kristopher

Case Study: Tim & Sally Starting Out

kristopher · Oct 6, 2020 ·

Case Study: Preparing for Life Events – Tim & Sally Starting Out

By Kris Meuwissen

Planning for your future – it is important to seek the help of a professional

Tim and Sally, both in their late 20s from Melbourne, sought out the assistance of the team at Wealtheon – not really knowing what a financial planner did let alone understanding why they may need one, one of their friends referred them to Wealtheon and they thought ‘why not’…

Tim and Sally were both very ambitious and worked hard in their careers so they thought that it is the right time to get professional advice on what they should be doing to set themselves up for their future. Between them they earned more than $270, 000 a year however at the end of each month there never seemed to be any funds left over and they had no real understanding of where their money was going.

When I met with Tim and Sally, their biggest objective was to buy their first home. They were currently renting a two-bedroom unit, didn’t have a lot of nice possessions and shared the one car, which was already 10 years old. At the time of meeting with Tim and Sally, they had no savings between them so they knew that buying a house would be next to impossible without some savings behind them. This is what motivated them to seek out my assistance – they needed a professional to help them with their budget and to plan out the steps they need to take to achieve their financial goals.

Firstly, I worked with them to build their budget and to ‘own’ their current financial situation. Despite not having much savings behind them, we discovered that they are not actually living an expensive lifestyle. They had worked hard to pay off their HECS debts and to go away on some wonderful holidays. Seeing as though their day-to-day expenses were quite minimal, I immediately advised them to start living off one income. After only two months they had already saved over $30,000.

The next step was to use this $30,000 as a healthy deposit for a property. I stepped them through exactly what they may need and who they should be talking to regarding finding their first home. I referred them onto one our Strategic Alliance Partners in the mortgage broking industry so that we could get the ball rolling on arranging pre-approval so that we knew exactly how much they could borrow. This also provided them with an opportunity to demonstrate their strong savings record and their strong credit history as they had always paid off all of their credit cards and their HECS debt.

The next step was to work out a financial plan that would enable Tim and Sally to fast track paying off their mortgage so that they can have the bulk of the home loan repaid before they thought about starting a family. We worked out a budget for them to follow once they are living in the home so that they were encouraged to stay on the right track.

Tim and Sally also expressed their desire to simplify their current superannuation set up. It turned out that they has at least three funds each, that they knew of, and this lead to a significant amount of paperwork as well as uncertainty that they were effectively planning for the future with a strong superannuation fund. I immediately recommended that they consolidate their super into one fund and I also recommended that we assess whether they have enough life insurance within their superannuation to cover the debt that they were taking on by buying their first home.

I walked them through their additional life insurance needs and determined that it would be very beneficial for them to commence income protection insurance to further cement their monetary security. It is important to ensure that all of the correct insurances are in place when you are entering into this stage on your life.

Have some questions? Want to know how it applies to you? Want a review of your personal situation? Click here to book a Free 15 Minute Discovery Session, give us a call on 1800 577 336, or email us at hello@wealtheon.com.au.

Disclaimer

Kristopher Meuwissen is an Authorised Representative No: 466483 of Lifespan Financial Planning Pty Ltd AFSL: 229892. The purpose of this document is to provide general information only and the contents of this document do not purport to provide personal financial advice. Wealtheon strongly recommends that investors consult a financial adviser prior to making any investment decision. The contents of this document does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular product, investment or security. Lifespan and its Authorised Representatives do not accept any liability for any errors or omissions of information. The information provided on this document is given in good faith and is believed to be accurate at the time of compilation.

How to Stick to a Budget and Still Have a Life

kristopher · Oct 1, 2020 ·

How do you stick to a budget and still have a life?

This is a massive head scratcher for people! I speak to so many people about budgeting and their biggest fear is that they are going to have to go without. It’s a funny fear isn’t it? Because you want to spend the money now rather than save it for later, you might even be using a credit card or personal loan to supplement your spending. It really is robbing Peter to pay Paul.

Once you know what you consider to be a success, you can prioritise. The only bad budget is the one that doesn’t achieve your interests so lets put that into an example.

If you are spending everything you earn each fortnight and focusing on the “now” spending, but retiring early is one of your biggest priorities, then maybe your budget needs to push you to meet your goal of retiring early.

