced decision making, in that you tell us what you want to achieve, we come back after navigating all of the choices for you to recommend what we think is the best decision for you to achieve this outcome. You can then spend your mental energy elsewhere!

 

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Free resources to up-skill your Money IQ during isolation

The level of uncertainty due to COVID-19 is something most of us could never have imagined and as a result, have gone into self-isolation underprepared on how to fill those long days indoors! I’m confident that this will pass at some point, and trying to take some positives from a very horrible situation, we all have more time on our hands and can put that to good use.

Good news! If you have wanted to improve your money IQ, then there are a heap of great free resources out there to get you started. I believe that knowledge and awareness are part of the foundation of financial independence, so here are some of my personal favourites that you can get access as easy as parking on the couch with your phone or laptop! Let me know what you think and also if there are notable omissions that you think I should include.

 

MoneySmart

This is an absolute personal finance staple and a great place to get unbiased and factual information about a wide range of topics including superannuation, investing, insurances, lending and estate planning, just to name a few. It is a creation of the Australian Securities & Investments Commission (ASIC), so you can feel secure in the accuracy of the content. Their ‘about us’ page sums up the purpose of the site really well, to help individuals “take control of your money, build a better life”. Be sure to check out the “tools and resources” section as there are some great calculators which you can play around with to pass the time and plan your future wealth creation strategies!

JP Morgan Insights

If you want an in-depth but easy to consume guide to what is happening in global financial markets, then look no further than the JP Morgan Insights page. The investment banking business behind this site has 150 years of experience and a global footprint of investment research. I personally love this site as has a good mix of written and visual content which helps get your head around the financial concepts presented. If you want to skip to some of their best content summarised into a neat little package, then the “Guide to the Markets” is a quarterly production which is worth checking out.

Firstlinks

Having recently been acquired by Morningstar, I believe this is still free and has a weekly newsletter which brings together a variety of investment professionals insights and makes them accessible to individual investors. It allows you to ‘choose your own adventure’ in terms of current investment updates, strategy, opinions and encourages their readers to take a ‘through the cycle’ with a risk-aware perspective. I like that school of thought and enjoy the way the articles are presented in summary form, so you can quickly focus in on what is important to you. As this is an Australian site, it also has a wealth of good content on superannuation strategy.

Noel Whittaker

Noel is an icon of Australian personal finance and whilst he is retired from financial planning, he certainly hasn’t slowed down in providing his expert insights on all things personal finance. Noel News is informative and entertaining read on latest money news and tips directly from Noel. I’m a fan of the use of cartoons and graphics to reinforce the points made. Whilst it is excellent content for all demographics, I feel that is it a must-read for those transitioning to, or in retirement. The resources and calculators sections are quality, including tools to calculate age pension entitlements, dollar cost averaging, retirement draw-down and more.

Livewire

For those who like to get hands-on with their investment decisions, or simply want to arm themselves with plenty of talking points on investment opportunities at the next post-restrictions BBQ or Zoom drinks session then this is for you. Livewire does a great job at curating some of Australia’s leading fund managers and investment market professionals to share their thoughts and expertise. Because of the variety of contributors to the site, you will often get varied opinions which I feel is good to ensure you get a balanced view of the investment landscape. A good feature is being able to search via contributor, which is brilliant if you want to shortlist the content based on experts you are interested in hearing from.

Money Brilliant

If you are sitting there wondering about where all of your hard-earned cash goes each month, and why you aren’t saving as much as you think you should, then you need a budget! No better time to start one, as your transactions have most likely simplified purely based on lack of spending options. Whilst paper or an excel spreadsheet work well, I feel a digital tool that does the heavy lifting in listing and categorising your finances is ideal. Money Brilliant describe it as like having a “personal financial assistant that never stops working for you.” Once you start monitoring every transaction and measuring the value of assets and liabilities, you begin thinking about your money differently and ultimately making smarter money decisions. The basic plan is free and something which you can easily set up on your mobile device. The money alerts feature is a good one, as you can set budgets for spending in certain categories and get alerted when you go over this. My most recent alert was breaching my budget for “dining, bars & cafes”, which I can justify as doing my bit to support the local small businesses of course!

ATO

They say there are only two certainties in life, death and taxes. That means the ATO will be a part of our lives, so good to see they have made an effort to make the relationship a little simpler. This is a trusty source of tax related info for individuals, business owners and SMSF trustees. You can access relevant tax and super information and tools in one place. If you regularly find yourself hunting around for your receipts to get your tax return complete, then the myDeductions tool is going to be handy. It allows you to record tax-related information such as deductions on the go throughout the year, so you can lodge and get your return quicker!

The Economist Radio

If you want to get regular and succinct updates on what is happening in the global economy then this is for you. The Economist magazine is renowned worldwide for their analysis on current affairs, international business, and politics. You don’t need a subscription for this podcast either, but having said that it is highly likely that you will want to get a subscription once you start consuming the quality content provided. I’m a big fan on the originality of the content here and as it updated most days, you are constantly benefiting from fresh looks at current world affairs.

The Wealth Collective

Ok, full disclosure, this is our podcast. Having said that, we feel that we offer a good resource to consume on your morning walk or commute from the bedroom to the home office. If it relates to building and protecting your personal wealth, then there is a good chance we cover it. In on the ground, experience as financial advisers provides us with unique insights as to the practical application of wealth strategies in Australia. Our aim is to share our insights, tips and views on investing and personal finance whilst having a laugh along the way.

The Motley Fool Money Australia

Motley Fool is one of the most well known and trusted investment names. They’re known for great investment and finance insights both at home and abroad. They often will give deep insights into individual shares, along with concepts that are mainly revolved around investing. Listening to this podcast will help shape your investment decisions and build a better and more well informed portfolio.

