We work with our clients to help them create, protect, and eventually pass on their wealth to future generations.
Read our insights on the latest news, trends and changes related to estate planning advice.
I recently turned 30. It’s a strange age. Some of your friends have settled down and have children, whilst others are backpacking around southeast Asia. Some are looking to purchase an investment property, whilst others are hosting big parties in their shared house of ten. Regardless of which stage you are at, the thirties are an excellent chance to take some of that ‘grown-up medicine’ and to look to start to get our finances in order; here are some places to start.
1. Set some goals:
Money is just the vehicle towards helping you live your best life. Everyone will have different goals, so your financial plan should be different. If you’re the type of person who wants to live overseas, then buying a house because you feel like you should and others are telling you to may not be the best option. Once we have goals, it’s easier to know what we must do to achieve them. Otherwise, we can continue on a road to nowhere.
2. Review what you currently have:
Personal finances are usually left or pushed into the too-hard basket. You may not be as passionate about it as I am and, therefore, lack the motivation to think about it (completely normal). Simple things like reviewing what you currently have can pay big dividends.
Review your superannuation and make sure that your fund is appropriate. Check about how your fund has been performing compared to others. Please have a look at your investment options within your super and make sure that it’s appropriate for you. Think about whether or not you would like to be invested in an ethical and environmentally friendly manner and see if your current investments align with that.
You should also review what insurance you have. If you have young children or some debt with a partner, such as a home loan, then life cover could be critical. If you’re working and rely on your income to live, then you need income protection. Insurances aren’t sexy, and not many people like paying for them, but if something goes wrong and you don’t have them, it can create financial pain that can be hard to recover from.
3. Build an emergency fund:
Life is unpredictable, and unexpected expenses can arise at any time. Aim to build an emergency fund with three to six months’ living expenses. This financial cushion will provide peace of mind and help you avoid dipping into your savings or investments during tough times.
4. Look towards the future:
Investing is a powerful tool for building wealth over time. It can be slow to start with, but compound interest is the eighth wonder of the world; the earlier you start, the more rewards you reap. Putting some surplus cash towards investments that have growth potential can help you fund some future goals you may have as well. There are options for all different starting balances, so you don’t need to wait and put it off any longer.
5. Stop paying the lazy tax:
Only some people love to have a strict budget in place, and if that’s you, there are things we can do to get our cash flow under control. Reviewing your expenses is essential; a lot of little savings can add up, especially when everything is getting more expensive.
Have a particular look at your subscriptions, whether they be streaming services or gym memberships and make sure you’re using them and getting value out of them. If not, look at ending them or looking at alternatives.
The lazy tax can also apply to your banking. We often choose a bank early on in life and stick to it. Review your interest rate and ensure that what you are getting stacks up. This can also apply to your home loan if you have one. It can pay to do some research, as there are often no rewards for loyalty in this area.
7. Estate Planning:
It’s never too early to think about estate planning, especially if you have dependents. Setting up a will now can last until your situation changes and doesn’t need to be too difficult or costly. It will mean that your wishes will be carried out if something happens to you.
8. Reach out if you’re unsure:
For some people, discussing personal finances is like speaking another language, but seeking guidance from a good adviser can help simplify the situation. A good adviser should also be able to educate you along the way. Using your money in the best way possible is important, so don’t let it fall by the wayside just because you’re unsure where to start.
As always, we are here to help. If you have any questions, feel free to email me at zac@pekada.com.au
Talking about finances with your partner can be daunting, but it is an important conversation. As a financial advisor, I often encounter couples who struggle with managing their finances together and can often be used as a mediator in these scenarios. In this blog, I will provide some tips on how to talk to your partner about finances and hopefully help you if this is something that you need help with.
The first step in talking to your partner about finances is to set a time and place that works for both of you. We often talk about having a financial date night, and it’s great to discuss the following. Choose a time when you are both relaxed and not likely to be interrupted. According to a study by the Financial Planning Association of Australia, only 26% of Australians feel confident managing their finances. This underscores the importance of taking the time to have an informed discussion about your finances. Ensure you are both comfortable and in a private space where you can converse honestly without distractions.
