5 WAYS TO WEALTHY GUIDE - yarracg.com.au · 5 Ways to Wealthy p7 1. Back to basics. Create a budget and stick to it p8-9 2. Understanding Debt p10-11 3. Minimise the tax you pay p12-13

5 WAYS TO WEALTHYGUIDE

DISCLAIMER:

This document contains general information and does not contain any personal advice or financial product ad-vice. This information has been prepared without taking into account your objectives, financial situation or needs. Accordingly, before acting on this information and making financial decisions, you should consider whether this information is appropriate for you and you are recommended to seek independent financial, investment, tax and/or legal advice with regard to your own objectives, financial situation and needs. This information may con-tain material provided to Yarra Consulting Group Pty Ltd by third parties. While such material is published with necessary permission, Yarra Consulting Group Pty Ltd and its related entities accept no responsibility for the accuracy or completeness of this information, nor endorses it to the maximum extent permitted by law, Yarra Consulting Group Pty Ltd and its related entities disclaim all liability for any loss, costs or damage which arises in connection with the use or reliance on the information and material contained in this document. Any forward looking statements and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past performance is not a true indicator of future performance. Any past performance information in this document has been given for illustrative purposes only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past perfor-mance is not a true indicator of future performance. Any past performance information in this document has been given for illustrative purposes only and should not be relied upon as an indicator of future performance.

2 5 WAYS TO WEALTHY GUIDE

CONTENTS

What is wealth and how do we achieve it? p2-3

Build lasting wealth from now – through to retirement p4

Your wealth will determine how you retire p4

Did you know? p5

Understanding your super p6

Considerations for retirement p6

5 Ways to Wealthy p7

1. Back to basics. Create a budget and stick to it p8-9

2. Understanding Debt p10-11

3. Minimise the tax you pay p12-13

4. Invest p14-15

5. Risk mitigation p16-17

Where to now? p18

Disclaimer p19

Contact p20

1

WHAT IS WEALTH?AND HOW DO WE ACHIEVE IT?

When you think about it, wealth is more than just money in the bank. It’s security. It’s financial freedom. It’s a lifestyle of independence for you and your family.

Contrary to popular belief, wealth isn’t based on luck. Building and maintaining capital is an ongoing journey and one that requires some simple strategies, knowledge, expertise and guidance.


WHAT IS WEALTH?1

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Too many Australians are living payday-to-payday, trying to support themselves and their families. If you’re one of the two thirds of Australians in this situation, there are a few questions you need to ask yourself.

Is your job your only source of income?

If you fell ill, lost your job or had your hours reduced, could you continue to live comfortably and support your family? If so, for how long?

Do you have a protection plan in place for your finances?

If you answered no to one, or all of these questions, this book is for you.

Whatever your stage in life, it’s important to understand that wealth is attainable. Even if you earn a low income, it’s possible to make the most of your finances. It’s not how much you earn; it’s what you do with it that counts. Using what you have in a strategic way may seem superfluous now, but a little planning can go a long way.

Throughout this book we will offer five basic steps, which, if implemented with the right advice and support, will have a huge impact on your financial situation. Ultimately, we believe in supporting everyday Australians. We want to help you achieve wealth, financial security and a comfortable retirement.

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It’s time to protect your golden years… Research paints a complex outlook for Australian retirees, but a little planning can go a long way. Over time we’ve learnt that many Australians aren’t making the most of their current income – they’re working longer hours, paying too much tax and struggling to keep up with the mortgage.

Even those who’ve made super contributions throughout their working life often find it is not enough to keep up with their pre-retirement spending levels.

On average, Australians are living longer than ever before. This means that saving to achieve personal income and lifestyle goals in retirement is more important than ever. To meet your retirement needs and protect your financial future, you may need to look beyond your superannuation.

Life expectancy at birth (years)

BUILD LASTING WEALTH FROM NOW – THROUGH TO RETIREMENT

1910

90 YRS

75 YRS

60 YRS

45 YRS

30 YRS

15 YRS

0 YRS

1927 1944 1961 1978 1995 2012

YOUR WEALTH WILL DETERMINE HOW YOU RETIRE.

“The key is to work smarter, not harder. Make your finances and assets work for you!”

Your decision to retire is one of the most important you will make in your life. Unless you have a clear plan to meet your desired after-tax expenditure level, this decision may cause you considerable stress.

Don’t put it off! Leaving your planning too late could mean that you have to work longer than you planned to.