The Financial Diet

The Financial diet does a great job of making what can sometimes be a mundane and boring subject to some people, finance (we don’t think it is), interesting. They talk a lot about topics such as budgeting, changing your behaviours to better your financial position in a more light hearted and entertaining way. If you’re someone who finds topic such as budgets and finances boring, then this may be the right channel to keep you engaged.

CommSec TV

The Commsec youtube channel provides great sharemarket analysis through their daily market updates with morning, mid-session and end of day reports. If you want some in-depth market and economic insights then this is a great channel to subscribe to. I personally really enjoy the executive series where Tom Piotrowski (made famous by Rove all those years ago) interviews high-level executives where they give great analysis on their companies and what is generally happening in the market and economy at large.

Moneysmart

The MoneySmart Youtube show has several quick and easy to understand which explain basic financial concepts such as what is super, using buy now pay later services such as Afterpay and what are shares? It’s a great channel for improving your financial literacy when you’re just starting out and will no doubt improve your personal finances. They also provide a range of videos aimed at improving children’s financial knowledge. A great resource for all stage of life if you want to improve your knowledge and improve your financial position.

 

 

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Podcast – Dealing With Uncertainty

In this episode Pete and Zac discuss financial strategies in helping you deal with uncertainty.

 

Follow us on spotify here. 

Transcript:

Pete:

Okay, we’re back after a quick break. Wet the whistle a little bit. So now, resilience, flexibility, dealing with uncertainty is part of your financial plan. I think this is a core, it’s a foundation piece of any financial, plan to make sure you can cope with the curve balls, the shit storms that life naturally throws at you. And we’ve all had them. And they can be medical. They can be children, family, work. You know and at the moment it’s-

 

Zac:

Somebody’s car broken down or something like that.

 

Pete:

Yeah, I saw someone literally walking into the office today, someone’s car’s has been broken into and the cops are all outside. So it was absolute shemozzle out there. So yeah, all these sort of things. So I think, how do we get started? I think you sort of… Do want to kick us off with… I think you just need this as part of every financial plan. I’ve had a peek at your notes, so…

 

Zac:

Obviously. Looking over the shoulder.

 

Pete:

I agree.

 

Zac:

So the first tip, and probably what I think is the most important one, is having a cash buffer, an appropriate cash buffer too. So that amount might be different for everyone. But is there a rule of thumb that you normally look at in terms of expenses, amount of monthly expenses?

 

Pete:

I think you have, six months I think is a really good buffer. Because you think about if you’ve lost your job or something significant happens, if you’ve covered six months worth of your living expenses and don’t just put your core living expenses, your lifestyle expenses as well, that should give you enough breathing space to at least sort of make some decisions. And what you’re trying to do is, it’s not trying to solve all the problems, but it’s trying to give you breathing space.

 

Pete:

So I think best practice is minimum six months and perhaps, if you can, six to 12 months. And in terms of where do you put that? I guess the place you wouldn’t put it, is into growth assets or into your super fund, unless you’ve satisfied all the conditions of release. You want to make sure you can get access to it. So where would you be sort of squirreling these funds… or where are your funds?

 

Zac:

Would be sitting in a cash account, most likely or a high interest savings accounts. Maybe a term deposit.

 

Pete:

Term deposit? Jeez, you’d be very…

 

Zac:

And you might need to break it, but-

 

Pete:

Yeah, you might want to do it. You could do a 30 day notice saver or something like that. But otherwise like an offset account, for most people, would be the most logical place, if you’ve got a mortgage.

 

Zac:

If you’ve got a mortgage offset account.

 

Pete:

But otherwise you want to get as much interest as you can, but you want it to be a call. So you want it to be secure. And the main point of it is, don’t get too upset. It’s going to look frustrating to go, “I’ve got a chunk of money doing or earning nothing.” But it does serve a very valuable purpose. Because it should give you peace of mind that you can sleep easy knowing that whatever gets thrown at you, you should be able to absorb it and make sure that you’re sort of… you know, you’ve got time to make decisions about how to deal with other assets.

 

Zac:

Yeah, exactly. And it’s important too that, having the cash buffer then allows you to mean that you’re not, as you said, forced to sell other assets and we never want to be forced to sell. Because things might go wrong in a bad time in the market. And then if you don’t have your cash buffer sitting there, then you’re going to potentially have to sell an asset at a time that it’s not desirable. And yeah, that has further implications for your overall financial plan.

 

Pete:

Yeah, understood. And then the other thing is, if you do draw on your cash buffer or your cash reserve, make sure you top it back up. So don’t sort of fall into the trap of going, “Oh great, I’ve, I’ve used my cash buffer. Nothing ever bad will happen again.”

 

Pete:

Well from experience, life continues to throw challenges at you and curve balls. So make sure you’re constantly getting that back up to that level as well. And that might be selling down assets or doing different things.

 

Zac:

Cool. Definitely. So what’s your next tip Pete?

 

Pete:

I think, what I like is I think you need to have a really rock solid and clear vision and sort of goals into the future about sort of where your life and sort of where trying to get to.

 

Pete:

And the reason why this is so important and is a really strong part of that foundation of a good financial planning strategy, is when something does happen and you need to potentially access your cash reserve or you need to veer off the straight path that you had set for yourself, you can find your way back more easily and get yourself back on track, because you’ve got something to measure against and go, “Hey, okay I was expecting that I’d have this much in assets, this much in savings, this much in super. My loan would be down to this. Hey look, something happened. I lost earnings capacity or I needed to redo parts of the house or I needed to pay for X bill. Okay, I’m behind track.”