Start the conversation by discussing your goals as a couple. For example, do you want to buy a house, go on a holiday, or plan for retirement? Understanding each other’s goals will help you make decisions together and stay on the same page. Make a list of your short-term and long-term goals, and discuss which are most important to each of you.
The goals are exciting as well. Having something exciting to work towards can create extra incentives to work together on your finances. For example, at Pekada, we do a Values & Goals session where each couple member has a chance to talk without interruption about their values and what is most important to them, and then we start to work on some joint goals together. This can be a great starting point for working on common goals together.
Being honest about your financial situation with your partner is essential. This includes your income, debts, and expenses. Be open and transparent about your finances, and encourage your partner to do the same. It may be uncomfortable to discuss your debts, but it’s essential to get everything out in the open to work together to address any financial issues. For example, one particular partner’s debts may stop you from doing things such as purchasing a home together, so it is crucial to have everything out in the open.
Creating a budget together is an excellent way to manage your finances as a couple. Start by tracking your expenses for a month or two to understand where your money is going clearly. Then, create a budget that includes your income, expenses, and savings goals. Finally, please ensure you are both on board with the budget and committed to sticking to it.
Everyone has different spending habits, and it’s essential to understand how your partner spends money. According to the Australian Securities and Investments Commission, many Australians struggle with credit card debt, with an average balance of $2,577. Discuss your spending habits and concerns about each other’s spending. It’s essential to be respectful and non-judgmental during this conversation and work together to find a compromise that works for both of you.
This is often where a ‘yours, mine and ours’ approach can work well. Each partner has a separate bank account for their discretionary spending. Free to spend those funds on whatever appeases them whilst maintaining a joint account for joint expenses and future goals you may have. This can stop a lot of arguments around what the other may be spending. Having an account where you can spend guilt-free and maintain some form of financial independence is also essential.
Emergencies can happen at any time, so it’s crucial to have a plan in place. Discuss what you would do in an emergency, such as a job loss or a medical emergency. Make sure you have an emergency fund set aside to cover unexpected expenses.
It is also a good idea, especially if you have a mortgage together to review your insurances. Discuss what would happen in the worst-case scenario if one of you were to pass away. Would you want the mortgage covered? Decisions like this are essential to ensure that no one is left with financial stress in the event of a loss.
While discussing depressing things, having a good estate plan and will in place also be essential to ensure that your wishes are carried out in the event of your passing.
In conclusion, talking to your partner about finances can be challenging, but it’s essential for a healthy relationship. Setting a time and place, discussing your goals, being honest about your financial situation and planning can alleviate many of these potential issues. If you ever have any questions or are interested in doing a Values & Goals session as a couple, please reach out!
Usually, as advisors, we discuss how we can help you to live your best life. Ways in which we can help you hit your significant goals such as purchasing your first home, funding dream holidays and experiences, helping you to hit your retirement goals and so on. All of these things are important and benefits of financial advice, but one part we don’t discuss too often is the help we can give at the end of life. It’s not a topic we humans like to think about or discuss, but as Benjamin Franklin once said, “in this world, nothing can be certain except death and taxes”.
Last year I was in the unfortunate position of losing a few people close to me, all at various ages and life stages. One of these was my Aunty, who was 62 and whose life was cut short due to cancer. I was appointed the executor of her estate, a role I understood but never had hands-on experience with. However, throughout this experience, some lessons were learnt about how financial advisors can ease the burden of this challenging time.
My thoughts on this were further spurred on by an article a client of mine sent me, stating the difficulty that this lady went through when dealing with the administrative effects of losing her husband and just how she had to deal with the administrative side and the challenges of that whilst still mourning the loss of her husband. Read the news post here .
Throughout the last year and dealing with loved ones who were at the end of their life, along with those who had lost their life partners and were trying to deal with the estate and the next steps, I learned some lessons.
