Its Not Too Late For Financial Security

Its Never Too Late
Its Never Too Late

To achieve financial security . . . start today
Peter Cerexhe
First published in 2006 Copyright Peter Cerexhe 2006 All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without prior permission in writing from the publisher. The Australian Copyright Act 1968 (the Act) allows a maximum of one chapter or 10 per cent of this book, whichever is the greater, to be photocopied by any educational institution for its educational purposes provided that the educational institution (or body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) under the Act. Allen & Unwin 83 Alexander Street Crows Nest NSW 2065 Australia Phone: (61 2) 8425 0100 Fax: (61 2) 9906 2218 Email: info@allenandunwin.com Web: www.allenandunwin.com National Library of Australia Cataloguing-in-Publication entry: Cerexhe, Peter. Its never too late : to achieve financial security . . . start today Includes index. ISBN 1 86508 932 X. 1. Finance, Personal. 2. Savings and investment. I. Title. 332.02401 Set in 11/15 pt Stempel Garamond by Bookhouse, Sydney Printed by CMO Image Printing Enterprise, Singapore 10 9 8 7 6 5 4 3 2 1
Contents
Contents
Tables Acknowledgments and disclaimer Introduction: Having it all 1. I want my life back! The ageing populationwill it hurt? Where the jobs are A positive time to make your move Finding your motivation 2. Your weaknesses, your strengths Three revealing exercises Six tips for setting goals
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ix xi xiii 1 3 5 7 8 15 17 28
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3. Eliminating the money killers Money killer 1: the put-down partner Money killer 2: procrastination Money killer 3: self-reliance Money killer 4: falling into the hands of experts 4. Get ahead fasterby increasing your income Short-term saving fast Income taxare you paying too much? Medium-term saving Restructuring your loans Finding shares that focus on producing income Looking to your tax deductions 5. Get ahead fasterwith capital gain Savings gearing program Managing capital gains and losses Making the most of capital gain Changes in expectations and profitability 6. Get ahead fasterby reducing debt Ten smart ways to reduce debt The honeymoon is slipping away 7. Get ahead fasterby fine-tuning your superannuation Remind me: why is superannuation a good idea? When should I increase my superannuation? Fading out of the workforcesupported by super Thirteen strategies to increase your superannuation benefits
34 35 39 42 43 48 51 53 57 58 60 61 64 67 70 72 81 84 85 93
96 97 100 102 104
Contents
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8. Stay aheadby minimising risks Your risk audit Tidy up your chain of command The Dirty Dozen Investing with others
117 118 120 123 131
9. Stay aheadby surviving and avoiding relationship meltdowns 136 Money problems for couples 137 Preparing to disagree: pre-nuptial contracts 141 10. Finishing workwhat to expect 1. Take a lump sum super payout or not? 2. What type of income stream product is best for me? 3. Am I aiming for the age pension and government concession card? 4. Should I/we continue, in retirement, to put money into superannuation? What does it all mean? Reverse mortgagescash to live on or tie you down? 11. Fitting your investment plan to your life plan not the reverse How do you want to live? 1. If your cash flow is strong but you have become lazy with your money 2. If your cash flow is poor but you dont want to move into a more demanding job 3. If your financial position is sound but you want to pursue higher income for a comfortable retirement 146 147 149 149 151 151 154
158 161 162 163
163
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4. If you are prepared to make sacrifices of income now, to accumulate assets for the future 5. If you are easily upset by financial risk but need to increase your income 6. If you want to minimise your risk exposure while improving capital growth for retirement 7. If you see yourself as an entrepreneur and will risk some losses for chasing quick profits 8. If you are a couple 9. If you are single 10. If you want to travel forever and do not intend sticking to one job Happy ever after Resources, reading and contacts Notes Index
164 164 165 165 166 166 167 170 171 185 187
Tables
Tables
1.1 Australian median age, state by state, in 2004 and projected for 2051 1.2 Jobs with the highest rates of mature-aged workers 4.1 Getting high interest on your savings: the choices 4.2 How dividend imputation and franking work 4.3 Examples of imputation funds 4.4 Rates on debentures versus unsecured notes 4.5 Turning loans into interest-only 4.6 Are you getting your tax deductions? 6.1 Low-start home loans 7.1 Should I start a DIY superannuation fund? 10.1 Income stream products
3 6 52 54 55 58 59 62 94 111 150
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Acknowledgments and disclaimer

Acknowledgments and disclaimer
book like this necessarily draws upon a wealth of experiences, both mine and those of others. At its heart, however, it is a personal tale. When it comes to matters of precise detail, including tables, I would like to acknowledge specifically the personal assistance and resources of the Australian Taxation Office, the Australian Bureau of Statistics, the National Information Centre on Retirement Investments, the Reserve Bank of Australia, state and territory revenue offices, Morningstar, Cannex, Colonial First State, The Age and The Australian, the Real Estate Institute of Australia, and the Australian Stock Exchange. While the case studies are real, I consider it unfair to discuss people and their money and then potentially identify them. Out of concern for their privacy I have changed the names of all involved, along with some identifying particulars. In the end, its the lessons and motivations that are relevant here.
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The subject matter of this book traverses a wide range of facts, figures and opinion. Government regulation and industry practice are changing constantly and in important ways. While care has been taken to achieve accuracy, it is my strong recommendation that you seek up-to-date information and personal advice before relying upon, acting or refraining from acting on anything contained in this book. In particular, you are encouraged to discuss your plans with a licensed financial planner; the author is not a licensed financial planner and intends by this book to provide information of a general nature only, not financial advice. Best wishes for your journey. Peter Cerexhe
Introduction: Having it all

lovely home with no money owing on it, holidays in beautiful settings or filled with excitement, a job which challenges and inspires you day after day . . . and friends and family who love and care for you. This book is about having it all, at least to the extent that your financial situation impacts on happiness (as it most surely does if you choose to live and participate in contemporary Australian society). But let me warn you, the result will often be different to what you might have in mind now, at the start of the process of changing your financial life. Thats because the journey itself will play with your priorities and refocus your goals. Are you up for adventure? At the outset I want to be clear on this, too: you dont have to be rich to have it all. This is not the preserve of the wealthy, nor the noble poor who turn away from materialistic society.
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Television programs and magazines give the impression that its only the celebrities who have the exciting lives. But some of us derive happiness from a simpler life.
The new middle age

If at middle age (meaning the 40s and 50s) your goals seem remarkably still out of reach, it is vital to both court an added degree of financial risk as well as to understand strategies for limiting risk exposure. This can be a nervous double act. This book is concerned with finding and maintaining the financial motivation to do this. A constant theme will be choosing your goalsa home on the coast, a life of travel, financial security after years of struggle, whateverand seeing how to get there through smart use of Australias financial system with all its tricks and traps. This book also asks you to look at the blockages to financial progress in your life. If you are in a relationship, you must find ways of working together to make your goals a reality, and there is much in the book about this. It is distinctly possible that you will spend longer with your partner in retirement than when you are workingthat will happen, all by itself and unprovoked, if you meet your long-term love in your mid-thirties, retire at 60 and live to your mid-eighties. And so, given how much time you spend together, a joint focus on your financial plan is essential. Couples certainly enjoy fantastic privileges in Australias financial system:
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Each of you gets a $6000 tax-free threshold for income tax. You can make tax-deductible superannuation contributions on behalf of a low-income spouse or, since 1 January 2006, you can pour super into a spouses account (called super splitting) and significantly increase your combined tax advantages when heading into retirement. You can pass assets on death without the surviving partner having to pay capital gains tax to keep them. You can split income between the two of you so as to gain the greatest tax benefit. You can protect yourselves against the total disaster of personal bankruptcy by holding assets and income out of harms way. You can use a family trust for planning purposes. One partner can take time out of the paid workforce to be a homemaker or to raise children, optimising the mix of income from employment with government allowances for families. You can save money and enjoy benefits that come to your partner through his or her employmentsuch as employerpaid or salary-sacrificed car finance, school fees, insurance or travel. If one partner retires before the other, you can direct your money so as to increase the benefits of superannuation tax concessions. Put simply, healthy relationships can be an investment powerhouse. But all new relationships pass through a period of sorting out financial cooperation. What rules work best? Couples who have been together for many years would do well to revisit the money rules they first established to run their affairs. Have blockages or no go zones become part of the fabric of your
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life together? Have you taken advantage of the strength of working as a couple? Have you taken steps to ensure that money issues dont become the trigger to split apart your relationship? Singles have a tougher time finding assistance from the Australian financial system, but in other ways there are benefits: there can be a distinct focus without argument, and no partner hassles or compromises; many also avoid the financial cost of raising children, and have the flexibility to move quickly and fundamentally in order to seize the moment or opportunity when it arises. Whether youre part of a couple or are single, you work hard to save money and invest it productively, so take some time to read this book. Use it as a tool to consider the impact of your financial plans on the whole pictureyour relationship and other aspects of your lifetoday and in the future.
1
I want my life back!
he whole point of moneymaking is to enjoy your lifestyle goals; so why do we often turn this around, sacrificing life for moneymaking until we are tired, miserable or bored and financially listless? Who told us that financial planning was all about making sacrifices, giving up the things you enjoy, tightening our belts, doing without, putting your head down, saving for a rainy day? Theres a whole language devoted to the demoralising science of being prudent with money, so its no wonder we dont like doing it and are not very good at saving. Over the past three decades Australia has saved an average of 21 per cent of gross domestic product (GDP)around 2 per cent below the OECD average.1 We come a fair way down the list of savers, falling in line just below Mexico but well ahead of the United Kingdom, the United States and New Zealand (OECD, 1999). Our development of virtually compulsory
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savings vehiclesincluding the superannuation guarantee and newer flexible mortgages to fuel property acquisitionare helping reverse a trend in declining savings. Indeed, Australians make their money from what I would call passive investing: buying a home, buying units in managed funds, superannuation, even purchasing a little investment property and renting it out. With passive investing we make a decision one day, buy the thing and let it run its course. We leave it to the experts to make the ongoing decisions and manage the financial products we buy. And it turns out that this is a wise strategyon the whole it really works for people. Yet for a range of reasons many of us can find ourselves a fair way down the track of life with little financial security to show for all the years and all the wages. Or perhaps we become aware we have coasted for much of our lives, putting in the bare minimumto the home mortgage, to employer-paid superannuation, to a few mum and dad share floats like Telstraand realise with a start that we should be a lot better off than we are. Where have the years gone? Where has all that salary gone? In the next chapter the focus shifts to goal-setting; clearly you need to figure out where you hope to end up. But what will the future look like? And will the goals you set today be rendered meaningless by significant social changes around you? We cant reliably divine too much about the futurethe pundits so often get it wrong. But we can confront what has become perhaps the most pervasive and threatening myth, instilling fear and sometimes panic: the negative impact on society of our ageing population.
The ageing populationwill it hurt?