All Australians should look forward to the freedom of making decisions that leave them happy and fulfilled. Your retirement should be a time to truly enjoy life. You deserve a stress-free, secure financial future.

MALESFEMALES


For those in the labour force who intend to retire, the most common factors influencing their decision about when to retire were:

SOURCE: http://www.abs.gov.au/ausstats/[email protected]/Latestproducts/6238.0Main%20Features3Ju-ly%202012%20to%20June%202013?open-document&tabname=-Summary&prod-no=6238.0&issue=-July%202012%20to%20June%2020-13&num=&view

The eligibility age of the Government pension will be

$610,000FOR MALES FOR FEMALES

$680,000

ABS shows the number of retirees and pre-retirees is set to grow from 6.2 million to 7.9 million over the next 10 years. (ABS)

For retirees aged 65 the amount needed to achieve a comfortable lifestyle in retirement. (www2.deloitte.com)

one of the lowest in the developed world.

DID YOU KNOW?

OF AUSTRALIANS RELY ON PART OR FULL AGE

PENSION

APPROX.

70%

$27,908 $18,512a year for couples a year for singles

THE AGED PENSION SITS AT AROUND

70 in 2035

FINANCIAL SECURITY

39%36%“We are living longer than ever before with life expectancy at age 65 increasing by 1 year, every 10 years.”

5

UNDERSTANDING YOUR SUPER

CONSIDERATIONS FOR RETIREMENT

We all know superannuation is one way to save for your retirement. The money comes from contributions made into your super fund by your employer and ideally, topped up by your own money. If you qualify, the government may add to it through co-contributions and the low- income super contribution.

If you are an employee, your employer must pay 9.5% of your salary into a super fund. This is called the Super Guarantee and it’s the law. The Super Guarantee is gradually increasing and will climb to 12% by 2019.

• Establish a strategy that can put you in a position to retire at an age you desire, while leaving you the flexibility to work, if this is what you want

• Minimise the taxation impact on your funds at retirement

• Appropriately structure your investments so that your funds generate sufficient cash-flow to ensure you meet your after-tax expense requirement through all investment markets

• Manage cost-effective administration to ensure that you are free to enjoy your retirement.

• Running your own Self-managed super Fund (SMSF) puts you in control of your superannuation. It also opens the door to a far broader range of investment opportunities than you can access through a traditional super fund. You can buy the exact shares you want, invest in direct property and enjoy access to a wide array of different and diverse investment options.

• Consolidate: If you consolidate your super into one account, you will stop paying unnecessary/additional fees. With a greater balance you have a higher earnings base and thus more for you when you retire. Consolidation also makes it easier for you to manage and keep track of your retirement savings.

• Track down any lost super: There are more than six million “lost” super accounts in Australia with a total value of over $18 billion. In Victoria alone, there is more than $3.5 billion dollars in lost super spread over 410,000 accounts with an average of nearly $8600 per account.

Understanding what is required for a comfortable retirement will help you plan for alternative opportunities that will help maximise your wealth.

Types of superannuation fundsThere are five main types of super funds available. It’s important to consider which one best suits your individual circumstances.

Industry funds

Corporate funds

Government funds

Retail funds

Self-managed superannuation funds

Identifying the right fund for you depends on your personal goals and what you aim to achieve. Is it the one with the best insurance options, the best performance, the most flexibility or the lowest fees?

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2

3

4

5

12%

2019

2014

9.5%


5 WAYS TO WEALTHY

7

BACK TO BASICS. CREATE A BUDGET AND STICK TO IT.

It’s true that wealth is determined by your habits. Every dollar counts. The foundation to any journey of wealth needs a structured and feasible budget. You must know what is coming in (income) and what is going out (expenses). It may seem obvious but it’s imperative that you spend less than you earn!

Remember; even though retirement may not be for decades to come, the sooner you start planning, the sooner you will be able to achieve financial security and independence.

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Manage spending habits.Do you fully understand where your money is being spent? Are you dabbling in too many little luxuries? Once addressed, it becomes easier to determine where you need to cut back. It can be a confronting process, but one that will give you a clear vision. When creating a budget, it’s important to be realistic and set inline with your pay cycles.

Pay bills on time. Let’s be honest. None of us enjoy paying bills, but it has to happen. No ifs, no buts. Not paying on time can have some dire repercussions, bad credit rating being one of those. By planning in advance for upcoming bills you can boost your credit score considerably, avoid late fees, and higher interest rates on credit cards and loans.