However, when someone may be reaching the end of their life due to illness or other purposes, those around them tend to feel like finances are a taboo subject. Something that they want to avoid talking about. Fair enough. These might be some of the last conversations you have with one another, and you don’t want them to be consumed with talking about money.
From my experience, my Aunty wanted to discuss money. She wanted to ensure that her funds passed to those she wanted to in the most effective and efficient way possible. She had worked hard throughout her life to accumulate her wealth, and when she knew that, unfortunately, she was diagnosed as terminal, she wanted to ensure that her loved ones would receive these in the best way possible.
If you are in this situation but are uncomfortable or want to avoid bringing up money, an adviser can be a great starting point. A good adviser can have these difficult conversations at a hard time in a person’s life. In my Aunty’s case, she sat with another adviser, someone slightly removed but whom she still trusted and was able to have discussions around her wishes for where her funds were to go, whether or not her estate plan was up to date and appropriate and some different strategies to make sure that various taxes were minimised where they legally could be. These conversations provide a financial benefit and a considerable peace of mind benefit.
A good estate plan is vital. Not just for the peace of mind that it leaves the person nearing the end of their life but for those loved ones who are left behind to administer their estate. Who you choose as executor is also essential, as that person will help administer the estate. It can be a good idea to discuss your wishes and what is within your will with your executor as a heads up as well as they will be the ones ultimately fulfilling your desires in the future.
The clearer you are about your wishes, the better they can be carried out. It’s always a good idea to have a proper estate plan with a lawyer specialising in wills and estates. They can also help the executor put the estate in place in the event of your passing. As discussed in many of our blogs, having a good team around you is always essential.
Everyone has had a bad experience at one stage or another; trying to deal with admin teams of big businesses and banks, and superannuation companies can often yield similar results. So it pays to be organised. Throughout this process, it will save you and the person left to deal with your estate time and unnecessary stress. A relationship with an adviser should ensure they have many financial details, such as superannuation and insurance policy numbers and a good understanding of most of your assets.
A lot of time can be spent searching for these if they aren’t readily available. Advisers may also have the authority to discuss your account with the superannuation fund if you have granted them this, allowing them to check on questions you may have and meaning you don’t have to spend time waiting on hold during what will be a difficult time.
Other things that can be important to organise are pre-organising funeral expenses. Again, it sounds sombre, and much of what we are discussing here is, but it will make things easier for those left behind. We could do this with my Aunty, and as sad as it can be, it was nice to plan out what she wanted (and laugh about how terrible her song choices were, way too much Barbara Streisand). Once a person has passed away, the assets will likely become frozen and unable to be used until you have reached probate. You can see how this can be beneficial, especially if you leave behind someone financially dependent.
It’s also beneficial to know where important documents are located. Documents include passports, driver’s licences and certificates of title for properties. Having these will save a lot of time and other details, such as Tax File Numbers, which can often be forgotten.
Through the most challenging times, a good adviser can help remove a small amount of the stress that may be felt. As a result, they can make a harrowing experience easier for those in this challenging position and those left behind. As always, if you have any questions or are going through something like this and would like some help, please email me at zac@pekada.com.au.
Here are some links to content we’ve come across this month that we thought you may find interesting and useful resources.
We hope you find them helpful.
The links:
We love suggestions.
If you come across something interesting, please share with us by email at connect@pekada.com.au.
Here’s a paradox:
Financial decisions are a part of life.
An important part of life.
But still, just a part.
Outside of financial decisions, there are plenty of other important things.
You know, like family, friendship, spirituality, physical and emotional health, having fun.
Consider this a friendly reminder.
Regardless of the size of your superannuation benefits, it is vital that you sort out your estate plans to ensure that you have a well-prepared estate plan so that the right assets go to the proper beneficiaries. You need to ensure that you get holistic estate planning advice and have arrangements to review your estate plans regularly. Estate plans are not to be set and forgotten.
