Each year in early May, the Treasurer delivers the Federal Budget and many people across Australia listen intently. The Budget tells us how the government intends to spend its revenue in the coming year, whether it can afford to give us tax cuts, and whether it expects to spend more (deficit) or less (surplus) than it receives.

Budgets are also important on a personal level, especially when living costs are rising and uncertainty abounds in global financial markets. So it’s worth having a look at how we’ll cope with the increasing cost of living. 

Save more or spend less?

Is it easier to save more, or to spend less?

They might sound like the same thing. After all, saving is what we do with whatever’s left over after spending, isn’t it? 

Well, not quite. You see, it’s easy for spending to get out of control, and many people actually find it easier to focus on reducing their spending than saving towards a goal. 

Take control

To begin with, work out where your money goes. Start by keeping track of everything you spend and what you spend it on. Split it into categories based on necessity. Things like mortgage repayments, utilities and essential food obviously go in the ‘must spend’ group. Some things will be ‘optional but important’, and others will fit into the ‘frivolous’ category. 

Do I really need this?

After a few weeks you’ll have an idea of where your money is going then it’s time to start asking yourself a couple of questions:

• Do I need to spend this much on this category?
• When I over-spend, what can I do to prevent it happening again?

It’s worth remembering that every year in Australia we spend billions of dollars on food we don’t eat, clothes we never wear and services we don’t use. So for many people, gaining control over spending doesn’t mean ‘doing without’, it just means being sensible about spending. There are a lot of things you can enjoy for free, and you can even turn a ‘thrift campaign’ into a hobby.

Watch debt 

Pay off credit cards within the interest-free period to avoid high interest costs. If that’s not possible, investigate consolidating high-interest debt into home loans or other lower cost loans. When borrowing, make sure you leave a ‘comfort zone’ to ensure you can meet your commitments. 

Talk to us about preparing a personal budget that doesn’t require you to do without or give up everything you love.
Call (02) 4926 2300 or email. 

To discuss your budget and how you can better manage your finances, please do not hesitate to contact the expert and friendly team at Leenane Templeton. 

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After Kylie completed university and had landed a well-paying job, her only plan was to enjoy her new financial freedom. She had living to do – the future was a long way off and would take care of itself … wouldn’t it? 

Kylie’s first purchases were a trendy new hatchback car and expensive clothes suitable for climbing the corporate ladder. Enjoying her exciting lifestyle, she regularly visited restaurants and bars, and took an overseas holiday each year.

According to research conducted by Impact Leaders, Kylie’s way of life is common with one third of 18–34 year olds having no savings and excessive debt. 

It’s understandable, after all, when you’re in your twenties and early thirties, thoughts of saving for a home, much less retirement, are easily put aside. But time has a nasty habit of getting away from you – just ask your parents!

A survey by Leading Edge Trends, found that the majority of 18–24 year olds won’t own their own home by retirement, fostered by a ‘buy now, pay later’ mentality. The result is that many will be excluded from home ownership, while others will struggle with late-life mortgages and financial insecurity at retirement. 

Back to Kylie. 

A few weeks after returning from a holiday around Europe, Kylie was informed that her position at work had been made redundant. With no savings behind her, she borrowed from her parents to pay her rent and other regular bills.

Shortly after, Kylie was forced to sell her car and use her credit card to manage everyday expenses.

Fortunately, within six months Kylie found a new job, again with a good salary, but during her brief period of unemployment she’d racked up considerable debt. A large portion of the new salary would go towards her debts. It would take years to recover. 

What can you do to ensure your story doesn’t end up like Kylie’s?

Savings – a savings plan doesn’t mean restricting yourself. Even small amounts deducted directly from your wage quickly add up and can become a future home deposit or a safety net for emergencies.

Budget – sounds boring, but a realistic budget can help you to live within your means without relying on credit or feeling like you’re missing out.

Income protection – an insurance policy that pays an income if you’re injured or become too ill to work – an important consideration for young people starting out on a big career!

Get advice – not just for older or well-off people, a financial adviser helps you to create your budget and savings plan so you can take advantage of enjoying life now. 

You might not be interested in buying a house just yet, but how cool would it be if the money were available when you were ready? 

You’ll probably be surprised at how inexpensive advice is. Contact one of Leenane Templeton’s licensed financial advisers to find out how your future can gain a head start.

Call (02) 4926 2300 or email us. 