Savings.Once you have established a budget and you have committed to it you can start your savings plan. Having a savings goal helps you maintain motivation and avoid temptation.

A BUDGET WILL HELP

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UNDERSTANDING DEBT

A basic principle of financial independence is the elimination of “BAD” debt and accumulation of income-producing assets that appreciate using “GOOD” debt.

Many of our clients are baffled by the notion of any debt being “GOOD” and that’s because they don’t understand the difference between GOOD and BAD debt. Rather, like most of our parents, they are conditioned that all debt is BAD debt.

Bad Debt “BAD DEBT” is defined as debt that has been incurred in acquiring depreciating items that are non-income producing. For example, borrowing to buy a boat. From the date of purchase the value of the asset depreciates. We pay for the debt that we have incurred purchasing the boat with after-tax dollars. For example earning $2 to pay $1 towards an asset that may ultimately depreciate to the point of being worth nothing. This is BAD DEBT.

Good Debt“GOOD DEBT” is when we owe money on an asset that appreciates in value, that someone helps pay for and where the debt is tax-deductible.

“GOOD DEBT” is when we borrow to invest in income-producing assets.

OK Debt“OK DEBT” is when we owe on our home. It is GOOD because the debt has been used to acquire an asset that appreciates. We are not paying rent, it is our own home and we are free to enjoy it, improve it and generally do with it what we please. BUT we still have to pay for it ourselves with after- tax dollars. BAD. Thus on balance, our home mortgage is OK DEBT.

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CREDIT CARD DEBTCredit card debt is one of the most common forms of debt in Australian households, and if not managed correctly, can be extremely detrimental. Why? Credit cards are usually used to purchase items that depreciate in value, like TVs, holidays, and other consumables. You are left with huge interest rates and in some cases, years of hefty repayments.

In saying that, credit cards are valuable financial tools; they are a very ready source of credit for emergencies. It’s vital to understand how to use a credit card to your benefit and not the banks. It’s a simple start, but one that will put you on the right track to becoming wealthy.

Credit cards have interest rates of between 15 and 20% and according to ASIC, Australians collectively owe around $33 billion dollars, that’s an average of around $4,400 per cardholder.

If you have $4,400 of credit card debt and only make the minimum repayments, it will take you 31 years to pay it off and cost you around $14,900 in interest.

Whether you just have a few hundred owing on your card or many thousands, you must pay off this bad debt.

Managing your credit card:

Stop adding more debt to your credit card.

Find a low interest credit card offer and roll your balance over to it.

Pay more than the minimum repayment – even an extra $50 per month will make a big difference.

Set up a direct debit to pay a fixed amount off your credit card balance each payday.

If you have more than one card, pay off the one with the highest interest rate first or for a quicker “win”pay off the one with the smallest debt first.

Lower your limits as you pay down the debt thus ensuring you can’t go out and spend it again.

Cancel cards as you pay them off.

TIPS

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4

5

6

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The first step in any plan to grown wealth is the elimination of Bad Debt. The worst of course is Credit Card debt.

11

MINIMISE THE TAX YOU PAY

“If you thought paying off a mortgage was the biggest single expense for most Australian households, think again. It’s actually income tax.”

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Have you considered?

• Super contribution splitting strategies – with your spouse

• Streamlining your tax structure

• Income protection insurance

• Salary sacrifice

• Tax deductible contributions to superannuation

• Private health insurance rather than paying the Medicare levy surcharge

• Prepaying expenses to reduce taxable income

• Investing in tax effective investment strategies

• Negative gearing

• Depreciation

If you are worried that you are missing out on tax ben-efits because you don’t understand your entitlements, it’s essential you speak to an accountant or advisor. After all, you could be jeopardising your potential for long-term wealth.

ARE YOU PAYING MORE TAX THAN YOU NEED TO? Tax is something we all pay and don’t think too much about. It’s an aspect of our earnings that’s often forgotten or overlooked. But did you know there are ways to reduce the amount of tax you pay throughout your life?

When you consider how much of your income is spent on tax, it makes sense to do what you can – within the law of course – to minimise your tax obligations.

We can help.

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INVESTThe most successful way to increase your wealth is to invest. Why? Merely pocketing your earnings means you will never have more than what you can save. By investing, you have the opportunity to put your money to work, ideally by accumulating appreciating assets.