If the newspapers are right, our population is rapidly ageing and our nations birth rate is in freefallwith too many highcost old people to look after and too few workers to pay tax and provide support. The result, it is projected, will be a retirement filled with uncertainty, poor services and fear. The first part is true enough, as can be seen in Table 1.1.
Table 1.1
State Australian Capital Territory New South Wales Northern Territory Queensland South Australia Tasmania Victoria Western Australia Australia
Source: Australian Bureau of Statistics
Australian median age, state by state, in 2004 and projected for 2051
2004 34.2 36.7 30.6 35.8 38.6 38.4 36.6 35.9 36.4 2051 42.4 44.9 35.0 45.2 48.5 49.8 45.5 45.3 45.2
Looking ahead, South Australia and Tasmania will be the states with arguably more of an ageing problem than the others. More than 70 per cent of Australias population growth over the next 50 years will be among people of retirement age, while the population under 40 will decrease. Why is the gap between young and old increasing? Essentially there are three reasons. The period when baby boomers were bornbetween 1946 and 1965was a time during which fertility rates peaked with, in 1961, an average of 3.5 children per woman (falling to 1.9 in 1980 and 1.75 in 2003).
Its Never Too Late
The baby boom was also a time of high immigration. Since then medical advances and improvements in living conditions have contributed to an ageing population: by 2051 it is anticipated a child, at birth, can look forward to a further two to eleven years of life expectancy than a child born today (currently the average life-span is 81 years for males, 86 for females). A similar pattern is emerging in many other developed nations. New Zealand, Japan, Germany and Canada all expect a doubling of their population aged 65-plus over the course of the next 50 years. Where the ageing myth goes off the rails is when it implies that older people will simply be a drain on the community. Contrary to much of what we see on television, hear on radio and read in the newspapers, the future is full of hope. First, we are getting older but we might just still be pushing the economy along because we refuse to leave the workforce. For example, its obvious that women are involved in great numbers in the workforce, but what is not so well known is that older women are hanging in there, finding or holding onto jobs and not retreating to the home. In the past 20 years the proportion of women in the workforce aged 5564 has more than doubled. Men, too, are keeping their shoulder to the wheel. The trend towards early retirement has reversed for men: since 1998 the proportion of men aged 5564 in the workforce has lifted from 60 to 65 per cent. In fact, over the three years from 2001 to 2004, 57 per cent of employment growth has come from workers aged 55 and over. There is a quiet revolution underway. We want some money in our hands, we are prepared to work for it, we are not all giving up our lifestyle goals and accepting a frugal future. Thats a positive message.
Of course, high levels of debt also keep older Australians in the workforce. But the point remains: despite ageing, we continue to work and the opportunities are not closed (although they are not necessarily where we expect them to be). Indeed, with fifteen straight years of economic growth behind us in Australia, the pressing problem of a skilled labour shortage finds its solution in making increased use of mature workers. Low fertility rates for some decades have meant there are already fewer young people to take on the workload, so employers with expanding businesses must tap into the reserves of experienced, older workers. And the jobs are not just part-time or casual. The rates are much the same for mature-aged workers (aged 4564) as for the entire community. So, as we age we are not all being herded into more lowly-paid corners of the workforce. This, too, is good news. Having said that, however, there is a trend towards part-time work as people near retirement, both for men and women, although that shift might be as much voluntary in nature as forced upon people by employers.
Where the jobs are

As mentioned earlier, you need to set goals if you want your efforts to head somewhere. But you might seriously wonder, Is there somewhere to go? As this chapter establishes the climate for our goal-setting, another genuine positive is to understand that there will be jobs for us but they might be different to those we do now, or the hours and conditions might require greater flexibility on our part. If your goals include an
Its Never Too Late
element of continuing paid work, consider where the jobs for mature-aged workers might be.
Table 1.2
Sector Education Agriculture Community services Utilities Transport Management Cleaning Machine operation
Jobs with the highest rates of mature-aged workers

Examples university and vocational education teachers, high school and primary teachers farming, fishing, forestry health profession and other community-based occupations, including social welfare professionals electricity, gas and water supply services trucking, rail, storage general managers and administrators cleaners textiles and clothing
Source: ABS Census 2001; ABS Labour Force Survey, November 2003
At the other end of the scale, mature-aged workers are less likely to continue employment in areas such as retail, accommodation, cafes and restaurants, cultural services and the recreational sector, which tend to favour young workers. And while it is true that mature-aged and older workers have greater difficulty than younger people in finding jobs, once they have them they find a much lower unemployment rate than the general population. Finally, will there be a health-cost blow-out when we all reach retirement? This would be a frightening outcome for Australia. Again, those who dwell too closely on the past may miss the current underlying movement. While we know that the baby boomers will outlive their parents, it is by no means certain they will cost more for taxpayers to maintain, in relative terms. It has been argued that the period of high health costs,
which generally occurs in the final years of life, will be much the same as before. What is changing, as average life expectancies rise, is that there is now an additional period of roughly five years of healthy, active living that, statistically at least, people enjoy before health declines. Thats an additional economically productive five-year period our society didnt have before. We cant predict there wont be problems associated with an ageing populationindeed, there almost certainly will bebut it is quite unfair to look to the past and paint a dreary picture of an unhealthy future. Those extra years of life expectancy could be amazing.
A positive time to make your move

Australia has enjoyed a run of favourable economic conditions for the last fifteen years. Consider these facts: For the 12 months to 30 June 2005, the Australian equity (share) market showed its strongest performance in eight yearsa return of around 26 per cent for the year.2 In the 15 years from 1990 to 2005, the value of assets under management almost doubled (from $496 billion to more than $915 billion).3 The combined wealth of all Australians exceeded $5 trillion (thats $5000 billion) for the first timeand had actually doubled over the seven-year period to 2004.4 Unemployment rates became the lowest in almost 30 years.5 The average house price, looked at nationally, has doubled over the last ten yearsgood news for those who own them!6
Its Never Too Late
Interest rates have been at historic lows.7 Inflation has stayed lowmostly within limits acceptable to the Reserve Bank.8 Of course, this sort of extended positive investment climate has also resulted in risky behaviourhigh levels of borrowing, easy access to credit, an uncritical boom mentalitywhich must be taken into account. Yet, if you cant get around to investing now, in these conditions, precisely what would it take to make you move? This is the challenge.
Finding your motivation