 

Pete:

So unless you’re measuring it, unless you’ve got goals and you’ve sort of mapped it out, you have no idea how far off you are. So it’s harder to get back on track. So I think the clearer you can map out your future and especially the end game, and I think that’s the most important-

 

Zac:

Well that’s the most important part. Because you’ve figured out what the end game is, and then you work back from there and going, “Where do I need to be at each stage.”

 

Pete:

Yeah. And I think that’s the thing. Like the longer you’ve been, I guess running a financial plan or sort of monitoring your financial strategy and your progress, you know that it’s not linear. It’s not like the same every… It’s not, “Oh yeah, rinse repeat, every year the same thing.” Returns are different. Returns can be negative. Earnings are not always the same. You know, pay rises are not always the same. Expenses aren’t always the same.

 

Pete:

So all those sorts of things, and sometimes these can be really good things and positive things like you might have like, oh I had a just a swag of people getting married and then having babies. So you’re going, “Oh, there’s more gifts, there’s more parties,” there’s new suits that you need, and all those sorts of things that go along with these events. Or they’ve got them overseas and you’re paying for travel costs as well. So it doesn’t necessarily need to all be bad things you need to plan for, but that robust vision, very, very good as a good foundation to build off.

 

Zac:

Definitely.

 

Pete:

What else you got up your sleeve there?

 

Zac:

So the other one in terms of dealing with uncertainty would be to make sure you’ve got a good insurance plan in place. So insurances are often there to look after you in uncertain times. And that’s the whole reason. The best insurance is the one that he never going to have to claim on. But insurance is like in the ones that we normally talk about, a life insurance, total and permanent disablement trauma and income protection. Because they’re all going to work in tandem with each other to make sure that if something does go wrong medically for you or something even worse if you or your partner was to pass away or something like that, that financially you’re not going to be impacted upon.

 

Pete:

Yeah, absolutely. And I think it’s good. And you need to make it work for you. So you don’t want to have it being shored up to the eyeballs, but you want to have the appropriate amount of cover because it’s your plan B to fall back on. And it’s not there to make you in a better financial position. It’s literally just there to keep you going, and definitely not there to make you in a better financial position. That’s called moral hazard, Zac. That’s when people go on honeymoons and one of them doesn’t come back potentially because they’re insured for too much and it’s too appealing. But yeah, the financial outcome. So, thank goodness I survive that. So… Yeah, so I think that’s definitely like insurance is really, really fundamental part of any robust financial plan.

 

Zac:

Well, especially with the income protection, like if you think about for most people at the moment, most listeners, I’m sure your lifestyle and how you fund your lifestyle is based solely upon your ability to generate an income. So unless you’re in the retirement phase of life, but for most people it’s going to be that your ability to generate an income is how you live and fund your daily expenses. As soon as that goes away due to illness or injury where you can no longer work and your sick leave starts to stop and different things like that, then it’s pretty much only Centrelink that’s going to be potentially coming in for you at that stage. And then depending on what your lifestyle looks like now, that might not necessarily be enough. So it’s important to have income protection there.

 

Pete:

It’s definitely not enough to cover my lifestyle at the moment. So-

 

Zac:

Yeah, exactly. Especially with two kids under two.

 

Pete:

Oh, it’s horrible. The thought just is to go, “Hey, if that’s my plan B, the amount of things I would need to forego and sort of changes and sort of the way we run our day to day life, would be horrific.

 

Zac:

Yeah, because I mean for a lot of people, mortgage repayments are no longer been able to be met. Different things like that. So having income protection in place, is really important. And having appropriate income protection to your salary.

 

Pete:

Yep. Absolutely. All right, so another one that I’d like to sort of cover off on today is spending less than what you earn. I think that, you just need to be disciplined before these things happen. So it’s too late to plan for uncertainty when you’re already going in that period. So I think you need to get on the front foot and have really good financial habits now.

 

Pete:

So yeah. The sooner you can start these things, the better. And the main problem that most people have in… that holds them back from accumulating wealth, retiring early and building financial independence, is people spend beyond their means. And they keep increasing their expenses and their lifestyle every time their incoming increases.

 

Pete:

So I think sort of prescribing that, the percentage formula of going always putting a certain amount of your money away-

 

Zac:

That’s the most basic rule for generating wealth isn’t it?

 

Pete:

Yeah.

 

Zac:

Spend less than what you earn.

 

Pete:

But it sounds really simple. And I definitely do that now. But as a younger lad I was definitely not doing that. And it can get out of control really quickly cause then okay, you’ve can fall into problems with debt and then the debt compounds at a rate over and over again. So then it sort of starts to get away from you and it can become actually quite taxing mentally on you as well. So there’s a lot of financial stress. Continues to build and build and build. So I think if you can do that and make sure, with that surplus money that you’ve got and that you’re redirecting, I think definitely put some of it into that cash reserve you were talking about, but get some of it going into growth assets. Because I think the quicker you can build a pool of growth assets, investment assets outside of your family home and the family home’s an important one, the better you’re going to be. And the more resilient you’re going to be able to be in the future because you’re going to have assets to fall back on.

 

Pete:

And then in the future you can actually have passive income. So that stuff that’s not reliant on you. So that’s going to be less susceptible to a lot of loss challenges to do with employment problems and health issues as well. Because that’s what we’re trying to work towards to create. Because it will help you in achieving financial independence sooner.

 

Pete:

So I think if you can apply a formula, and for some people that would be a dollar formula. I like percentages because you can sort of stick with them for the long term. And you should be aiming to be putting away 30 to 40% into your future you. And that might be at the start, it might be debt repayments on your home mortgage and getting that down or paying it into an offset account. Some of it into a cash reserve, and definitely some of it into some growth assets.