It is important to accept that it is almost impossi-ble for the average Australian to save their way to wealth.

Let’s say your budget enabled you to save $100.00 per week, each and every week for 20 years and, if you religiously saved that in a bank account with an interest rate of 4%, your account balance at the end of 20 years would be $159,691.00. (Note this does not include fees or any taxes).

You will have contributed $104,000.00 and earned interest of $55,691.00. Congratulations! But let’s be honest. Though this $55,691 is handy, it’s not going to change your life in any significant way.

There is a more powerful way to use your budgeted savings. It is called “FINANCIAL LEVERAGE”.

Financial Leverage

Financial leverage is defined as using a small amount of money to maximum advantage. I.e. using a little money to positively affect a much larger amount.

It is best illustrated using the following example and the numbers from our savings plan from earlier.

If, for the same $100.00 per week you could own an investment vehicle with a value of $400,000.00 and you earned the same investment return of 4%, the value of the asset in 20 years would be $876,449.00 a profit of $476,449.00! (Note: this does not include any fees or taxes)

The leverage tool we have used is a bank loan (as explained earlier – GOOD DEBT). This is called “GEARING”.

Although “GEARING” can magnify your capital gains, it can also magnify your capital losses. Even after taking investment advice and making what is considered to be a wise investment, it is possible that the value of the investment/s will fall. It must be remembered that gearing is not a short-term investment strategy and fluctuations in investment values will occur.

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Shares, equities & managed funds

Offer the potential for:

• Capital gains from increases in share values,

• The benefit of world class professional managers,

• A regulatory environment that is second to none in the world.

• Depending upon your tax rates and investment vehicle, the opportunity for lower tax rates.

• Benefits of dividends and imputation credits.

• In the long term, an asset base that has appreciated in value over a period of time.

Shares, equities and managed funds are very easy to buy, easy to sell and are very liquid – i.e. you can turn them into cash very quickly...

Why property investment? For many people, investing in property can seem prohibitively expensive or overwhelmingly complex. It doesn’t have to be. Property is generally regarded as one of the safest and most effective long-term investment options. And, with a little help, it can be surprisingly straightforward.

Benefits of investing in property Capital growth: Capital growth is when your property increases in value over time. Your best chance of achieving capital growth is buying the right property in the right place and most importantly at the right price. There are also benefits from regular rental returns.

Tax benefits: There are tax advantages of owning an investment property, particularly in regards to Australia’s negative gearing laws.

Control: Different to shares and commodities, the residential property market is generally less volatile. You make all the decisions and have all the control.

Easy to get finance: Banks, like Australians, love property. In fact, banks regard property as prime security, against which some will lend up to 95% of the property’s value. Banks will lend more on residential property than any other asset class.

Always consult a property investment specialist Our professional property advisors are dedicated to the task of managing your investment property portfolio and have established a unique approach, combined with superior market knowledge, to deliver the best possible outcomes for you.

Our team has been involved in over $500 Million in property transactions in the past 20 years.

Areas of expertise:

• Buyer’s advocacy services

• Trusted advice

• Real Estate expertise

• Local market knowledge

• Strategic property investment

• Property portfolio advisors

When considering investing in shares, ask yourself:

Do I have an investment strategy?

What is my time frame for investment?

What are the returns I want to achieve?

Am I aware of the risks involved?

How will I manage risks and what risks am I willing to take?

Do I want income from dividends or capital growth in the value of my shares?

Will I actively trade shares or take a long-term buy-and-hold approach?

Will I gear my portfolio?

Will I use a margin loan?

Is dollar cost averaging something for me to consider?

Am I going to do the research myself or use a broker to find me opportunities?

Unlike property, there’s no upkeep, no maintenance and the entry level is limited by the broker you use, and/or minimum parcel sizes of shares as determined by the company. This can be as little as a few hundred dollars.

CHECKLIST

15

RISK MITIGATION

5


Financial

Protection Life, in general is full of risk and uncertainty and managing risk is a crucial measure in your journey to wealth. There are steps you need to take to protect your capital in case something were to affect your income stream.

You need to ask yourself, how well do you think your family could cope if you were to suffer a sudden disability, terminal illness or major injury? The effects of any such occurrence on your family’s well-being could be devastating.

The emotional distress such events can cause your family is plain to see, but the financial consequences can be just as worrying.

Risk describes any situation where there is the possibility of a negative outcome. It is vital that, in pursuit of your financial goals, you establish an understanding of areas that are at risk and unique to your own personal situation. You then need to develop a plan to control and/or transfer those risks.