What motivates us to save, to invest for our future and for the things which excite us in the present? Often people say: I want to make enough money to retire early. But this is a weak motivation. Early retirement has been hammered into us as the ultimate sign of financial and personal success. But is it really what anyone wants anymore? If a persons aim in life is to sit around indulging themselves without any other plans or goals then I dont think much of their chances of achieving this heady state any time soon. Much has been written about the role of motivation but I wonder whether that body of thought and opinion has the answers for those seeking to ramp up their financial standing. Motivational speakers and writers analyse successful people, from movie stars and singers to business entrepreneurs. They report remarkably similar traits in such people, which include the following.
Determination. They know what they want and set out to get it. Their goal is crystal clear. Passion. They are not acting simply out of desire but are inwardly compelled to succeed in their chosen path. The ability to maintain focus. If you are on the periphery of their trajectory, be prepared to be ignored. The house can fall down around successful people but they will not lose sight of their goal. Self-reliance. Though prepared to take advice, successful people know that it all comes down to them and them alone. Self-belief. Friends and family might say what they are doing is stupid or even dangerous, but this is no deterrent. Successful people know they can do it. As someone neatly put it, successful people have the ability to believe without proof. People skills. Motivated people have the ability to motivate others. They understand what gets people moving and they somehow enlist others to their cause. Creativity. They see new pathways, fresh opportunities. Prepared to take big risks. They believe they will not fall into the traps like everybody else doesit will be different for them. Does this ambitious model work when it comes to making money? Do you have to be this kind of person to succeed in investment? No. Indeed, if you behave like a typical entrepreneur you might end up rich but its not likely youll have a devoted partner and family beside you. When I read the great personal finance books of our times I see the ambition, self-belief, passion, skills and
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creativity writ largealong with the horror and stress which are inflicted on the lives of those living with the Great Man/Great Woman. You have to make twice as much money as you really need so you can finance the divorce or separation! The thing which amazes me about making money, as opposed to many other fields of human endeavour, is that ordinary people can be stars too. In fact, some of the attributes of high achievers passion, self-belief, self-reliance, high-risk behaviourwork against you when it comes to personal finance and investment. No matter how much you study or how much effort you put in, the investment marketplace has a tendency to move in unanticipated directions. They say that the best strategy for analysing a particular company and its stock is to play golf with one of the directors; that leaves most of us at a real disadvantage, and it is dangerous to believe that our efforts alone will ensure we keep up with market forces and movements. We remain outsiders. Yet quietly and unremarkably there are ordinary people building their property and equities portfolios and setting up their own superannuation funds. Each one of us must find our own source of motivation. If I were to write a profile of the successful ordinary investor, they would be prepared to do a number of things, as follows. Turn off the TV. You must be prepared to get active in the pursuit of better outcomes from your savings and investments. Seek expert advice. And you will be happy to pay for it. Move on until they are confident in their advisors. Why do so many people stick with self-interested investment advisors offering poor service?
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Take risks. This would be teamed with initiating steps to limit those risks. Reading books, like this one, can help you see how you can put some limits and controls on risk. Include their partner. Dont leave your partner out of the picture or trouble will follow. They must be a willing fellowtraveller. Be humble. A successful investor has the capacity to ignore the hype of a boom or bust, without worrying about how well everyone else might be doing compared to them. Persist. Not everything you invest in will perform well. Put effort into increasing their knowledge. This includes knowledge about investment and managing your money, without fooling yourself that youve acquired expertise. This is not the picture of a human dynamo. If you are comfortable with the fact that others will make much more money than you, but that you can do well anyway, then that is a great starting place. It will also help if you can identify what is going to motivate you on the road to improving your financial position. Its a long road and the journey can be made more difficult than necessary if you have no clear idea of why you are working hard, trying to save money, researching investments and taking risks which can sometimes keep you awake in the night. The following is a list of powerful motivators that Ive heard: I grew up poor and dont want my children to go without like I did. My divorce shattered mebut I can rebuild my financial security. I will not end up dependant on my ex.
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Its Never Too Late
I have been so lazy letting the opportunities pass me by. I feel a mix of guilt and annoyance. Its like Ive just woken up and can see retirement looming as a reality for the first time in my life. I have fallen in love with travel/sport/a hobby, and need the cash to finance this addictive experience. I have finally worked out what I want to do with my life. I want to save so I can start my own business. So, if you want to improve your financial position but dont know if you can stick at it and put the effort in, look deep inside yourself and your relationships to find your motivation. If youre still having difficulty pinning down some force which will drive you, answer these questions: What do you love? What do you fear? These can be challenging questions when applied to your personal life. Perhaps it is easier to start with a more obvious scenario: the workplace. Within the workplace there is subtle pressure towards mediocrity or mere competenceyou get through the first year or two, understand the tasks and eventually can perform them well. The motivation to stretch out for excellence is readily sourced in love or fearwe love the job, we love helping people, we dont want to let down workmates for whom we feel affection, we admire our boss. Alternatively, we might truly fear our employer or manager. We dread getting sacked or retrenched, we will stay back late to get the job done because we cant face the criticism of getting it wrong. This, too, can lead to superior performance.
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You might have a deeply-felt love for your partner, your children, the home you are building, a vision of a retirement spent sailing the world, travelling, building your own business. Bring these things to the fore so they will become your motivation to do more. You might have a particular fearof retiring poor, of fighting a debilitating condition or illness without the resources and choices available only to those with cash, of being seen by your friends as the failed spouse following divorce or separation. Sure, it would be best to find your motivation in love. But to those who carry personal scars it might be more realistic to look to your fears if thats what it takes to get you moving. Either way, through tapping into a rich vein of love or fear, or a mix of both, you can source some powerfully motivating forces to change the path youre on. Mediocrity might be more comfortable now but it wont motivate you.
How I found my motivation
Maybe it was because he came, in his own words, from a humble background that Graemenow a merchant bankertook an early interest in money. After school he studied law and soon found challenging work as a solicitor. His ideas on money and investment were, at this stage, still unformed. It was at the law firm that he encountered the man who was to become his inspiration and mentor. One of the partners, then hovering around retirement age, had become a wealthy man not from practising law but rather from hard work and risks taken in earlier, economically difficult times. He owned a number of businesses and an extensive property portfolio, with an eye always on cashflow ahead of simple capital gain.
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Its Never Too Late
The timing was right for me, says Graeme, to find myself in that particular job at the start of my working life. I could see how this man had made himself wealthyI was learning from a true master. Although I always had the bent or interest in making money, it took someone else to fan the small spark into a flame. I am a great believer in doing my homework. I read two or three real estate sections of newspapers each weekwhether I feel like it or not. Thats something I picked up from my former boss. Another tip is to talk to lots of people . . . to be in the flow of an investment community. I have a good dialogue with many estate agents, business associates and experienced friends. Sometimes they call me to get advice, so it has become a two-way thing where both of us can gain something. I always wanted to better myself and rise above my origins. Becoming a lawyer, in itself, didnt do this for me. It was finding a mentor which motivated me to really start investing for my future.
9 truly the person you are.

Save your relationship
Save your money Dont fall for the early retirement trap if thats not
9 financial motivation in a different place. Dont put yourself under needless

pressure to feel or act the same.
Recognise that each partner may find their
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Your weaknesses, your strengths
re you working to your weaknesses or your strengths? This is a fundamental question as you begin to assess the direction of your financial future. Its premature to set investment goals if you cannot answer this question honestly and in some depth. As the years go by we settle into patterns within a relationship or household for getting things done. Who takes the children to school? Who makes the dinner? Who lights the barbecue? Who wraps the presents? Who feeds the pets? Who mows the lawn? Whose job is it to maintain the passion in your relationship? Some of these patterns are comfortable and work well, while others represent little more than a truce in hostilities. We can findjust as businesses constantly dothat within our household we have allocated the wrong person to the job! When it comes to setting financial goals you need to perform what might
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Its Never Too Late
be called a job audit, to ensure that the best-suited person is in charge of each essential task.
Man with the money