 

Pete:

So whether it be shares, property, sort of investment assets that have capital growth and the ability to produce a passive income in the future, is really important to sort of setting you up really, really strong financially.

 

Zac:

Yeah, especially with the way that interest rates are at the moment. Putting something somewhere where it has the ability to generate something over 2% or one and a half percent, it becomes very important. Because otherwise you’re really just keeping up with inflation or in in most cases, you’re below it.

 

Pete:

And you’ve got to be planning for the long term as well. A financial plan is not a one-time transaction or a sort of a 12-month thing, it’s for the rest of your life. And you know, depending on how old you are, the listeners out there, you know, it’s decades and decades and decades or perhaps really… depending on, you know, might have people that are shorter than that, but it’s still a longterm plan. So you need longterm thinking as part of it. So definitely making sure you set that formula. So whether it’s 15% into, you know, short term sort of cash debt repayment and 15% into growth assets. And I still think you should do a bit of both, because it gets you good financial habits. You’ve got anything else up in your kit bag there?

 

Zac:

Yeah. So following on the part of talking about growth assets and things like that, I’d be making sure you have diversification in your portfolio. So this will help you and times of uncertainty, especially in the markets. We see a few people come in every now and then, they might have a portfolio that’s just maybe 10 ASX top 200 stocks or something like that where they’re highly, highly for banks. You know, Coles, Woolworths, BHP and Rio, highly diversified.

 

Zac:

Yeah. But if something was to go wrong locally, then then they’re highly susceptible to potentially losses on those types of accounts. Whereas if you have a portfolio that’s got a mix of Australian and international equities and property exposure, some fixed interests and different things like that, then you’re more likely to be able to not get hurt as much when things do go wrong and in those uncertain times.

 

Pete:

Yeah, I think we’ve covered most of it. I think probably the one, and I’m thinking more in terms of investment market uncertainty here, is just know what you’re comfortable with. And also know what you don’t know. And I think what I’m, what I’m talking about here is understand what your tolerance for risk is, because there might be events in the market or downturns in economies where you don’t want to panic and make bad financial decisions. And the difference between good longterm returns is often poor human behavior in terms of transacting too often or panicking and hitting the sell button too early.

 

Pete:

So things like that and there’s tools to go through that. So you can go through risk profiling, but really just going in with eyes wide open to financial decisions to say, “Well, okay, am I going to be comfortable if this money that I’m putting into this investment, drops by 30, 40%? Because if it’s a growth asset, that’s a realistic possibility. It’s happened before. Could happen with shares, could happen with property, could happen if you bought a factory, or you might’ve bought a business or whatever that is, that’s sort of a growth vehicle for your wealth.

 

Pete:

It’s subject to volatility and that’s the risk and reward trade off. So you’re getting paid additional return above the crappy cash rate that we’ve got at the moment, because you’re taking on additional risk. So there’s no free lunch when it comes to finance, but you do want to try and make sure that you are taking the appropriate amount of risk. Because without taking any risk, you get no return.

 

Pete:

So it’s walking a bit of a tight rope and getting that balance right. And I think the more you can understand that and have a conversation with your trusted network or your advisors out there. And advisors don’t need to be a financial advisor, they might be a financially successful person that’s in your circle of friends. I think that’s really important.

 

Pete:

And then the other thing is knowing what you don’t know. I think in these low interest rate environment times, people get seduced into investments outside of their circle of competence and their understanding.

 

Zac:

Bitcoin a couple of years ago.

 

Pete:

Yeah, well even Bitcoin now. But also things like term deposits that pay five times more than what the big four banks term deposits are. It should ring alarm bells, but sometimes that lack of understanding and labels can be misinterpreted and those sort of things. So just make sure you know what you’re getting into, because if you don’t have that, you can’t really have confidence that the asset structure that you’ve got in place, can be called upon if you do get sort of something out of left field, that you need financial resources for. I think that’s it from my end.

 

Pete:

I’ve exhausted my kit bag. I’m running on empty first week back. So, but yeah, hopefully you’ve got something out of that today. And if you’ve got any other suggestions or any other tips that people could utilize or something that you’ve benefited from in a time where you’ve experienced a bit of uncertainty, send it through. Happy to hear from it.

 

Pete:

And if you have enjoyed the podcast, please do share it. Because the more people that are listening, the more people that can benefit. And also, it will improve the quality of the guests that we can get on the show. Not that Zac’s… well you’re not a guest anymore. You’re a co-host. So yeah, that’d be really good. And then we’ll see you back next week and we’re going to empty the mail bag. There’s been a fair few questions that came in over the break, which is good. So I think we’ve run out of time for today, so we’ll tackle a fair few of those next week as part of the show as well. So, we do appreciate you sending it through, we’re not ignoring them. So we will get to them. So we’ll see you all next week.

 

Zac:

Cheers.

 

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ATO provides tax relief for bushfire victims

The ATO has provided details about support offered to victims of the Australian bushfires which have devastated so many communities. It is nice to see them try and support people impacted to reduce any distraction or worry related to their taxation requirements in these tough times.

The ATO have said that they will look to support and help in some of the following ways:

  • give you extra time to pay your debt or lodge tax forms such as activity statements
  • help you find your lost tax file number (TFN) by using methods to verify your identity such as your date of birth, address and bank account details
  • re-issue income tax returns, activity statements and notices of assessment
  • help you re-construct tax records that are lost or damaged
  • fast track any refunds owed
  • set up a payment plan tailored to your individual circumstances including interest-free period
  • remit penalties or interest charged during the time you have been affected.

