June 30 is fast approaching but there’s still time to consider strategies to help you build your wealth and reduce the amount of tax you pay.

Pay interest in advance

Borrowing to invest may be a tax-effective means of wealth accumulation. This type of strategy lets you purchase property, shares, or any other asset that generates assessable income, by bringing forward next year’s interest cost, and allowing you to claim a tax deduction for those costs this financial year.

Make a concessional contribution to super

If you are self-employed, or earning less than 10 per cent of your income from an employer, you can generally claim a tax deduction for super contributions up to $30,000 (or $35,000 if you were aged 49 or over on 30 June 2014). The Federal Government also pays a 15 per cent low income superannuation contribution of up to $500 on concessional contributions made by individuals with a taxable income of less than $37,000.

Protect your income and save on tax

Income protection insurance not only pays you a monthly benefit of up to 75 per cent if you become unable to work due to illness or injury, but also allows you to pre-pay your premiums and claim a tax deduction. If you pay your premiums in advance, you can claim a tax deduction for next year’s premiums in this financial year.

After July 1, consider the following:

1. Have your financial goals changed?

Your goals can change greatly from year to year. Major life events such as serious illness, the birth of a child, or the death of a parent or spouse can all result in significant changes to your wealth management goals.

2. Prioritise your goals

It’s important to be realistic about how soon you can accomplish your financial objectives. For example, reducing any personal loans is likely to be a short-term goal, setting funds aside for your child’s education could be a medium term goal. Paying off your mortgage and providing for retirement are long-term goals.

3. Be investment savvy

Make sure that your investments support your appetite for risk and your objectives. A tailored analysis will address your individual risk preferences. Regular portfolio reviews with your planner are essential to determine any sell-downs or top-ups that would benefit you.

4. Do you need to change your financial strategy?

Your financial planner has the tools and knowledge to create projections that take into account changes to your goals, risk level, and the timeframes for achieving them. These projections will help you to see where your plans for savings, assets or investment contributions may need updating.

Speak to your financial planner to discuss your end of financial year strategies.
Call (02) 4926 2300 or email us.

Our team of qualified and friendly accountants are ready to help with any questions you may have in relation to your end of financial year preparation.

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Many of us have an ongoing love affair with our credit cards – they are simple to use, accepted everywhere and there are no hassles with buying what you want when you want it. Living close to the credit card limit has become the norm for many people. To make your credit card work in your best interests, it’s important to fully understand the functions of credit cards.

Cash advances cost more

When money is tight, people are forced to use their cards for cash advances (withdrawing cash) instead of just purchasing goods and services… and in doing so, are paying a high price for the privilege. Interest is charged immediately on a cash advance and at a higher rate than on purchases. Even if you have an interest-free card, you will immediately start paying interest as soon as you withdraw cash using your card. If you must take cash off your card, repay it as quickly as possible.

Annual fees

Credit cards with a “rewards program” usually come with an annual fee. This charge can be $100 or more per year, plus extra for any additional cards on your account. If you are not going to use the features offered by these programs, it’s best to exchange your card for one without all the bells and whistles and no annual fee.

Merchant fees

If you own a business, offering payment by credit card means you get paid straight away without the risk of holding large amounts of cash. Of course, banks charge a fee for card services and this is typically between 1% and 4% of the transaction cost but can go higher.

Businesses can charge the same price to customers whether they bought their goods with cash or credit cards and they can also apply a surcharge. The surcharge is not compulsory however businesses must tell you that it applies before you make your purchase and publicise the surcharges that apply to different credit cards. Watch out for this extra cost, particularly on internet, phone and mail order purchases. An example of these fees is the credit card charge applied to airfares bought online.

Are you getting the best deal?

When reviewing your credit card ownership, the moral is “be aware” – like any other service, you are paying for the convenience. As long as the benefits outweigh the cost, stick with what you’ve got. But with banks offering more attractive deals, it pays to check other options to see if you can get a better deal.

Credit cards are an excellent way to safely carry money to pay for your everyday needs. The secret is to keep your spending under control and pay the full balance off every month; otherwise the only winners are the banks.

Disclaimer

Our team of expert accountants and financial planners are at hand for any questions you may have.

Give the team at Leenane Templeton a call today!
Call (02) 4926 2300 or email us.

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Compounding isn’t a new concept – many of us will remember studying it back in our school days. Legendary scientist Albert Einstein famously called it ‘the most powerful force in the universe’, while American business magnate John D Rockefeller suggested compounding is the ‘eighth wonder of the world’.

These might sound like bold claims, but the power of compounding on an investment portfolio should certainly not be underestimated.

What is compounding?

In simple terms, compounding is the process whereby returns made on an investment are reinvested in order to generate subsequent returns of their own.

The concept of compounding is best illustrated using an example. Twins Annie and Vanessa both allocated $10,000 to the same interest-bearing investment on their 25th birthday. For simplicity, let’s assume the investment pays interest of 5% per year.

Annie reinvests all of her interest every year, while Vanessa banks the $500 each year and spends it on everyday living expenses. Let’s see how their investments had fared by their 45th birthdays.

Vanessa earned $500 interest each and every year for the 20 year period – a total of $10,000. Of course she still had her original $10,000 investment as well.

Annie, on the other hand, saw her investment grow to more than $26,000 by reinvesting her interest. The additional $6,000 she earned over and above Vanessa highlights the power of compounding. You can see from the table that Annie’s investment is now earning her $1,263 per year, while Vanessa’s investment is still earning her only $500. This differential would continue to grow over time if the sisters remained invested. 

Make compounding work even harder for you

The power of compounding can be magnified if you make small regular contributions to your investment. Let’s look at another example to highlight the concept.

Brothers Jim, Dan and Tom all decided to invest $10,000 in the same managed fund for 10 years. Over that time the fund returned an average of 8% pa.

Happy with his original investment decision, Jim did not make any additional contributions. Dan, the wiser brother, understood the effects of compounding and made additional regular savings of $100 per month. Tom – the wisest of them all – worked out he could afford to save an extra $200 per month and made sure he always contributed that amount to his investment. The difference in their investment returns over 10 years is startling:

Of course the example is a stylised one. It ignores potential fluctuations in investment returns over the period, which would affect the three outcomes in reality.

These examples highlight how compounding and contributing regularly to an investment can have a major influence on investment performance. The long-term performance impact of compounding can be significant and must not be overlooked by investors. Perhaps Einstein and Rockefeller were right, after all.

Source: Colonial First State, May 2014

Disclaimer

Speak to one of our expert financial planners to see how you could be compounding and contributing regularly to your investment.
Call (02) 4926 2300 or email us.

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