Robyne is three years younger than Dave, which is no big deal now, some twenty years after they met, but it represented a real gulf when they began their relationship. She was still a student while he was already in the workforce; she earned precious little money from waitressing, while he had a steady wage. They decided they would share everything in their life together. So when they had enough cash for a deposit they bought their first homeand put the legal title into joint names. They were partners right down the line. At the start of their relationship, at days end Dave would sit in front of the television with a beer in hand. He worked hard and looked forward to relaxing in the evenings. Robyne, on the other hand, had plenty of time off from classes during the day but had to hit the books at nightshe was very busy and stressed most evenings. Owning a house brought along a whole raft of bills. The task of handling the household accounts fell to Dave by default. Although he wasnt particularly interested it was clear that Robyne was too busy at night to keep on top of this as well as her studies. Dave would put the bills in a pile on the floor on his side of the bed and attend to them whenever he felt motivated. Gradually, the bills would disappear under a pile of magazines, books, letters from his mother and lift-out sections from the Saturday newspaper. Over time Dave found that he didnt have to pay most bills when they arrived; if you waited long enough, a reminder or final notice
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would be sent. Then he would plough through the pile to find the original bill or, more usefully, could forget about the original and simply pay the notice. Easy. Move forward twenty years. Robyne has been out of university for seventeen years and yet their pattern of financial management has not changed. Every now and thenwhen, for example, the phone is cut off or their car becomes uninsuredshe gets a shock when she opens the post. And she rails against Dave. His bedside pile of bills is now an archaeological site. It is the source of much stress in their relationship.
Could they really have let this pattern continue for 20 years? You might know a couple like Robyne and Dave and have wondered why have they never addressed the fundamentals. But what we see is not simple: what began as a money issue has transformed more fundamentally into a relationship issue, which is more complex and difficult to remedy.
Three revealing exercises

This, then, is the starting point for setting your financial goals: audit your money tasks and the skills each of you brings to the partnership. If you are single, put a tick against those skills you possessthe blanks or low scores are a clear indication of where you might need the help of someone else, be they a moneysavvy friend, a trusted family member, a financial/workplace mentor or a paid expert (accountant, financial planner, counsellor,
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Its Never Too Late
insurance broker). Following are three exercises which will help you determine your strengths and weaknesses with regards to household financial management; assess your assets and liabilities; and focus on the opportunities available to you and the possible risks ahead.
1. Money tasks audit

For questions 1 to 7, fill in the name of the person best suited to the task (you can write both if it is relevant). For questions 8 to 14, indicate your attitude on the five-point scale provided. There are no opt out or undecided answers to these questions you must make a decision. SKILLS 1. Which of you is better at maths? 2. Which of you likes using systems to handle tasks? 3. Which of you gives more attention to detail? 4. Which of you is better at managing time and getting jobs done on time? 5. Which of you is more prepared to pick up the phone and sort out your financial issues? (For example, making an appointment with your tax agent or obtaining a replacement for a missing bank statement.) CONCERNS 6. Which of you is more concerned about your financial future? 7. Which of you is more concerned about late payment of bills?
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FINDING YOUR LEVEL 8. How would you rate your level of agitation when discussing household finances with your partner? If single, how would you rate your level of agitation when sorting/ organising household finances? Partner 1 * * * * *
LOW HIGH
Partner 2
LOW
HIGH
9. Indicate the level of stress you feel about household bills not being paid on time. Partner 1 * * * * *
LOW HIGH
Partner 2
LOW
HIGH
10. Indicate your level of desire to work to a household budget. Partner 1 * * * * *

LOW HIGH
Partner 2
LOW
HIGH
11. Indicate your level of desire to implement a financial plan. Partner 1 * * * * *

LOW HIGH
Partner 2
LOW
HIGH
12. Indicate your level of desire to increase your investments now. Partner 1 * * * * *
LOW HIGH
Partner 2
LOW
HIGH
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13. How willing are you to handle the day-to-day finances for your household? Partner 1 * * * * *
LOW HIGH
Partner 2
LOW
HIGH
14. How do you rate your willingness to negotiate with your partner to overcome financial bottlenecks and problems in your relationship? If single, how willing are you to face these issues yourself? Partner 1 * * * * *
LOW HIGH
Partner 2
LOW
HIGH
Work through this audit with your partnermore than just the straight answers should come out of this discussion. And single people should make a note about seeking assistance where needed. Dont leave the gaps or low-score issues unattended! You can build a team around you if you prefer, to motivate and guide your decisions, free of the constraints and angst of having to reach agreement with a partner.
2. List your assets and liabilities

The audit is the first tool you need if you are to prepare a set of financial goals. The next tool should be more concrete: preparing a list of assets and liabilitieswhat you own and what you owe. So pull out your bank statements, credit card statements for the last twelve months, loan statements and so on. For this
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task we are not concerned with living expenses (insurance, food, phone bills, entertainment, medical, etc), just the basic information about financial assets and any debts. Its helpful if you can graph this information. You could use the graph function on your computer software or pencil-in your numbers on the grids below. The idea is to first identify your assets and liabilities and, second, to see them in bands of value: low (nil to $10,000 in value), medium ($10,000 to $50,000) and high (worth above $50,000).
Figure 1 Your household assets
$100,000+ $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $5000
e m ho t t s s ds en 2 en nd ) es un th) fu me in stm rty 1 stm rty f s ed co ed ow bu nve pe inve ope ag (in i ro ag gr pr p an an ( m m , n n gs , io io in osit s) at r 1) at r 2) v u u a e (s ep re nn n nn ne ra art ra art sits m d ntu pe (p r e pe (p o e u u p t deb s s de sh ar es ot he r
3. A situation analysis
Now we can draw together what emerges from these graphs and your tasks audit with the third tool: a situation analysis. Here I am borrowing from the business world and, in particular,
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Figure 2 Your household liabilities $100,000+ $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $5000
mo n frie ey ow nds ing /fa to mil y HE CS /HE LP pro inve per stm ty l ent oan 1 pro inve per stm ty l ent oan 2 equ ity loa n ma rgin loa n line of c red it per son al lo an 1 per son al lo an 2 car loa n1 car loa n2 cre dit car ds mo rtga ge
a mainstay of marketing planning. In marketing terms this would be called a SWOT analysisthe Strengths and Weaknesses of your business and the Opportunities and Threats confronting it. However, for financial goal-setting in a personal context we might prefer to call it SWORE: Strengths, Weaknesses, Opportunities and Risks Exercise. In business there are real threatsa competitor sets up next door, for example, or you cant get a supply of the raw materials you need. In personal finance and investment terms we are really talking more about riskexternal reasons for exercising caution or backing away from an investment opportunity. Importantly, at home the strengths and weaknesses are internalfactors at the heart of your relationship and how it functions, or of the life you have made for yourself as a single person. The opportunities and risks are externalwhat you see
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outside yourselves and your household. The following example, of Carla and Joe, shows how to approach the SWORE analysis.
Carla and Joe want to take steps to improve their overall financial position, to set themselves up as they settle into their 40s. They have made fair progress so far in their life together; they own an apartment and, thanks to rising values and consistent payment of their mortgage instalments, their equity is far ahead of their debt. But apart from compulsory superannuation they have engaged in little investing. They have purchased a few shares in popular floats simply because offers were sent to them in the mail (such as Telstra and the Commonwealth Bank). And they have left these shares untouched since the day they bought them.
Assets
home unit value cash deposits superannuation shares $330,000 $5000 $120,000 (Joe) $70,000 (Carla) $15,000
Liabilities
mortgage car loan credit card debt (unpaid) $210,000 $25,000 $5000
Salary
Carla Joe $40,000 p.a. $70,000 p.a.
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After carrying out a money tasks audit, Carla and Joe drew a SWORE chart which looked like this:
Strengths
Carla has the right attitude to look after the family finances and record-keeping. Joe has the stronger motivation to work hard and save hard. We are easily managing our mortgage payments and have surplus cash to invest. Our children are at school and doing well. Having bought a home, we understand property and feel relatively comfortable about buying more.
Weaknesses
Carla is too fond of retail therapy. Joe is wasting much of his life in front of the TV. We know little about how to invest or what to invest in. We do not understand shares and are concerned at how our shares can lose value, even during a boom.
Opportunities
Overtime has just become available at Joes workplace. The economy is in good shape. Interest rates are lowwe could borrow money to leverage our investments. Property prices are fallingwe should take advantage of the bargains.
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Risks
Carlas job security is uncertain. Interest rates are more likely to rise than fall from this point on. Our poor financial knowledge means we are vulnerable to a slick sales presentation or to making rash decisions. We have low levels of insurance. * * *
Following is an example of a SWORE analysis for a fictional single personlets call her Clare. Clare, aged 42, is divorced and has a sixyear-old child. She lives in a two-bedroom apartment which she is paying off, and works at a moderately senior level in marketing for a medium-sized corporation. Her income is $55,000 p.a. and her expenses are closer to $60,000 p.a. Her mother helps a little with childcare and holidays.
Strengths
Im good at managing paperwork and paying the bills on time. I am increasingly motivated to work hard and save hard. I have been with the same employer for eight years, and am well established there with good job security. I own my homeby chance I have done well out of the recent property boom and there is equity in the property. I have managed the mortgage payments through hard times. My child is at a good school and is doing well. We have enjoyable, though inexpensive, holidays each year.
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I have been putting a little extra into superannuation over the last two yearsstraight out of my pay. This seems to be affordable somehow.
Weaknesses
I never seem to save money. I sometimes need to borrow money from my motherI need guidance on practical budgeting. I know little about how to invest or what to invest in. I missed the recent sharemarket boom entirely. I am too tired to be adventurous in money or in life experiences.
Opportunities
I would achieve a worthwhile pay rise if I left my employer and moved to one of our business clients. This is possible. The economy is in good shape. Interest rates are lowI could borrow money, secured against my home, to leverage further investments. The new superannuation choice scheme will let me choose my own superannuation fund and a more aggressive strategy for investment. With proper advice I could be in a better situation than I am now (with my employers choice of high-fee, lowperforming super fund). Should superannuation be my main investment vehicle?
Risks
My current job is fairly secureI put such security at risk if I move elsewhere.
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Interest rates are more likely to rise than fall from this point on. I have no life insurance or income protection insurancewho will pay the mortgage if I get sick?
You might want to follow this three-step preparation yourself, in readiness for setting your financial goalsfor without the right information, how realistic will your goals be?
Along with his medical partners, Brett decided to build new premises that would indicate the lively approach they were taking to their field of medicine. All went well, but Brett found the most rewarding part of this business expansion was meeting the builder. He seemed like just an ordinary bloke, says Brett, but he was a real entrepreneur. I spoke to him quite a lot during the construction work and it turned out he had this whole network of contacts which he used to put deals together. So, for example, if a potential customer wanted a new building erected but had difficulties with the bank, the builder would bring in one or more of his friends to put up the finance. The great advantage for the customer was that these investors trusted the builder and knew the job would be completed on time and within budget or, if not, it was just a hiccup that would pass. The customer saved on bank fees and avoided all the running around. Having completed our own medical premises, I have now become one of the builders investors, putting money into the occasional project. We all do quite well out of the arrangement and, importantly, I have developed my own network of contacts who let me know
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whats going on in our corner of the worldtheres always something to invest in. Once youre in circulation its true that luck comes your way.
Six tips for setting goals