 

For full details of the support available, you should check out the ATO post at the following web address: https://www.ato.gov.au/Individuals/Dealing-with-disasters/In-detail/Specific-disasters/Bushfires-2019-20/

The ATO have noted “For identified impacted postcodes, we’ll automatically grant deferrals for lodgments and payments due. You or your agent don’t need to apply for these deferrals.” To see if you are automatically included by way of your residential address a list of impacted postcodes by state are available below:

If you have been impacted and your postcode is not on the list then you can contact the ATO Emergency Support Infoline on 1800 806 218.

Should you need any assistance then please contact the Pekada team and we will be happy to assist. Stay safe.

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Making Money Made Simple – Noel Whittaker

A very exciting episode of the podcast as Pete speaks to Noel Whittaker about his latest book ‘Making Money Made Simple’ and some of his personal finance wisdom. Find the full transcript below.

Here is the link to the calculators discussed in the episode – https://www.noelwhittaker.com.au/resources/calculators/

If you wish to get in contact with Noel you can do so here.

Catch up with the other episodes of The Wealth Collective Podcast here.

 

Transcript –

Pete:
Hi guys and welcome back to another episode of The Wealth Collective podcast. You’re in for a real treat today as I’m joined by Noel Whittaker all the way from sunny Brisbane. Noel is one of the world’s foremost authorities on personal finance and his CV is one of the most impressive ones you can possibly imagine. It includes being an international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker. His contribution to personal finance has been immense. It’s seen him awarded the Australian Centenary Medal in recognition of his services to the financial services industry. And in 2011 he was made a member of the Order of Australia for his service to the community in raising awareness of personal finance.

Pete:
Why we’re talking to Noel today is all about his new book, Making Money Made Simple, which is a completely revised and updated version of his original bestseller, which sold more than 2 million copies worldwide and was released over 30 years ago. It’s a great read and it provides some really reasoned, realistic views of the world of money and personal finance. It includes things like goal setting, mastermind groups, investing, superannuation, debt and plenty of stuff that you can actually sink your teeth into and will improve your own personal finances. So I could go on and on, but I’m sure you more interested to hear from Noel. So without further adieu, on to today’s show and I hope you enjoy it.

Pete:
Everything we talk about on today’s podcast is general advice only, because we don’t know your individual, personal situation. Before you act on anything we’ve spoken about, you should chat to your financial advisor. And if you don’t have one, feel free to reach out to us. Now on to today’s show.

Pete:
So Noel, thanks for joining us on today’s show. And you’ve been busy. So you’ve written a couple of books and the one we wanted to talk to you today about on our show was Making Money Made Simple. So this is a reboot, but having read it, it looks almost like a complete rewrite of your classic book. So talk to us, so what prompted you to actually update this and sort of effectively rewrite your classic?

Noel Whittaker:
Well the old Making Money Made Simple was written 32 years ago.

Pete:
Okay, that’s going back some time.

Noel Whittaker:
Yeah. And when I look, I just pulled out one of the first copies then and the whole book was based on interest rates at 15% for housing loans.

Pete:
Oh wow.

Noel Whittaker:
15%. You know there was no credit cards so much. There was no Afterpay, there was no sexually transmitted debt, there was no prenuptial agreements, there were no apps on telephones then. So it’s a whole new world, Pete. So what I’ve done, I’ve kept all the old principles because they never change. But this is a totally new book.

Pete:
Yeah. And it feels like that as well because some of those things are a relatively new phenomenon. Like especially Afterpay. That’s the buzz one at the moment. And that’s brand new and features quite heavily in the book there as well because it is one of those modern-day problems that we’re facing.

Noel Whittaker:
Oh yes, yes. But you know, if you use Afterpay, you are spending money you don’t have. And the first principle of becoming financially successful is to spend less than you earn.

Pete:
And easier said than done for a lot of people. Because it does sound simple. And what-

Noel Whittaker:
Well we use strategies. And see one of the things in this book, I discovered after I read the book 30 years ago that information doesn’t help without an action plan. And the whole new Making Money Made Simple is devised around action plans.

Pete:
Yeah and there’s little mini challenges that people need to sort of tick off at the end of every chapter which is good because it sort of keeps you engaged throughout the process, which is fantastic. And they’re not too daunting. But it does get you thinking as well. What I loved about it, a lot of it involved actually sort of engaging in these conversations with your spouse or your partner. Which is good as well because it’s very rarely tackled.

Noel Whittaker:
Well, I think the two most important messages in the book. One, you get rid of the credit card because it’s very, very few people who will not overspend on a credit card. You know when the credit card statement comes, you always think, “Oh my God. How come all those tiny items added up to such a big sum?” Sidebar, maybe do a debit card. You can’t overspend. And I think the other thing is you need a financial buddy, a partner, child, parents work mate. Anyone who has the same goals as you so you can the-

Pete:
And is this the mastermind concept that you talked about?

Noel Whittaker:
The mastermind group. Yeah, the mastermind group. It was in Think and Grow Rich. You know, it’s the way to go.

Pete:
How do you see that working? Is that sort of like accountability means you’re sort of more likely to stick to your goals?

Noel Whittaker:
Accountability, yeah. Look, it’s exactly, look, if you want to start an exercise program, find someone you can meet up with at 5:00 in the morning to jog with. If you want to improve, you’ve got to find someone you can practice with. If you’ve got another person involved in what you’re doing, it makes you more likely to do it. I mean, I’ve had a personal trainer for 30 years. If the personal trainer couldn’t come, I wouldn’t exercise. You know, it’s the commitment.

Pete:
No, I fully appreciate that because I’ve got a gym membership that hasn’t been getting a hell of a lot of use. But when I have had a trainer in the past, it’s been, it’s chalk and cheese really isn’t it?