The post Take advantage of the NOW! appeared first on Newcastle Financial Planners & Financial Advisors.

Negative gearing is arguably the most generous tax break available to Australian property investors.

Whether you’re an established property investor or contemplating purchasing your first investment property, you may care to familiarise yourself with the way that negative gearing works.

A property is considered to be negatively geared if the owner has taken on debt in order to acquire it and the net rental income is less than the costs of maintaining the property (including the interest paid on the loan).

Investors with negatively geared properties are able to claim the shortfall between their associated costs and rental income as a deduction against their total taxable income.
In the event that your taxable income is insufficient to absorb the difference, then the remaining deduction can be carried forward to the next financial year.

Many Australians would not be able to enter the real estate market without taking on some form of debt. While taking on debt allows you to make investments that would otherwise have been beyond your reach, it also ramps up your risk profile because you will have a greater amount invested. Furthermore, if your investment property is underperforming, you remain responsible for making loan repayments.

Obviously, it is preferable to have an investment property that is positively geared, meaning that rental income covers loan repayments, interest and routine maintenance. Paying tax on a profit is typically considered to be a better option than minimising your tax liability while making a loss. Investors who have long term negatively geared properties are generally hoping to incur long term profits from capital growth.

Even if you think that your investment property will be positively geared, understanding the benefits of negative gearing can give you a little peace of mind. You know that if the property does lose money, you will be able to offset the loss against your taxable income.

When a property is positively geared, the income earned is added to your total taxable income. As such, it is taxed at your marginal tax rate. The same applies to any capital gain that you make from selling a property.

Our team of accountants are at hand to help with any questions you may have in relation to negative gearing and property investment.

Call (02) 4926 2300 or email us.

To discuss negative gearing for property investors call Leenane Templeton.

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Many young people in the X and Y Generations are earning excellent incomes but have little savings, excessive debt and consider the future too distant to be of concern. This article uses a case study to explain how you can plan your future without sacrificing your current lifestyles.

Case Study

After Kylie completed university and had landed a well-paying job, her only plan was to enjoy her new financial freedom. She had living to do – the future was a long way off and would take care of itself … wouldn’t it?

Kylie’s first purchases were a trendy new hatchback car and expensive clothes suitable for climbing the corporate ladder. Enjoying her exciting lifestyle, she regularly visited restaurants and bars, and took an overseas holiday each year.

According to research conducted by Impact Leaders, Kylie’s way of life is common with one third of 18–34 year olds having no savings and excessive debt.

It’s understandable, after all, when you’re in your twenties and early thirties, thoughts of saving for a home, much less retirement, are easily put aside. But time has a nasty habit of getting away from you – just ask your parents!

A survey by Leading Edge Trends, found that the majority of 18–24 year olds won’t own their own home by retirement, fostered by a ‘buy now, pay later’ mentality. The result is that many will be excluded from home ownership, while others will struggle with late-life mortgages and financial insecurity at retirement.

Back to Kylie.

A few weeks after returning from an African safari, Kylie was informed that her position at work had been made redundant. With no savings behind her, she borrowed from her parents to pay her rent and other regular bills.

Shortly after, Kylie was forced to sell her car and use her credit card to manage everyday expenses.

Fortunately, within six months Kylie found a new job, again with a good salary, but during her brief period of unemployment she’d racked up considerable debt. A large portion of the new salary would go towards her debts. It would take years to recover.

What can you do to ensure your story doesn’t end up like Kylie’s?

Savings – a savings plan doesn’t mean restricting yourself. Even small amounts deducted directly from your wage quickly add up and can become a future home deposit or a safety net for emergencies.

Budget – sounds boring, but a realistic budget can help you to live within your means without relying on credit or feeling like you’re missing out.
Income protection – an insurance policy that pays an income if you’re injured or become too ill to work – perfect for young people starting out on a big career!

Get advice – not just for older or well-off people, a financial adviser helps you to create your budget and savings plan so you can take advantage of enjoying life now.

You might not be interested in buying a house just yet, but how cool would it be if the money were available when you were ready?

Source:
www.abc.net.au Gen Y has little understanding of financial planning, struggles with debt: study (Lucy Carter 20 Nov 2013)
www.moneysoft.com.au Bridging the Generation Y Gap (Elias 24 Apr 2013)

You’ll probably be surprised at how inexpensive advice is. Contact a licensed financial adviser to find out how you can plan your future and gain a head start.
Call (02) 4926 2300 or email us.