If you define success as having money to burn each week and you don’t want to think about your future then your budget needs to reflect that (and probably does). In my opinion, never putting anything aside for later is self sabotage, but you are the only person who can make that decision.

So how do you get the best of both worlds? A decent life now that doesn’t take away from your decent life later? If a budget is all about planning out your cash flow to give you the greatest chance of success, what we really need to do is define success to you. This is where is gets a little more complicated.

1st, you need to work out what you need to save to have your decent life later. This can be very complex and you may need to speak with a professional to really define the monetary number.

2nd, you need to be aware… aware of what it costs just to live as you and also what most other people spend.

3rd, you need to define what the absolute “must haves” are in your life.

4th, it becomes a simple math problem. Your take home pay – your savings – absolute costs = decent life spendings.

5th, prioritise, prioritise and prioritise! If going out for beers is your thing, no problem, but if you spend that left over amount and you don’t have enough for take out later in the week, don’t get disappointed with your beers purchase.

Make sure your spending doesn’t give you buyers remorse and you will have your cake and will be able to eat it too!

What the Tax?

kristopher · Oct 1, 2020 ·

By Kristopher Meuwissen

What the Tax? is a short article examining and deciphering solutions for tax reform in Australia.

The need for tax reform

Australians don’t mind paying tax. They just don’t want to pay more than they have to. We all agree that paying tax affords us a great healthcare system, welfare for those who need it and other crucial services but over the last 20 odd years we seem to have created a tax system of the ‘haves and have nots’.

So many people I meet are so concerned with reducing their tax they are willing to go into hundreds of thousands of dollars’ worth of debt just to save a few thousand dollars.

What I am talking about is negative gearing and most people are so excited that the strategy might save them $5,000 that they overlook the risks involved.

A friend shared an article with me written by Michael Pascoe from the New Daily. The subject of the article was around how the government-mandated increase in minimum wages was more of a boost to the government than to workers. As I was reading the article there was something that smacked me in the face like a ton of bricks.

Our tax system is too complicated and has major gaps.

Previous attempts at reform

Every government has tried to make their mark with tax, adding things here, giving breaks there but we haven’t really had serious tax reform in this country since Howard’s 1998 “referendum on the GST” election win, which saw the introduction of the GST as well as a change in the personal and corporate tax rates.

Successive governments have since tacked on and removed tax after tax to a point that now the tax system is so overloaded and complicated that the average person would need a degree in taxation and accounting to work out if they would be better or worse off by working an extra shift each week.

With such an over-complication, people are claiming things they shouldn’t and actively looking to minimise (and sometimes avoid) their tax by trying to take advantage of precarious tax loopholes and getting paid in cash or other potentially illegal things. Most of the time they don’t even know they are doing the wrong thing or don’t understand the consequences.

We need to make our tax system simpler and fairer.

The current model

According to an article from PWC (Price Waterhouse Coopers), Australia has a whopping 58.8% reliance on income and corporate tax revenue, which is the second highest in the OECD. What this means is that there is a huge amount of potential room for a shift away from high personal and corporate tax rates. Also mentioned in the article is that Australia only derives 12.2% of tax revenue from consumption taxes such as the GST.

An interesting point to also note, is that the Henry Tax Review, published in 2010, identified consumption taxes as the most ‘efficient’ form of taxes. It also cited in an OECD report which found that a 1% switch away from income taxes to consumption taxes (eg land tax) would improve long-run economic growth per capita by 2.5%.

What can we do?

By moving away from high corporate and personal tax rates and generating more tax revenue from consumption, we will be able to make a fairer and less complicated tax system.

This model provides two major things to individuals and businesses. More money in their pockets that they can go out and spend (or keep as cash reserves) and more confidence that they are doing the right thing as well as paying their fair share.

While we’re at it, why don’t we make superannuation more attractive to lower income earners so there is more incentive for young people to prepare for their retirement? But that is an entire topic in itself, and one I will address another time.

We need to reduce the ridiculous number of loopholes, deductions and speculation, and replace it with a simpler, streamlined, progressive tax system with a greater reliance on consumption tax revenue.

This cannot be achieved without a long-overdue bipartisan plan for future tax reform – something that both sides of politics can move forward with regardless of who is in government. Otherwise the next 20 years will look much like the last 20 years, with higher regulation, compliance costs and tax avoidance.