Noel Whittaker:
It’s a meeting, you know. We go to Pilates every Monday and Thursday. So I know that half past six every Monday and Thursday morning we got to Pilates. We’ve been doing that now for 18 years, which is why we’re so healthy.

Pete:
Oh very good.

Noel Whittaker:
So you need those commitments. It’s got to be in the diary. There’s no other way to do it.

Pete:
And then once you’ve got those commitments, how do people get started? Because it can often be quite daunting getting started in terms of personal finances. And people just keep kicking the can down the road. Once you get that plan in action, is there tricks to, other than the accountability, are there certain tips you’ve got for people that can help them get started?

Noel Whittaker:
The best map in the world would be useless if you didn’t know where you were. So the absolute first step is to write down where you are now. That’s your assets. It’s your debts. You know, write that all down. And that’s your resources. And once you’ve assembled your resources, then you work on your goals. You know, what can my goals be? Now if you’re in debt and consumer debt, then the first goal will be, “I got to get out of debt.” And the book… I’ve got ways in there that most people can be out of debt in two or three years. I’m talking about consumer debt now. You know, if you want to buy a house, well how much do you need? And the book keeps pushing people back to the calculators on my website.

Pete:
Your calculators are brilliant, so we will put a link in the show notes so that people can access those because they are really easy to access and it makes it more real. You’re using your numbers and actually sort of applying the lessons in the book instead of just reading it and putting it back down.

Noel Whittaker:
Yeah, I mean all those calculators, I designed them to be very simple because there’s a lot of calculators on the web but most of them are so complicated. But you know in mine, all you got do, if you look at the superannuation calculator, all you got to do is plug in your age and your salary and the rate of return you’re getting and bang, it all spits out for you.

Pete:
Beautiful.

Noel Whittaker:
Because all-

Pete:
Are there more calculators coming, Noel as well or are you sort of… it looks like it’s adding to it all the time.

Noel Whittaker:
Yes I’ve got time to do calculators now. I’ve got time to do calculators now, yes. Because I love them. See I use them. In all the stuff I write, I use them for the stuff I write in the age and things.

Pete:
Oh very good. Because there’s a lot of case studies as well throughout the book, which is good. So you can actually see the principles getting applied, which helps get the message across and send it through. So in terms of who’s the target person? Like who should be reading this book? We’ll be giving it away to a lot of our clients here and listeners and a few of them already got it and sent back some positive feedback. So hopefully it’s finding its way under the Christmas tree for a lot of people.

Noel Whittaker:
Hopefully, yes.

Pete:
Is there a person that would benefit the most from this or is there someone in mind when you were drafting or sort of redrafting this?

Noel Whittaker:
It’s kind of written for young people, but for anyone who doesn’t know much about finance. It could be someone 60 even. But I mean it’s aimed for the 15 to 40 market, but anyone can learn from it. That’s the point of it.

Pete:
Very good. And this is sort of… one of the things we struggle with is the affordability of financial advice now. So if someone actually wants to sit down with a financial advisor, it’s not necessarily a viable option to spend several thousand dollars to get full advice if you are starting out. Because that could be perhaps better allocated towards reducing the credit card that you mentioned before or seeding an investment portfolio.

Noel Whittaker:
Absolutely, yes.

Pete:
So this is a great tool to actually… a lot of these principles are what we as financial advisors address at a much deeper and bigger level. But the fundamentals are all still the same. So if someone can get a head start and get cracking with this, I say it is a brilliant way to sort of get the foundations in place.

Noel Whittaker:
Yes. I mean that’s what you need. I mean if you’re in debt there’s… I mean to go to a financial advisor, you need to have money available to invest. Either money to invest or the resources to borrow. Now if you’re over your heels in debt, as you said, the first job was to get out of debt and start on the right path. I mean what they’ve done to financial advice is terrible. I mean all the regulators think the more information you give people, the safer they are and it’s rubbish. It’s just making more and more work for the good guys. And the bad guys still don’t do it. The bad guys ignore it. That’s the silly part about it.

Pete:
Yeah. And I think that’s why. If that money could be perhaps better spent on educating people instead of more and more regulation. Because there’s a lot of red tape at the moment.

Noel Whittaker:
It’s getting worse, Pete. It’s getting worse.

Pete:
And I feel that… I’ve heard you talk a lot and bureaucracy is not one of your favourite things from what I can gather.

Noel Whittaker:
Well nothing happens with bureaucrats. All they do is give you the reason not to. And it’s crazy. Like when you see a gambling ad on the television and in the minuscule print at the bottom, it warns you about it. You know, the warning shall be a biggest sight than the advertisement. It’s just crazy. Everyone knows about ticking boxes.

Noel Whittaker:
When we had our practice, if there was a complaint, you always had the odd complaint, I would get on the phone and fix it. And then you’d deal with a succession of things that happened. We ended up being owned by the Commonwealth Bank. And then the procedure was if you get a complaint, you put it in the complaint register and number it and forget about it. That’s why it was taking the Commonwealth Bank years to answer complaints. Because the focus was on recording it and forgetting about it. When you’re in your own small business, your focus is on solving it.

Pete:
Yeah, absolutely. And that’s lost in translation isn’t it? With all of these people actually aren’t living it and aren’t on the front line trying to sort of regulate and sort of create rules for it. Very obscure and perhaps going over the top and doing it for the 1%.

Noel Whittaker:
Way over the top. It’s way, way over the top.

Pete:
And are you saying… so regulations are changing. Rules change a lot, legislation changes. But I guess what seems to sort of ring through here is there’s a lot of stuff that doesn’t change in terms of building wealth and sort of getting yourself to a state of financial independence. Is that sort of, is that how you see it? So you’ve been around through several Prime Minister’s of economic cycles.