Disclaimer

To speak to a financial planner about how you can plan your future and save call Leenane Templeton today!

The post Plan your future – Take advantage of the NOW! appeared first on Newcastle Financial Planners & Financial Advisors.

Australians have an extraordinarily high level of consumer debt, and we don’t like reducing it. For example, the number of credit card transactions in just the month of June 2014 was over 170,000,000 compared with only 24,484,000 repayments – that’s 145,500,000 more transactions than repayments (yes, that’s in millions)! Of course this means interest is accruing on unpaid credit cards literally by the second– at the time of writing it is almost $6,000,000,000 per annum (yes, that’s in billions)! You can see why banks LOVE credit cards!

Please don’t misunderstand; properly managed debt can be a great tool. Most people need it to help them purchase their first house and other necessities in life.

It is also very important in investment planning, enabling you to purchase income-producing growth assets, such as shares or property, to boost your long-term wealth. In this case the interest may also be a tax deduction.

The problem arises when debt is used for basic living costs or purchasing depreciating assets. This is further aggravated when the interest rate applied is too high and there is no planned debt reduction program in place. When interest rates increase most people focus on their mortgage rate and forget that the interest on their credit cards sneaks up too. Most major cards are charging around 18-20%pa with many customers paying little more than the minimum amount and sinking further into debt.

If you are not paying off your credit cards in full every month, have other high interest loans, or your current level of debt is keeping you awake at night, you need to seriously consider your financial direction. Follow this simple plan and take control of your debt before it takes control of you…

1. Restructure your debt by consolidating what you owe at the lowest available interest rate. Keep ONE credit card and cut up the rest!
2. Seek professional help from a financial adviser to plan your financial goals and how to achieve them.
3. Prepare and keep to a budget to ensure your cost of living is within your means and put a debt reduction program in place.
4. Beware of “interest free” offers and make sure you can afford to pay off the entire balance by the end of the contract. A lot can happen in 50 months so don’t get behind on your payments.
5. Ensure new loans are only for a productive purpose, such as investing, and can be justified by potential future profit.
6. Avoid the mental attitude of “keeping up with the Joneses” – the laugh will be on them when the debt collector turns up at their door!

All of the above steps will make for a much easier life in future years … not to mention sleeping better every night.

Note:
Current credit card figures from go  www.rba.gov.au/statistics/tables go to Payments System and download the C1 Credit & Charge Card statistics spreadsheet.
Total interest figure from: https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/credit-card-debt-clock.

Sources:
www.rba.gov.au Credit and charge card statistics as at September 2013.
https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/credit-card-debt-clock
http://www.canstar.com.au/credit-cards/compare-everyday-spender/

Disclaimer

Our financial advisors are available to help with any questions you may have as to how you can control your debt and better manage your finances.
Call (02) 4926 2300 or email us.

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Credit cards are great in that they allow you to buy things you may not have the cash for. This becomes dangerous during the holiday season as we all get tempted to buy bigger and more expensive presents or splurge during a holiday. But with high interest rates and the difficulty to pay off balances, credit card debt can become a big problem.
 

Unfortunately there are no quick fixes, you need to look at your debts and find something which will motivate you to pay it down. Before embarking on a plan to repay your debt, it is important to determine why this has happened and implementing a budget is a great place to start. This articles looks at different methods of dealing with the credit card crunch.
 

Pay off the smallest debt first
 

One method of dealing with debt is to pay off the smallest debt and then move onto the next largest debt. This works if you have multiple credit cards and personal loans, this method of debt reduction is also called the “snowball” method. The order you pay off the debt should be irrespective of the interest rate, instead it works by giving you quick wins, keeping you motivated to do it again.
 

One thing to be aware of when paying off the smallest debt first is to make sure that there are no major legal downsides to not paying off one of the larger debts. For example, if you owe the Australian Tax Office money, it might be wisest to pay them off first and then start paying off the small debts.
 

Pay off the most damaging debt first
 

If you are motivated by numbers and shudder at the thought of high interest rates, then you should look to pay off the debt which is doing the most damage. Credit cards with high interest rates such as 15-20 per cent should be paid before personal loans where rates are lower at under 10 per cent.
 