Volumes have been written on the science of setting goals and I have no desire to add to that bloated body of work. There are so many levels and sub-levelsgoals versus aims, fine-tuning and constant evaluationthat it becomes a motivation swamp. So, why not make it easy for yourself? Most large organisations have been through the phenomenon called strategic planning. This is an extensive process designed to add precision and accountability to what would otherwise be mere planning. The documents produced along the way are typically extensive. I once asked a person responsible for the creation and implementation of a substantial strategic plan whether she followed the precise instructions for her own personal finances. Sheepishly she shook her head and opened a desk drawer: inside was a list of ten short points on a single sheet of paper. Theyre my goals, she said. Goal-setting should energise youboth of you if you are in a relationship. Your list of goals becomes your map and should deliver a sense of progress and achievement; its not something to beat yourself over the head with (or, worse, your partners head). So avoid turning it into an encyclopaedia and then feeling guilty for missing a compliance deadline or skipping one of the points. I prefer to follow these six points for financial goal-setting:
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1. Get the facts right. Gather your financial data and analyse it. Do your SWORE. 2. Imagine. Think about where you want to beyourself, your relationship, and how your finances fit in. This is a time for brainstorming. 3. Write down your ideas. Work on the ideas and goals from point 2 and refine them a couple of times. Make your ideas concrete wherever you can, making your list fit on one side of a single sheet of paper. Separate your general wish list (e.g. to retire by age 55) from shorter-term, more concrete goals (e.g. to see an estate agent next week). 4. Prioritise. Put your list in order for action. Always be clear on what has to be done next. Dont let your list become a meandering feast which you pick at from time to time but leave unfinished. 5. Allocate. Distribute the tasks between you and your partner. Dont let anything fall in the gap between the two of you. If single you might consider involving a wise friend or advisor in the process. This will help make it more real. We can all benefit from the occasional debate about how we see the world and ourselves, our strengths and our weaknesses. 6. Time frame. Against each task place a guestimate of the date by which it should be completed. Keep an eye on progress (perhaps by placing key dates on the calendar in the kitchen) and be prepared to adjust these dates to fit the realities of your life. Returning to Carla and Joe, they have now completed points 1 and 2 above. Here is what the concrete part of their financial goal-setting (points 3 to 6) might look like:
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Goals (in order of priority)

1. Carla will take over the bill paying and record keeping from Joe (today). 2. Carla will get the credit limit on her credit card reduced (by 10 May). 3. Joe will make an appointment with a financial planner and have a proper plan prepared (by 10 May). 4. Joe will speak to his boss about working overtime (by 20 May). 5. Carla will ensure that 100 per cent of Joes overtime goes into our savings plan (when new overtime commences). 6. Carla will set up a direct debit facility from our bank account to transfer money each month into a balanced fund recommended by our financial planner (when overtime commences). 7. Joe will research whether we should sell our existing shares or hold them and wait for them to improve (by 1 June). 8. Carla will prepare a household budget and calculate how much money we have available for further investment (by 1 June). 9. Joe and Carla will investigate purchasing an investment property Joe will speak to the bank and Carla to at least three real estate agents (by 10 June). 10. Should we consider taking out a fixed-rate loan for the investment rather than a second variable-rate loan (as our existing home mortgage is)? Carla to research (by 20 June). 11. Joe will contact an insurance broker to assess our insurance needsparticularly for increased income protection (by 20 June).
These goals are a good example because they are straightforward and concrete. There are many other things which could be on this list but they can wait for another dayhere, we are talking
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about short-term goals. Think of this: if Carla and Joe can do most of what is on their list roughly within their two-month time frame, they will have advanced their financial position and planning considerably. Then it might be time for them to write a follow-up list. After all, when you get working on one goal such as seeking advice about a particular investmentthe information you uncover might shut down one whole strand of your planning, or open it up to further development. In other words, I am suggesting that financial goal-setting can work best as an ongoing exercisenot a rare, all-important, live-or-die, once-only event. Dont burden the thing with overwhelming expectations. Your list of money goals should: motivate you to action guide you quickly provide a sense of progress and achievement. Furthermore, if its been some time since you last set some financial goals or worked through these issues, either alone or with your partner, it is likely that some of your new goals will be rooted in the past: in prior experiences of success and failure, in plans that were left unresolved between the two of you. Good goal-setting looks forward. I am not a big fan of the strategy of expressing goals in the present tenseimagining yourself now where you want to be (I own an investment unit, I have a $50,000 share portfolio)but some people find this helpful too. So get crackinglearn about yourself and find out where you are going!
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How the rich invest

In 2005 Merrill Lynch, a financial management and advisory company, and the Capgemini Group, a provider of consulting, technology and outsourcing services, published a report on world wealth for 2004.9 The research presented in the report had focused on uncovering the ways the wealthiest people had invested over the year, looking for lessons pertinent to the rest of us. The report noted that Australia now had 134,000 high-net-worth individuals (HNWIs, defined as having investable assets exceeding US$1 million excluding homes, cars, collectables and various household possessions). To summarise the news on these smart and wealthy investors: They did not necessarily use investment options which are not open to most ordinary investors. They pursued a diversity of investmentseven though they often initially made their money by a high-risk strategy centred on a single investment (for example, their business or property). They sought a diversity of expert advice, using at least two financial advisors. They were profit-takers: they were prepared to sell investments which had risen in value and take the cash, even if they felt there was more gain to be made by holding the assets. They valued avoiding losses as highly as backing winners. They are now broadening their horizons, allocating an increasing proportion of their portfolios to alternative investments such as hedge funds, foreign currency, private equity, precious metals, fine art and collectables.
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This group were also found to have troubling issues which most of us will never face. Alvi Abuaf, Vice President at Capgemini and leader of its North American Securities Industry Consulting Practice, explains. Many ultra-wealthy families are creating 100-year plans, in which family members are treated as business divisions and emphasis is put on corporate-inspired guidelines such as family mission statements, governance structures and guidelines for communication. As a result, he continues, many wealth advisors have evolved into the role of CFO [chief financial officer] to HNWIs family portfolios and are now more frequently utilizing new products and technologies to meet more sophisticated investment strategies on behalf of clients.
9 you will find it easier to make progressand much of the hazy, wishlist stuff will take care of itself along the way.
Save your money If you keep your goals list full of concrete targets
9 If they are unwilling or unsure about the process, drop back to a more
basic approacheven a single goal is an achievement, such as visiting a by step, build a solid foundation and recognise your progress and success.
Save your relationship Dont leave your partner behind in this exercise!
financial planner or finding out from your bank/lender how much you would need to increase your loan repayments to pay off your debt faster. Move step
3
Eliminating the money killers
orking to your goals isnt as easy as it sounds. Its one thing to set goals but another to achieve them or even to begin seriously working towards them. If you find yourself in a financial rut theres undoubtedly good reasons for this. Your relationship with your partneror, if single, your honest assessment of your own strengths and weaknessesmight be a part of the problem. I once worked on a television lifestyle program. There were a number of unwritten rules with such programs but one of the clearest was: never return to the place where you had performed a make over. Be it a garden, a house or someones new-look clothing, you should never go backand certainly not with a television camera in tow. And for good reason. It would not take long for the shine to wear off the make over and gradually the fundamental problems would show through the veneer.
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Plants would wither and die from lack of water, weeds would take over the paved entertaining area, the dog would trash the Thai-influenced veggie patch. The fundamental reason why these television case studies for remedial action needed help to begin with was generally because they had little motivation to solve their problems themselveseven with the advice of experts. It was rare, in my experience on the program, to find a couple so perfectly matched that they were both equally willing to keep their home or garden tidy. Usually one partner would like to keep things in order and make progress but they were unable to bring their partner along with them. In the end they gave up or one dominated the other, and it showed. The story is much the same when it comes to financial progress in a relationship. Often its the case that one partner is much more motivated than the other. Your progress, too, will suffer like those unwatered plants unless something is done to break the cycle.
Money killer 1: the put-down partner