First and foremost, it is essential to understand that the payment of your superannuation death benefits is covered by the rules of your SMSF trust deed and does not automatically form part of your Estate for distribution under the terms of your Will. As trustee of your SMSF, you will need to make sure that you have read and understood your SMSF’s trust deed and that you comply with it at all times.
On your death, one option is to rely on the SMSF trustee’s broad discretion to determine who, within the operation of the law, will receive your death benefit and how much each beneficiary will receive. The alternative is to remove the trustee’s discretion which gives you greater control in deciding how your superannuation death benefits will be cashed. For example, this may be relevant if:
Subject to the specific terms of your SMSF trust deed, ways in which you could consider removal of trustee discretion include:
To ensure that your death benefits are cashed in accordance with your wishes, it is critical to ensure that your estate plans are comprehensive and that you understand the ownership and control of your assets on your death. It is also important that any superannuation death benefit advice you receive is consistent and complimentary to your overall estate plans and is not in isolation to the other.
At a minimum, we recommend that trustees have their SMSF trust deed reviewed to ensure maximum flexibility when dealing with death benefit payments. It is also recommended that this be done alongside a review of any BDBN(s) to ensure that they are valid and provide certainty in how death benefits will be dealt with upon your death.
When considered in light of an ageing Australia, the value of assets invested in SMSFs and recent court cases, having the correct SMSF documentation and process is essential to minimise the risk of litigation from disappointed beneficiaries to allow a safe passage of death benefits to your intended beneficiaries.
So what should form part of a comprehensive SMSF estate plan? At a minimum, it should contain the following:
How can we help?
If you would like to discuss any aspect of your estate plans, please book a chat so that we can discuss your particular requirements in more detail.
When you think about wellbeing, you often think about your physical health. Are you exercising enough, eating well and keeping healthy habits? But, in reality, it is so much more than that.
Your wellbeing is a conscious and deliberate process of making choices that help us to live our best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness.
According to research, a person’s wellbeing can be measured against eight dimensions of wellness: physical, spiritual, social, emotional, intellectual, occupations, environmental and financial.
Each dimension means something different to everyone. Understanding what it means to you can help you uncover what you value in life, where your strengths are and what you might need to work on.
Physical
The Physical Wellness Dimension involves things that keep us active and healthy. Our physical wellbeing is so important to our mental health, longevity and ensuring we live our best lives. This doesn’t mean we must all be athletes. But it does mean building good physical health habits, having a healthy diet, exercising regularly, and having the appropriate health care for our needs. The more we are in tune with our bodies and what they need, the less likely we will be to become reliant on the healthcare system or even our families and loved ones.
Intellectual
The Intellectual Wellness Dimension involves things that keep our brains active and our intellect expanding. It’s about mastering new skills, learning new things or helping to educate others. Having the time and resources to keep your mind active and supporting your loved ones can help you live a long life.
Spiritual
The Spiritual Wellness Dimension is a broad concept that represents one’s personal beliefs and values and involves having meaning, purpose, and a sense of balance and peace. It includes being able to volunteer your time to support causes that mean something to you and help others to live a more purposeful life.
Emotional
The Emotional Wellness Dimension involves the ability to express feelings, adjust to emotional challenges, cope with life’s stressors, and enjoy life. It includes building and nurturing relationships to strengthen our support networks and ensure we have the resources to spend time and money on those we love and the things we enjoy in life.
Financial
The Financial Wellness Dimensions addresses your financial wellbeing. It covers your income, debt, savings and investments as well as your financial literacy. It also means having the resources to support and protect those you love. To live your best life, you need to be confident in your current financial situation or your future financial prospects.
Occupational
The Occupational Wellness Dimension involves aligning your work to what you value in life. Ensuring that you pursue work that has meaning and purpose and reflects your values, interests and beliefs. Living your best life means work shouldn’t feel like work.
Social
The Social Wellness Dimension involves having healthy relationships with friends, family and the community. Living your best life means living a life where you participate with others you care about and have the time to do so.