Noel Whittaker:
Yeah. I think you need to know what’s dangerous. The most dangerous thing is overseas tax. Most people don’t know that if you are born in America, you are an American citizen for tax purposes. So a couple of Aussies could go to America and have a baby born over there on holidays and come back. And he’s never been to America after his birth, after his whole birth, and is an American citizen. Now, if you’re an American citizen, you are required to put in your American tax return every year. The growth on your Australian super fund.

Pete:
Wow, I don’t think a lot of people know this one. So you’ve-

Noel Whittaker:
And they don’t. They don’t.

Pete:
A few ears are perked up, no doubt right at the moment.

Noel Whittaker:
Yeah. And they just passed laws this week. If you’re a foreign resident, you’ll lose your six year exemption. I’ve just read an article on it and it’s so complex. But this is the really complex stuff.

Pete:
Yeah. And that’s where there’s always a point where you’d need to go get a good advisor. Surround yourself by experts you can trust. And that can be easier said than done because there’s been a lot of trust washed away in terms of the people that aren’t advised. But you know, speaking to our clients, like the people that have an advisor in most cases are really, really happy and sort of see a lot of value in it.

Noel Whittaker:
Of course they are. And I mean, I think the best one of all is aged care. I think the most common problem now faced by the baby boomers is their ageing parents. And aged care is absolutely so complex. You must have an aged care specialist.

Pete:
Yeah. And it needs to be a specialist as well.

Noel Whittaker:
Of course it is. Of course it is. No, no.

Pete:
A generalist is not going to cut it because it is so unique in terms of the skill set required for that one.

Noel Whittaker:
Absolutely.

Pete:
So we might wrap it up there Noel, but I sort of came to ask you a couple of questions, which perhaps give us some insight into how the book was shaped and how you’ve got to where you are. So if you don’t mind humouring me with a couple of these.

Noel Whittaker:
Anything you like, Pete. Anything you like.

Pete:
What is the best investment that you’ve ever made?

Noel Whittaker:
Oh, I bought some Magellan shares. I bought 50 grand of Magellan shares for a dollar and they went to… they’ve went to 60.

Pete:
Yep, and paid some dividends out along the way as well.

Noel Whittaker:
Well, oh yes. I’ve never owned CSL. I know it’s the best performing share over 10 years up 700%. I bought a good house on the river, which has gone up well. That’s done well. The biggest regret is that when we bought the house on the river, I sold another house on the river and that’s increased eight times since then. You know, as everyone said if you would’ve always kept your real estate, how good it would have been.

Pete:
Yeah, well that’s true with a lot of growth assets isn’t it? And that’s that compounding. That features pretty heavily in your book as well. The magic of compound interest, getting that working for you. And that’s one that is literally, it’s a wonder of the world and sort of never ceases to amaze me. It is very boring at the start, but it does, when sort of those wheels get working years down the track, it’s pretty amazing stuff.

Noel Whittaker:
See in Making Money Made Simple, I refer to a book, The Slight Edge by Jeff Olson. The Slight Edge. And as he said, “We get used to television shows and movies where it’s all sorted out in 90 minutes. But it’s the progression every day of doing the right thing, plod, plod, plod.” I mean for the first five or six years with compounding, nothing happens.

Pete:
Yeah and people give up. Several get bored. They then chase and make silly decisions.

Noel Whittaker:
Well they do. They get sick of it. But all of a sudden it just starts. It starts to take off. I told the story in the book of the lily in the pond. If a lily’s in a pond and it goes from a tiny speck, it doubles every day and goes and it fills the pond in 10 days, how long to go from quarter full to full? The answer is two days. It goes from from quarter to half on the ninth and half to full on the 10th. Now, if that was your superannuation, if you had to harvest that on the eighth day, you’ve lost three quarters of what you could have had because all the growth comes at the end. So if you harvest early-

Pete:
And too often people don’t make take advantage of that, do they?

Noel Whittaker:
They don’t. They do not. And that’s why working a bit longer is so important. That’s why if you can get a part time job after you retire, it’s important.

Pete:
Yeah, and we see that quite a lot actually. This transition, like retirement I think is getting redefined constantly and is more like a, it’s a transitory stage as opposed to this sort of the finish line necessarily that people used to look at it like. And we’re all living longer as well.

Noel Whittaker:
You know, people living longer, it’s important to have a purpose in life. I mean I’m 80 next month. I don’t want to be-

Pete:
Oh happy birthday. Congratulations.

Noel Whittaker:
Thank you. Kerry Stokes is 78 and Gerry Harvey’s 80. John Howard’s 80, Warren Buffett’s 90 I think. It keeps you healthy. Gives you a purpose, things to do.

Pete:
Oh very good. And that might segue into my next question I had for you. If you could give advice to a 30 year old version of yourself, is there anything… what in particular would that advice be?

Noel Whittaker:
Well, I guess who I am is all the mistakes I’ve made along the way. But I never started to learn about this stuff until I read Think and Grow Rich at age 35. I would, yeah. So I guess I would have started earlier I think.

Pete:
Yeah. So start early and sort of read good books I imagine would be part of that as well.

Noel Whittaker:
Oh, of course. Because you know, you either can learn from people’s mistakes and they put that in books or you can make your own mistakes. If you make your own mistakes, they can be very costly at times.

Pete:
Yeah. And so in terms of a book recommendation, and Noel, we will recommend your books, Noel. A book recommendation outside of your own that people should be sort of considering for their holiday reading. If you have to pick one.