Stop making sense!
Frank was annoyed, really annoyed, at his wife for dragging him along to see the guy now sitting across the desk from thema dodgy financial services salesman. Frank and Valetta had, over the years, reached a kind of stand-off over financial matters which resulted in Frank handling everything; he did the banking and paid all the bills. For the sake of peace at home, Valetta had gradually pulled out of having anything to do with their savings and investment.
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Now, as Frank saw it, Valetta was ruining everything by making him listen to the sales pitch of this snake-oil merchant. Frank, who prided himself on being very logical and informed about investment, could see right through this felloweven though he knew Valetta was dazzled. While they had managed take out a mortgage and buy a home, they had done little else by way of investment. Their only plan was to pay off the mortgage as quickly as possible. But Frank knew this was a smart strategy. For every dollar we pay off on the mortgage principal, he reasoned, we are earning an effective 7 per cent interestbecause thats what we are saving. There arent many surefire investments which will do that for you! And while I cant persuade Valetta to take some financial risks and invest more aggressively, I know that at the very least we are making progress in this one thing. It will do for the moment. But here they were, at Valettas insistence, listening to a spiel about an investment scheme to pay for their childrens education at private high schools and university. Valetta had heard about the scheme from a friend and the idea had really hooked her. You put in money each month, she told Frank, and in ten years time we will be able to use those savings to put our children through the most expensive years of their education. What do you think? Or dont you agree our childrens education is important, Frank? Frank could hardly disagree with Valettas last point. And so here they were. His annoyance increased with each fact he managed to get out of the salesman. They would be locked into a plan, then a substantial amount of money had to be forwarded each month, year after year. Fees? It was hard to get a grip on the fee structure but
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clearly it was going to be a profitable venture for the man sitting oppositewho would do very little, it seemed to Frank, to justify the high fees. And the interest they would earn on their investment was below what they would earn from simply paying money off the mortgage. The whole thing made no financial sense to Frank. Well be going backwards with this education fund! he moaned. Frank sat there with his arms crossed and his eyebrows knitted.
This is a true story. So, what should Frank and Valetta have done? Nothing? That was their usual strategy and it had brought them precious little in their years together since buying their home. People in such a situation with their partner tell me there is no point in being logical about money and household finances. They find themselves deeply involved in their partners life before the realisation hits that they cant talk on the same level about interest rates, fees, investment opportunity timeframes, comparative levels of risk, and so on. And then, when the financially-reluctant partner finally finds an investment to be excited about, what does the financially-literate partner often do? Shuts them down, points out they are being silly, says No way! And for what they see as such good reasons, too. Frank was right about the particular investment opportunity: it wasnt a great deal. But he had been handed, finally, a breakthrough moment in his relationship with Valetta. Here she was, keen to be proactive in making an investment. She would be interested in watching the education fund grow, eager to see that money was put aside each month to keep it going, possibly
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interested in deferring other discretionary spending if it threatened her fund. Sometimes the logical, financially informed partner would do better to sit on their hands and let their partner take a step, a risk, without facing criticism, even if this criticism might be well-meaning and informed. The education fund would not be a complete disaster by any meansit would just not be as effective as a number of other financial strategies. There were still positives in this plan. More importantly, in the case of Frank and Valettas case, here was a key to understanding the financially-reluctant partners hidden thinking about investment. What was the factor which finally turned Valetta into an investor? The investment had a concrete goal that Valetta valued: the childrens education. The investment was for the benefit of people she really loved deeply: their children. The investment was more colourful and exciting than paying extra money into the mortgage (where bucketfuls of savings simply get swallowed). The investment was being actively sold and promoted to them by a person who was highly motivated (and this motivation can be contagious). The investment tapped into a genuine fear held by Valetta: her children could miss out on important opportunities in life. Perhaps a friend, television program or true-life story in a magazine had prompted Valetta into action. Whatever the reason, when your partner changes their attitudes to saving and investment, why not encourage them? You dont
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have to pour all your money into their suggested plandiscuss starting small and seeing how things go. Its a process of education after all. In relationships where there is an imbalance in financial confidence or understanding, there can be long gaps between breakthrough moments so seize them, modify them if necessary, but above all let your partner enjoy the liberating feeling of wanting to become financially active. If doing it on your own, be prepared to respond positively to any investment opportunity which lifts you out of your apathyon the condition that you run the paperwork past a trusted financial adviser before signing anything. There is no shame in backing out. Most times, once a person is finally motivated to improve their financial position, it is possible to transfer that enthusiasm to a preferable investment. But you need your support team of advisersboth formal and informal in place first. Who will you call?
Money killer 2: procrastination

The quick and the dead
After 22 years of marriage, Philippa and Steve were into their second home and had paid the mortgage off to less than $50,000. Their children were finishing high school and they breathed a sigh of relief to know they had made it this far without any drastic hiccups. But their home was the only financial asset they had gone out and captured on their own initiative. Sure, they had a decent amount of super, two cars and plenty of furniture and toys, but there were no shares, no managed funds, no cash deposits, no investment property.
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It was early 2000 when Steve and Philippa saw the writing on the wall: property prices in their part of Sydney were rising sharply. How could they miss it? There was a story in the news about it nearly every day. And they decided it was time to do something about their financial position: they would buy an investment property. Philippa put her foot down. Steve! We must do something this time, she said. We can afford it. We must make an appointment with the bank manager and see about a loan. Steve knew that when Philippa said we like this it was code for you. But Steve always felt insecure and inadequate sitting at the desk of someone such as a bank manager, so he mentally ticked his wifes instruction off in his head and promptly forgot about it. A year passed. One Saturday morning while reading the weekend newspapers, Philippa and Steve could not believe how much house prices had risen. Just that week they had received a mass-produced letter from a local real estate agency offering selected customers a privileged opportunity to let the agency arrange the acquisition of an investment property for them. The property would be brand new indeed, part of a development for which the estate agency had exclusive marketing rights. The agent would organise everything, from choosing the property to lining up the finance and a little tax advice. This time Philippa and Steve did get moving. They met with the agent and were shown around the development site. It looked great to thembut some of their friends sounded a note of caution: it was a cosy deal this agency was packaging and flogging. People were suspicious about the real value of the property. This warning upset Philippa and Steves momentum. Eventually the agent gave up chasing them and pursued more pliable and willing
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customers. And the opportunity slipped away. Now, five years after they first realised they were ready to invest, they still just have their home and super. On Saturday mornings, when they look at the newspaper, they shake their heads at the prices people are paying for property. Prices have doubled in their suburb and, with regret, they find they cannot now afford to buy an investment locally.
While it might well be true that Philippa and Steve should not have fallen into the clutches of their slick estate agent and his property-developer mates, it is unfortunate that it took so little to throw them completely off track. Where do you draw the line between procrastination and acting with thorough preparation? Procrastination is a money killer. How do you deal with it? Here are four tips: 1. Look at your relationship with your partner: give the investing job to the one most likely to do both the research and the work. 2. For heavens sake, pick up the phone and dial! I have seen several relationships where there is a strict demarcation of roles centred on the telephone. Is there a threshold which you have refused to cross in the past? Or your partner? Identify these blockages and work on them. 3. If neither of you is good at making appointments and getting things moving, ask a motivated friend or family member to help line things up for you. Go to their loans manager, go to their estate agent, their stockbroker. If your friend has had a
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good experience with an expert, you could do a lot worse than follow the trail they have blazed. 4. There is nothing to be ashamed of in being financially ignorant! You can ask a single expertestate agent, stockbroker, financial plannerto arrange everything for you, including finding the right assets to buy and the finance to fund their acquisition. Indeed, even with property there are special buyers agents who, for a fee, will actively scour the market to find a property that meets your criteria. But, if you rely on a single arranger there are some precautions you must be prepared to take into account (see Falling into the hands of experts below).
Money killer 3: self-reliance