Environmental
The Environmental Wellness Dimension involves living in an environment that promotes positive wellbeing. Such as preserving areas where we can live, learn and work, providing pleasant, stimulating environments that support our wellbeing and offer the natural places and spaces to promote learning, contemplation and relaxation. We need to create the right environments to help us live our best lives now and into the future, for both ourselves and our loved ones.
Our financial advice process will help you to uncover which areas of wellbeing are most important to you and how close you are to living a life aligned with those areas of wellbeing.
Our advisers will then work with you to set goals and shape strategies to make sure you are on the right path to living your best life. A life full of purpose, satisfying work and play, joyful relationships, a healthy body and mind, financial confidence and ultimately happiness.
We all have values that we live by. They are the motivational drivers that help us determine what’s important in life. They give meaning to the things we do. They are individual to us, guide our behaviour, and allow us to feel fulfilment in life.
But we’re not always consciously aware of what our values are. In fact, many of us rarely spend time stopping, thinking, and considering our values.
Not knowing what we truly value in life can lead us to make bad decisions, inconsistent with what we want to achieve in life. It can cause us to escape into bad habits or look for quick wins to uplift ourselves.
It’s easy to dismiss values too. We focus on what our society, culture or community values instead and try to meet these expectations. We don’t spend the time to articulate what our top five values are. And, it takes a lot of effort to know and accept what you value. This will often lead to decisions being made that don’t lead us to live our best life. We hit key turning points in our lives and do what society or others expect us to do. Not what we want to do for ourselves or those we love.
For example, many of us from a young age are encouraged to save for our retirement. We spend the majority of our lives working hard so that we can do all the things we want when we retire. In fact, this is drilled into us so much that we are saving more than we need for retirement, with many people leaving their retirement savings untouched or spend down only a little.
There’s a school of thought that suggests saving makes us feel happy and fulfilled. However, this is just a mask for what behavioural economics calls loss aversion, the observation that human beings experience losses asymmetrically more severely than equivalent gains. This overwhelming fear of loss leads us to make bad decisions, behave irrationally and, ultimately, give lawyers the job of bequeathing our assets to those we love.
Understanding our values can help us make better decisions. In the above example, it can help us reduce our fear of loss and turn it into a positive gain, by giving our money meaning and spending it on something that is truly important to us. Our values help us define what success looks like for ourselves. And when we begin to live a life that meets our success criteria, we feel more fulfilled and happy – even if it means spending the savings we’ve spent years to create.
Values matter
So, values matter to all of us. They are our guiding principles or guardrails that can keep us on track to living our best life. And, when we achieve our goals we feel a sense of meaning and purpose. We feel good about ourselves and driven to continue to live a life full of purpose.
But defining what you value is hard. There are so many words to choose from. You’re often too busy to stop and wonder what really matters. This is where we come in.
Using a framework based on the eight dimensions of wellbeing, we can help you to uncover what you value in life. We work with you to determine a set of household values then set goals and tasks to help you live a life more aligned with your values. We also keep you accountable, helping you to make decisions that take you closer to achieving your goals. And, we measure how you’re going and help you see the successes and failures, so that we can continue to make the best choices for both now and in the future.
New data released
Naturally, people aspire to get the most out of their investments, especially if a great opportunity is presented by a ‘trusted’ organisation. Unfortunately, however, investment scams occur more often than you may think, highlighting the risk both self-directed investors and SMSF trustees may potentially face when seeking new investment opportunities.
New data released from Scamwatch Australia has reinforced the sophistication and the rapidly growing number of scams each year in Australia – which has caused a loss of over $851 million* in total in 2020 – $328 million of which related to investment scams. Therefore, it is extremely important for you to remain vigilant and reach out to me, your trusted SMSF professional, before investing your retirement savings in a new product or service.
What does the data reported to Scamwatch Australia tell us?
What should you do if you suspect a scam?