Transfer your balance to a lower interest rate
 

There are a lot of credit cards and banks out there offering low interest products that are designed for balance transfers. This can be a great way to move from those damaging, high interest rate credit cards. But before you do anything, you need to get your calculator out and crunch the numbers.
 

The credit cards often offer a very low rate for a period of time, but then they jump up to a higher interest rate. You need to be sure you will be able to pay off the debt before the higher interest rates kick in.
 

To see if you can afford it, simply divide the total amount owing by the number of months that the low interest rate is offered for, this roughly becomes your monthly payment. Can you afford it?
 

Also you need to fight the temptation that the old credit card presents. Now that the balance is back to zero, cancel it before you start filling it up again.
 

Use your savings to reduce debt
 

You could dip into your savings to help pay off your debt. Savings often has a lower interest rate  than credit cards or personal loans, so it might be wise to move some of your money around so that you pay off some of your debt. But don’t bleed your savings dry, you need to have enough put aside in case of emergencies. You shouldn’t put yourself into a position where if something happens you need to rely on those credit cards again.
 

Start saving
 

After you have paid off your debt, you can start saving. Your first priority should be to build an emergency fund which can cover up to six months of expenses. You could also look at creating a holiday or fun fund. This means you can tap into it if you want to go on a holiday or buy big presents next Christmas.
 

Top tips for dealing with credit cards

• Shop around for a low interest rate – There are so many different cards and different rates, you should be able to find one with a low interest rate. Plus if you want to transfer the balance on your old card, you can find cards with very attractive transfer rates.
• Reduce your annual fees – By having more than one card, you may be paying more than one annual fee. Some annual fees are over $300, so you may want to consolidate to one card, or even consider finding a card with no annual fees.
• Try not to pay overdue or over limit fees – You can get charged up to $40 for overdue or over limit fees. The best practice is to pay your credit card off completely every month, but if you can’t do that, make sure you keep it under your limit and you pay your bill a few days before it is due.
• Watch out for overseas transaction fees – Some cards charge overseas fees up to $5 or three per cent for each transaction. Try to minimise the small overseas transactions you make on the card if the fee is a flat dollar amount. Consider changing cards to one that does not charge overseas fees if you travel a lot or do a lot of online purchases.
• Be wary of reward cards – Reward cards often have very high interest rates and annual fees. People get attracted by the travel offers or reward points but don’t realise they are paying higher than normal rates. So do your homework and make sure you understand the fine print.
 

Give Leenane Templeton a call and speak with our financial planner to get more helpful hints and strategies to manage your debt.
 

Source: Lonsdale Financial Group, December 2013.
 

Disclaimer.

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However, it is not clear whether the recovery is sustainable and structural problems remain hidden below the surface.

Global growth forecasts have continually been revised down during 2013, with the IMF recently reducing its 2013 growth forecast to 2.9% from 3.2%. A new trend of slowing growth in emerging economies and recovering growth in developed economies has emerged.

Despite the global slowdown, there is growing optimism that the US is gaining momentum and that Europe is showing the first signs of recovery. In addition it seems China has stopped slowing and has stabilised at around 7.5% growth. Indeed, it is expected that emerging economies will soon benefit from a recovery in the developed world and hence global growth should rebound in 2014 to around 3.6%, according to IMF forecasts.

Structural issues

Despite increased momentum leading into 2014, there remains structural problems in each region.

In the US, the recovery is patchy and requires extraordinary monetary stimulus from the US Federal Reserve (the Fed) to keep interest rates very low and the USD weak. The tricky part for the Fed will be exiting this program. We have already seen markets ‘front-running’ the Fed when it indicated mid-year that it was considering tapering its bond purchasing program. Bond yields rose aggressively, the USD rallied and capital began to flow out of emerging markets and back into the US. The Fed seemed to be alarmed at the sharp market reaction and subsequently delayed plans to taper in September 2013.

In addition, the issue of reducing the US budget deficit and public debt without harming economic growth remains a divisive issue for Congress. The public debt has grown to US$16.7bn, or 100% of GDP, while the budget deficit is around US$650bn, or 4% of GDP. To be fair, the budget deficit is the lowest deficit in 5 years and has been reduced from around US$1.2 trillion in the years immediately following the GFC.

However, the public debt will continue to grow unless the deficit is returned to surplus and hence the Republican controlled lower house is becoming increasingly active over the budget and the self-imposed US$16.7bn debt ceiling. The recent budget stand-off in Congress forced a government shutdown that may hurt the US recovery but financial markets remained calm on the assumption that the budget and extension of the debt ceiling would eventually be approved, which indeed it was.