Noel Whittaker:
The Richest Man in Babylon. Well The Richest Man in Babylon, written in 1928. It’s a classic. I like The Slight Edge by Jeff Olson. I think that’s a great one. If you’re in marketing, The Psychology of [Persuasion] by Robert Cialdini. It’s a great book. It’s a fantastic book. There’s so much stuff out there.

Pete:
Noel, love it. There are some good suggestions and well, hopefully, I’ve got to get through yours first. And they are a really, really easy to digest and sort of work through and you can take it chapter by chapter, which is fantastic.

Noel Whittaker:
Oh yes, yes, yes. Yes, yes.

Pete:
And then so you’re happy for us to share the links to the calculator. For people who’ve got questions are they sort of, are you okay for people to sort of reach out to you directly and send you an email?

Noel Whittaker:
Of course, absolutely. Absolutely. Yes. Oh yes. Yes.

Pete:
Well, very good, very much appreciate you giving your time today and sharing so generously with us.

Noel Whittaker:
It’s been a pleasure, Pete.

Pete:
Well no worries. We’ll let you go and have a wonderful day and we’ll speak to you in the new year, hopefully.

Noel Whittaker:
Thank you.

 

 

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How to choose a financial adviser in 2020

Whilst majority of the population may ‘need’ financial advice, those who are going to get the most value out of engaging a financial adviser are those that have surplus funds of some description (whether that be month to month cashflow, or funds in savings/investments), and they want to commit to harnessing this to protect, build or manage their wealth in the pursuit of their financial goals.

People seeking advice in this criteria often find they don’t have the knowledge or the time (or both) to act on this themselves, or they simply want an independent coach or sounding board in keeping them accountable in what they want to achieve. In that vein, there is therefore no set amount of money one should have to see a financial adviser, it is a matter of finding one that you match with in going on this financial journey together.

The value that this professional advice should add to your financial wellbeing is also varied and very much specific to your personal circumstances. The biggest element of value may actually be intangible – freeing up your time and mindspace on financial matters so you can spend more energy on the things you actually want to do. As a brief example of what types of advice/strategies they can assist with:

  1. Protecting your wealth – strategies to ensure you personally and the people you care about are protected financially should the worst happen (eg Insurance), talking through and assisting to develop your estate plan
  2. Building your wealth – strategies on cashflow management, budgeting, building savings, building investments, managing debt, utilising different tax structures (superannuation, trusts, companies etc)
  3. Manage and Enjoy your wealth – Managing investment and superannuation portfolios, optimising tax structures and income streams, intergenerational wealth
  4. Specific Life Events  – assistance with the financial implications of significant life events, such as relationship breakdown, death of a loved one, entering aged care, obtaining a financial windfall (eg inheritance).

Most advisers will offer a fee and obligation free initial meeting, this is a great opportunity not only to ascertain if this adviser can help you, but also can you see yourself working with this person on what can be a very personal journey. Particularly if you are wanting to work with someone on an ongoing basis, very important you find someone you trust and get along with – as otherwise it may actually cause you more stress or financial pain in the long run!

So how do I choose a financial adviser that is right for me in 2020?

The key point for me is that it can be tough to find an excellent adviser. But there are plenty out there who are making amazing differences to clients lives. Below are some points which I think can assist you in choosing the right financial adviser.

Do they get to know you?
I’m not talking about tick-a-box know your financial balance sheet, but does the adviser really get to know what you want out of life and what you are wanting to achieve with your finances? This allows a good adviser to explore ALL options available to you, and know if going down one path can have a consequence on other things you want to achieve. If an adviser isn’t asking you A LOT of questions, I would be worried whether the financial plan will suit your needs

Do they know their stuff?
Ask an adviser what their qualifications are and look for someone who has gone above the minimum requirements, whether that be a Certified Financial Planner, a degree or masters. A piece of paper is definitely not the be all and end all, however I believe financial planning is potentially such a complex area you want someone who has advanced their learning to be able to help you as best as possible.

Where you have complex advice needs, such as self managed super, aged care, business succession or estate planning, it is also worth looking for a specialist in your area of need to ensure you are getting the full picture.

How are they paid?
Financial planning is a professional service, and as such payment is required for their work. This payment can come from you the client in the form of a fee, or from the product (for example, a commission from an insurance policy). While commissions are currently banned for products outside of insurance, it is important to ask whether your adviser receives any incentives for recommending one product over another. Paying for your advice from a product is not necessarily a bad thing, but you need to know all of the information to make your own decision about whether a planner is making a recommendation in your best interest.

It’s also worth asking what is the total cost of a financial plan, even if some things are an estimate. Reason being is there may be advice fees depending on the type of work an adviser is doing for you (like a plan fee, implementation fee or review fee), but also costs associated with any products recommended that support your financial plan (like share brokerage, managed fund or super fees, insurance premiums etc). This is to avoid any surprises once you have paid for the plan.

What can they recommend?
Majority of financial advisers will have what is called an “Approved Product List” of products they can recommend to you. This is not necessarily a bad thing, as it is impossible to know all products in the market inside out, and an approved list may be an indication of products an adviser or that adviser’s licence holder have fully researched and approved for clients.

However, it can also be an indication that the adviser is being corralled into recommending a particular set of products, so it is worth asking what the adviser is ‘approved’ to recommend, and when they can recommend things that aren’t ‘approved’. A simple example of this is that you may see a planner and have an existing super fund that you are completely happy with, but want some help with retirement planning and how to invest. If your super fund is not on the approved list can they still help you?

Choosing an adviser is an important decision, as it is a potentially long term relationship where they are assisting you with a big part of your life. So also think about do you like, trust and want to deal with this person ongoing and you will on the right track to finding someone right for you.

If you have any questions or want to have a conversation then please contact me at rhiannon@pekada.com.au.

 

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