If someone attempts to scam you, there are several things you can do:
If you have been scammed or believe you have been scammed, you shouldn’t feel embarrassed or ashamed. Financial scams are now crimes that are regularly occurring – many scams are very sophisticated and professional, and very experienced investors have lost money to scams. It is becoming increasingly important to discuss the risk of scams with family, friends, and peers.
How can we help?
If you need assistance with identifying whether you are being approached by a scammer, please feel free to give us a call to discuss in more detail. We are here to support you, and it’s essential that we start the conversation as scamming is a continuous risk in our technologically advanced world.
We are living longer and longer, and therefore, people are receiving inheritances much later in life. No longer are people receiving inheritances when trying to save for a first home or raise a family. The Gratton institute completed research that showed that the most common age bracket for receiving an inheritance from parents was between the ages of 55 and 59.
With this in mind, more and more people are looking into the idea of gifting an early inheritance to help their children, grandchildren, nieces, nephews or other family members in the earlier stages of their life where they may not be as financially secure as possible. In this blog, I will run through the things that you should be thinking about when looking to gift an early inheritance.
When looking at gifting funds, one of the most important things to ensure is that you will have enough funds to live the life that you want to live. We do this for clients through financial modelling, looking at the available assets and whether or not that is enough to reach your desired level of income until far past your life expectancy. You don’t want to be in a situation where your gifting will leave you financially vulnerable at some stage in the future. If you don’t want to see a financial adviser, some online retirement calculators may be helpful.
There are things you have to think about that can affect you and your wishes for these funds. The first one to consider is the Centrelink implications. If you are thinking of gifting an amount to mean you will receive Centrelink, you may need to reconsider. You can gift up to $10,000 per year to a maximum of $30,000 over a five-year period. Any amount over this will be included in the assets test. This also means that if you are currently receiving a part pension, you likely won’t increase the amount you receive by much by gifting. You will also have fewer funds invested, earning money for you, leaving you in a potentially poor financial position.
Another potential trap to be aware of is that if you were to make a gift to someone during your lifetime, then that gift becomes a part of the marital pool of assets that is available for division between the person you are gifting the funds to and their spouse if there was a relationship breakdown. You might love their spouse and be alright with this, but that’s usually not the case. For instance, if you are giving your child $100,000 to help with a home deposit and they have a partner, and in the future, they split, $100,000 would likely be included in the assets divided when they separated. Essentially, your child could end up with only half of the gift in the future, which may not be ideal.
There are different ways around this by potentially getting your child and their spouse to sign a binding financial agreement prior. Another option is to make a properly documented loan to the child rather than a gift. If they were to go through a split, you can recall the loan and the amount you lent them, which means the funds should not be available for division. The loan can also give protection if your child was to be sued in the future or if their business was to go under, the gift wouldn’t be available to creditors. If a gift is something you are looking into, it’s always prudent to get legal help.
Suppose you have decided that a gift is appropriate and something you want to do. You want to make sure that the gift is as beneficial as possible. I may be biased, but it’s always good to get financial advice if you’re giving a decent-sized gift. You may even want to potentially fund a financial plan as part of that gift so the beneficiary can get advice about utilising the funds as efficiently and effectively as possible.
If you are gifting funds for a first home, should they be utilising the first home super saver scheme? If the funds are for a new grandchild’s future education expenses, should those funds be invested via an investment bond? These are things that should be thought of and what a financial adviser will help you with. It will mean that your gift goes further and leaves the beneficiary in a much better financial position, which is usually the goal.
I am finding that with clients, the idea of gifting an early inheritance is becoming more and more popular. Helping someone you love financially can be a great thing if you have the resources available to do so, and many people get a lot of joy from being alive and able to see their loved ones put the gift to the best possible use. But, as with anything, there are pros and cons you need to way up. You should always lean on your team of advisers, be that financial, legal or otherwise, to help you make this potential goal of yours a reality without falling into any of the potential traps.
As always, if you have any questions, feel free to email me at zac@pekada.com.au.