In our parents day, you looked after your financial future by purchasing a home, some shares and perhaps a fibro holiday cottage along the coast. There were no managed funds, the bank offered little assistance and, unless you were a public servant or a top executive, if you had a superannuation fund its managers were just as likely to rip you off with tiny interest rates and dodgy escape clauses than provide genuinely for your retirement. Motivated people also poured money into certain endowment plans and whole of life insurance policies which provided life insurance with an investment componentwhere the first two or three years premiums went straight back into the pocket of the agent who initially sold the policy. People had to be self-reliant in those days. There were few financial options and the investment planning industry was in
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its infancy. The long-term legacy of those days is now seen in the number of people who rely on financial assistance in retirement. Today, more than 80 per cent of those aged 65 and over receive an age or service pension. Of these, two-thirds have so little income and assets that they are eligible for the full pension. In this group, a typical couple has an average value of accumulated assets of roughly $50,000 and their income independent of government assistance is less than $4000 per year. These pensions are a fantastic safety net in our society, but it is hardly the reward we look forward to after a lifetime of work and paying taxes. The complexity of tax laws and retirement regulations demands a high level of expertise and experience if we are to navigate their waters. Indeed, it can be highly counterproductive to go off and acquire assetsor debts by way of a loan or mortgagewithout seeking independent financial advice. Grab your partner and see a financial planner or advisor soon. Then, before acting on their advice or instructing them to undertake work on your behalf, see at least one other advisor and get a second opinion. It is a very patchy industry still struggling to set achievable standards and burdened with commission-based remuneration, so dont be disillusioned if you have to wade through some duds before finding the right planner for you.
Money killer 4: falling into the hands of experts

We get into trouble when we try to do everything ourselves, and we get into trouble when we are too trusting of the experts.
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How can we ever win? The way out of this bind is to recognise that we can learn from the mistakes of others. The list of what can go wrong when we use experts to advise us on matters financial is not endlessthe traps are common and rely for their success on our laziness or our natural tendency to avoid asking potentially embarrassing questions. Following is a list of things to be aware of when relying on others.
Expert checklist: ten rip-offs and how to spot them

1. This is a special deal for today only. There is never a rush to invest. If you are buying your one-of-a-kind dream home you might have a genuine case for giving in to this age-old sales technique, but not when you are undertaking an investment; trouble can begin when you confuse the two. 2. If someone offers to fly you free to inspect an investment opportunity in an unfamiliar place, be warned that you are about to be ripped off. High marketing costs must be paid for somehowsometimes by charging outsiders a different price to what the locals are prepared to pay. And a free flight or free seminar is the way many unhappy adventures begin. Investors are taken into situations where they are wholly reliant on their entrepreneur guide. 3. If the plan involves lots of other ordinary people sending you money . . . they wont. Pyramid schemes and chain letters are doomed to failure by the laws of mathematicsand they are often illegal. 4. Never simply send money overseas in response to a financial advertisement. This is a variant of the first point in this check-
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list. If you want to invest in overseas markets there are many ways of doing this through Australian-based experts and managed funds. 5. Unlicensed and inexperienced financial advisers exist. Check for qualifications, licensing and whether the individual or business is under investigation. (See Resources, Reading and Contracts at the end of this book for phone numbers and website addresses of government regulators, self-regulating industry bodies and consumer assistance.) Before you commit your money, make that call or check on the Internet. 6. Get a statement of full fees and charges in writing before you investthey are not always transparent and can add up spectacularly over time. In particular: Ask that these be put into dollar terms if they are expressed as percentages. Ask about ongoing or trail commissions which continue through the life of the investment. Ask about any sales incentives for recommending these products/services. For example, the sales agent might be receiving what are known as soft dollar benefits from financial institutions in the form of free or subsidised holidays, travel, tickets to shows, conference fees or business assistance. As you know yourself, sales incentives can colour the recommendations just as easily as cash and salary. Elements within the mortgage broking and financial planning industries have been under investigation for these sorts of rip-offs. Indeed, so prevalent have been the bad practices of some financial agents and intermediaries who, for
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personal advantage, advise their clients to exit from their current mortgage or investments and acquire new ones, that a special word has been coined for this: churning. 7. Check for any relationship between the advisor (and their business) with any financial products or services they recommend to you. Conflicts of interest can lead to selfserving advice and recommendations. For example, the free financial planner operating within your bank might be recommending you invest in managed funds operated by a bank subsidiary. While this is not necessarily a bad thing in itself, it is wise to seek an independent opinion before acting on apparently self-serving advice. 8. Check if there are any financial products or financial institutions which your advisor does not offer or recommend. Behind-the-scenes deals and tight contractual arrangements will limit your options. 9. If the investment is not real estate, not traded actively on the Stock Exchange, or not sold through a well-known financial institution, find out full details on how you can sell the product in future or otherwise get your money out. How do you do it? What is the time frame? Is any of this guaranteed? 10. If the most pronounced sales feature of the financial product is its tax benefit, back away. Its vital to remember that tax deductions and benefits can be the sweetener for an investment but not its fundamental justification. Good investments will move, over time if not initially, into the black. It is not an investment if it stays in the red making a loss long-term.
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9 financial services and understanding how your expert advisors make

their money out of helping you.
Save your money
By being forewarned about the current traps in
9 thrill of planning and executing an investment planeven when you

know you could do it better yourself!
Save your relationship Let your partner discover for themselves the
4
Get ahead fasterby increasing your income
Get ahead faster by increasing your income
ncome and growththeyre the two things we want from investment. Income is money in our hands; growth is all about keeping the value of our financial assets rising ahead of the devaluing effect of inflation. This chapter focuses on investing to produce income (the next chapter will deal with growth in more detail). At certain stages in life we need to find the motivation to increase our incomeit is not always enough to rely on our home increasing in value or to wait for our ship to come in. Sometimes we should be targeting an increase in income as well. Income, in investment terms, is a slippery customer with multiple personalities. We need investments which produce income for a number of reasons: to pay the weekly bills and living expenses; to pay for major purchases such as a car or travel; to cover ourselves and loved ones against emergencies
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and accidents; to save rapidly for major investments such as buying a home or putting together a well-balanced share portfolio; to provide all of these in retirement, too. You might get through the first two points relying on salary aloneand thats where many of us lose steam. But it takes investment planning and motivation to get you comfortably through the rest. Can you imagine yourself living out your dreams? You might reach the point where you have the assets theoretically capable of delivering this lifestyle, but even then you will need ongoing income. What will you do to ensure you have the right kinds of assets to deliver not just long-term capital gain but actual regular amounts of cash-in-hand?
Part of the way through a university degree course, Lena deferred and returned to full-time work, as well as starting a part-time job on the weekends. She and her husband had decided it was time to make their moneyit could no longer wait. They needed to increase their income substantially. My parents are my inspiration, says Lena, particularly when I see them struggle with business and getting through life. My father was raised in Africa. His parents were very wealthy and their children went to the best private schools and were driven around by chauffeurs. Then the civil war broke out. My grandparents had to get out of the country and left it all behind. They lost everything. They migrated back to their homeland in Europe where they tried to re-establish themselves. My father began a new business but it went under. Things were not going smoothly. Finally, my parents migrated to Australia where they are still struggling to this day. I dont want to be in their position all my life.
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Its Never Too Late
Is Lenas wish for financial security motivated only by the difficulties her parents have faced? No. Those two just keep on going despite their strugglesthats as inspiring as anything. Regardless of what hits them, they keep fighting on . . . they dont want to let us down. That spirit keeps me working hard, too. It does get scary at times, says Lena about her efforts to keep ahead financially, but I look at the battle my parents face and I so dont want to be there.
There are no secrets about the strategies that lead to increased income. You can get a new job, work longer hours at your current job, gain further qualifications, cut expenses, move in with a partner, friends or family, start a business, find more tax deductions. The thing about investing for income is that it is none of these. It is a plan or set of strategies which runs parallel to the earning capacity from the sweat off your back. This is a trap many of us fall intofocusing our entire investment strategy on producing capital gain or growth, perhaps aiming to purchase one property after another or throwing our lot in with the stock market. But this leaves us vulnerable for various reasons: We can become overstretched on debt. We may have to sell assets if interest rates riseand then were back to square one. We have probably hobbled our lifestyle along the waythere is little cash available to enjoy life or to make the most of opportunities such as that trip with friends to the vineyards of France or to join your mates in a franchise.
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We cant seem to save moneyour financial strategy becomes consumed with the need to service debt. One of the ways you can improve your lifestyle is to invest in financial products that are primarily concerned with generating income (although they might also result in some capital gain). You might rush around investing in a host of financial products shares, managed funds, property, bank depositsso it seems like you are surging ahead; but maybe youre simply spinning a whirlpool which will suck cash out of your life. All this in the hope of future gain. Within each common asset category you can choose to go after either income or growth, or a mix of the two. If youre after incomewanting to develop a parallel income streamthere are six areas you should investigate: short-term saving fast; income taxare you paying too much? for medium-term saving; restructuring your loans; finding shares that focus on producing income; looking to your tax deductions.
Short-term saving fast