The most common way to transfer risk is to transfer them to an insurance company. In doing so, if a given risk comes to pass, the resultant insurance policy claim will leave the individual or family in a secure financial position.

Income

ProtectionYour most valuable asset is your ability to earn an income. Income protection cover can provide you with a financial safety net of up to 75% of income in the event that you are unable to work because of illness or injury. It is designed to help secure your lifestyle by ensuring your cash flow needs and loan repayments are met, should a temporary disability occur. The premiums for this form of insurance are tax deductible.

Death

(Life) CoverDeath cover leaves your beneficiary (ies) a lump sum to help cater for their financial well-being. This will give you peace of mind, knowing that those who depend

on you will not be financially disadvantaged with the burden of maintaining living standards or making loan repayments.

Total and Permanent Disablement (TPD)

TPD pays a lump sum should you become totally and permanently disabled through illness or injury. It can create an adverse financial burden, preventing you from earning an income at a time when you may have ongoing and other expenses (e.g. medical and/or rehabilitation expenses).

Your family also suffers from your disablement both financially and emotionally. By helping to ease financial concerns, TPD benefits go some way toward softening the effects on you and your family.

Trauma and

Medical CrisisTrauma insurance offers protection by providing a lump sum payment in the event of you suffering from one of a range of specified medical conditions (e.g. a heart attack, cancer, or stroke). The lump sum payment can be used to avoid financial stress during the period of recuperation; where items such as home modifications and specialist medical attention may be necessary.

Business ExpensesIf you are self-employed or in a small partnership, you still need to keep the business going if you are incapacitated and cannot work. This type of insurance provides a pre-determined monthly re-imbursement of business expenses during this period.

Business expenses are deemed to be reasonable, as are regular operating expenses of the business, such as rent, leasing costs, utility charges, and insurance premiums.

Nobody likes paying insurance premiums, but adopting a comprehensive risk management program provides absolute peace of mind and the confidence to pursue your financial goals.

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WHERE TO NOW?Throughout this book, we have offered some simple money management strategies, ultimately to set you up on your journey to a prosperous and financially secure future.

You don’t need luck, a business degree or industry connections. What you need is a well-structured plan, a basic understanding of some simple financial principles and professional support and advice.

We want to help all Australians take control of their finances and have the comfortable and enjoyable retirement they deserve. The reality is, the sooner you take charge, the sooner you will start achieving great results. While the information provided offers the fundamentals you will need on your

path to wealth, it does not replace the need for ongoing financial advice and guidance.

With our team of financial, property, legal and accounting experts all under one roof, Yarra Consulting Group can help you save, invest and grow your money with confidence.

The advice we provide to our clients isn’t complicated, but it is powerful.

By spending the time to get to know each client’s unique situation, we’re able to develop strategies that can help increase wealth and reduce the reli-ance on employment-based income.

Visit www.yarracg.com.au to find out more.

Remember, if you don’t set yourself personal financial goals, how do you know what you are trying to achieve financially?


DISCLAIMER:

This document contains general information and does not contain any personal advice or financial product advice. This information has been prepared without taking into account your objectives, financial situation or needs. Accordingly, before acting on this information and making financial decisions, you should consider wheth-er this information is appropriate for you and you are recommended to seek independent financial, investment, tax and/or legal advice with regard to your own objectives, financial situation and needs. This information may contain material provided to Yarra Consulting Group Pty Ltd by third parties. While such material is published with necessary permission, Yarra Consulting Group Pty Ltd and its related entities accept no responsibility for the accuracy or completeness of this information, nor endorses it to the maximum extent permitted by law, Yar-ra Consulting Group Pty Ltd and its related entities disclaim all liability for any loss, costs or damage which arises in connection with the use or reliance on the information and material contained in this document. Any forward looking statements and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past performance is not a true indicator of future performance. Any past performance information in this document has been given for illustrative purposes only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past perfor-mance is not a true indicator of future performance. Any past performance information in this document has been given for illustrative purposes only and should not be relied upon as an indicator of future performance.

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Visit www.yarracg.com.au

Documents

5 WAYS TO WEALTHY GUIDE - yarracg.com.au · 5 Ways to Wealthy p7 1. Back to basics. Create a budget and stick to it p8-9 2. Understanding Debt p10-11 3. Minimise the tax you pay p12-13