In Europe, the recovery is fragile and there still remains sovereign debt and bank solvency issues in the southern countries. There is also the larger question:  can the European monetary union succeed without a proper fiscal, banking and political union (of the kind that we see in the United Kingdom or the US)? Lonsec suspects not but we expect the EU to forge closer integration over the long term.

In China, its economic model for the past 40 years of export and investment led growth is becoming unbalanced and unsustainable. There is a concern that property and infrastructure development has become too large at 50% of the economy and has run ahead of income growth. More wealth needs to be distributed to its citizens to boost incomes and hence consumption.

China’s new leaders recognise the need for reform to drive the economy towards more sustainable and diversified growth across consumption, business investment, housing, government spending and net exports.

In Japan, the new Abe government is trying to get the country out of a debt deflation trap that has existed since the 1990 property bubble burst. Japan’s sovereign debt is very high at 240% of GDP and the central bank has a substantial money printing program aimed at keeping interest rates low and encouraging inflation but also keeping the currency weak. In addition, Japan is also dealing with an ageing population and increased competition from South Korea and China.

The structural issues mentioned above are all major issues and are not going to be solved overnight. It will take many years for each issue to be resolved or in the worst case, emerge as a crisis. We can’t know how they will all turn out but it pays to be aware of them when investing.

Australia

Compared to the US, Europe and Asia, Australia has relatively few issues. The budget deficit and public debt are low to moderate, the banking system is strong, the economy is diversified and the government should be more functional, after the recent election. The issues in Australia are more around encouraging growth outside of the mining sector and improving productivity.

However, one structural weakness could be the build-up of housing debt which is relatively high at around 100% of GDP. But the debt is being serviced and impairments are very low. Household debt is not likely to be an issue unless unemployment rises and/or credit becomes much more expensive, both of which seem unlikely given the economy continues to grow, inflation remains subdued and the banks are well capitalised.

Conclusion

A recovery in the US and Europe should lead to a rebound in global growth in 2014. However, we remain wary that the recovery is still fragile and there are still some major problems below the surface.

At this stage, we are retaining our largely neutral growth, underweight bonds and overweight cash stance. If we can gain greater comfort on the sustainability of the global recovery, we will look to increase growth weightings and reduce cash.

Source: Lonsec, October 2013

Disclaimer

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Is debt ruling your life?

Student debts, credit cards and personal loans can be a source of unnecessary stress and prevent you from enjoying other things in life. Clearing your debts doesn’t have to be hard work. With the right advice, it’s possible to get your finances on track sooner than you think, meaning you can get back to living the good life, guilt free.

Here are some tips to help you get out of debt.

Plan your budget

Achieving your goal of being debt free doesn’t have to be daunting; a good way to start is with a budget. Keep a diary of your expenses and your spending. This will enable you to track where your money is going and how much spare cash you can use to attack your debt.

Pay extra

Try paying more than the minimum off your debts to bring your loan down faster. Prioritise all your debts by the interest rate you are paying. Try to get the balance down on high interest debts fi rst, as paying these off fi rst will save you more money. You can then use the money you save in interest to pay off your lower priority debts.

Consolidate

Consolidate all your higher interest debts into one lower interest debt. This could be in the form of a low interest rate credit card or a personal loan. This strategy will also reduce your interest repayments.

Ensure you have the right card

Due to the increased level of competition in the credit card space, many lenders are offering much lower interest rates and deals.

When doing your research, make sure you read the fi ne print, as cards offering low or zero interest rates on balance transfers, do so for a limited time only whereas other cards might offer a low interest rate for the life of the transfer.

Become card free

Once you have selected a low interest rate card to transfer your balance, make sure you don’t use that card for any new purchases until you have paid off the full amount from the initial transfer.

Take the first step

If you’re having difficulties repaying your debt, take the first step and speak to your lender. If you’re open and honest with your lender, you will probably find they are open to review your repayments and look at other solutions to help you out.

Speak to a professional

If you feel that you are struggling with your finances, speak to Leenane Templeton's financial planner for help with a financial strategy that can get you back on track. Call us today. Also feel free to 'Like' us on Facebook for additional blogs, posts, event information and more.

Source: IOOF, January 2013

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