Rapidly increasing in popularity are high-yield savings accounts run onlinethat is, they are accessible primarily over the Internet rather than across the counter. Table 4.1 shows where these accounts fit into the scheme of other key deposit products.
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Its Never Too Late
Table 4.1 Getting high interest on your savings: the choices

Interest paid on your savings (p.a.) Savings productwith $10,000 to invest Bank transaction accounts Bank high performance savings accounts Internet savings accounts Cash management accounts Term deposits Debentures Unsecured notes
Rates at 25 May 2005
6 months (%)
1 year (%)
3 years (%)
5 years (%)
0.000.01 3.514.01 3.506.00 2.005.25 4.205.80 5.247.25 6.758.25
0.000.01 3.514.01 3.506.00 2.005.25 4.905.85 5.508.75 8.009.60
0.000.01 3.514.01 3.506.00 2.005.25 5.005.70 6.459.40 8.509.90
0.000.01 3.514.01 3.506.00 2.005.25 4.755.60 5.609.90 8.7510.40
Online accounts save on overheads by having no public branches and little person-to-person communication. In most cases this means you need an outside account (with a bank or credit union, for example) through which you make deposits into or withdrawals from your online account. That used to be the only way but now some are available as transaction accounts in their own right, with ATM, EFTPOS and even branch access. The demarcation line is blurring. These accounts generally have no minimum account balance and no fees, but watch that the high interest rate is paid on the whole of your depositsome products have stepped rates, falling as your deposit slips below specified bands. Companies offering high-yield internet accounts include AMP Banking, Bankwest Direct, Citibank, Dragondirect, Easy Street, Esanda, HSBC, ING Direct, Suncorp and Westpac. Cash management accounts used to be the smart investment
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choice for cash but have been overtaken, to a degree, by Internet accounts. Yet they still provide good returns on your cash and, for some, offer a sense of greater security through their longer history and connections with respected financial institutions. There are two main problems, however, with cash management accounts. First, it can take up to 24 hours for your funds to be released and you might have to complete some paperwork. Companies offering cash management accounts include ANZ V2 Plus , NAB Accelerator , NSW Teachers Credit Union Redifund Plus, HSBC Power Vantage. Whichever way you look at it, the rates offered by e-accounts and cash management accounts are much more compelling than the zero to 0.01 per cent per annum being offered by the banks on your modest savings. Even if you are wedded to your bank or credit union, make an appointment and ask what they can do for you. They dont always publicise appropriately their higher-interest optionsis it because they like using your money and paying you zero interest for it?
Income taxare you paying too much?

All income is taxedso why bother chasing more income if only to lose much of it in tax? Well, there are a number of taxeffective products for those wanting to boost their income. Consider these three options: dividend imputation and franking credits on shares; managed funds which aim for high income; tax-effective, income-producing funds.
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Dividend imputation and franking credits on shares

If you want to invest in shares or in managed funds that invest in shares, but you need as much income as you can find to help pay for the investment, consider targeting imputation funds and shares which pay franked dividends. A franked dividend means the corporation has paid tax on its income, and a tax credit (imputation credit) passes to shareholders who receive the dividends.
Table 4.2 How dividend imputation and franking work
Your marginal income tax rate* nil Tax payable by shareholder on $100 of company income before allowing imputation credit Minus the imputation credit (i.e. tax already paid by company) Tax payable by shareholder Tax refund to shareholder
* excluding the Medicare Levy
17%
30%
42%
47%
$0
$17
$30
$42
$47
$30 $0 $30
$30 $0 $13
$30 $0 $0
$30 $12 $0
$30 $17 $0
As a guide, here are some company names you probably know and the franked dividend they were returning, expressed as a percentage of the price at which their shares were being traded on 19 April 2005: Angus and Coote 4.80% ANZ 4.87% Commonwealth Bank 5.31% Cochlear 2.49% Coles Myer 3.49% Pacific Brands 4.62% Qantas 5.71% Rural Press 5.00% Smorgon 6.37% Spotless 4.64%
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Goldlink 9.13% Jetset 4.29% OneSteel 5.49%
St George 5.11% Telstra 5.38% Ten Network 6.27%
There are well over 100 imputation managed funds on the Australian market. Table 4.3 shows a sample of those that performed well over the year to 12 August 2005. Note the striking one-year performances across the boardthen compare the five-year performances.
Table 4.3 Examples of imputation funds
Fund Advance Imputation Fund ING OA Investment Portfolio Blue Chip Imputation Aust Unity Leaders Imputation Trust AXA Equity Imputation Fund BT Imputation Fund Colonial First State Managed Investment Imputation Fund Challenger FM Imputation Fund Macquarie Leaders Imputation Trust
Source: Morningstar
1-year total (%) 21.20 28.81 26.59 33.12 31.39 30.13 26.64 30.08
5-year total (%) 10.58 10.24 9.35 7.73 13.54 9.18 8.72 9.18
These figures change, of course, and sometimes a company will stop paying fully franked dividends, so stockbroker advice is essential if you choose to pursue a strategy based on dividend franking.
Managed funds which aim for high income

There are thousands of managed funds out there, some targeting capital growth, some looking to maximise income, and some
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offering a mix of both aims. Importantly, if you want income ahead of capital gain, ensure you find the right fund. As a general rule, income-oriented funds are found under these names: Mortgage fundsgenerating income from lending money for mortgages. Listed property fundswith an emphasis on rent income from property holdings. Share fundsimputation funds using tax advantages from certain dividends. Bond fundsinvesting in government and semi-government securities. Conservative or capital stable fundsthese terms indicate a fund plan that invests in fixed-interest securities to provide a stable income ahead of capital gain. Ask your financial planner for information and recommendations that will increase your income and cashflow.
Tax-effective income-producing funds

Theres more than just imputation as a means to tax-effective income. There are funds using a range of strategies and products to boost income in tax-effective ways. A fund may take an approach as simple as its fund manager targeting specific properties or other managed funds with properties highly suited to maximising tax deductions and depreciation. So the fund might invest in, for example, the whole mix of shares, property, fixed interest and cashprovided there is a bias in the selection to income-producing and tax-effective assets. Some examples
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of funds that move beyond dividend imputation in their pursuit of income for investors include ING OneAnswer Investment Portfolio Tax-Effective Income, and BT Tax Effective Income Fund. Ask your stockbroker or financial planner about the use of these types of products in your own precise circumstances.
Medium-term saving
When youre just looking for a good place to keep your cash ticking over, term deposits from the bank offer a modest return with a good level of security. However, when you need to get more and youre prepared to take extra risk, you might consider putting part of your savings into a debenture or unsecured note. Both are loan products, meaning you, the investor, are lending your money to a company that wants it. The company might then use your money to expand its business or perhaps just to keep things in normal operation during tough times. In any event, you should get hold of the public offer document and see what the money is going to be used for, before you invest. In particular you should try to get some understanding of whom you are dealing with and what your risk amounts to. Table 4.4 shows the different rates for debentures and unsecured notes issued by the same company, Bridgecorp Finance, in May 2005. Note how the interest rate changes quite dramatically depending on the length of the term and whether the product is debentures or unsecured notes. Interest can be paid annually (for the highest rate) or as often as monthly depending on your requirements.
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Table 4.4 Rates on debentures versus unsecured notes

Product Debentures Unsecured notes
Rates at 26 May 2005
3 months 6.00% 7.00%
6 months 6.50% 7.50%
9 months 7.25% 8.25%
1 year 8.60% 9.60%
2 years 9.00% 10.00%
3 years 8.50% 9.50%
A one per cent margin clearly indicates the higher risk associated with an investment in unsecured notes.
Restructuring your loans

Do you want to expand your investments but seem to spend all your salary each week? One of the places we easily overlook is our existing loans. If you have a home loan, do your repayments include interest and principal or interest only? Ask yourself the same question for any investment loans. A tactic worth considering is to stop repaying principal and just pay the interest on the loans. This can have a worthwhile impact on your cashflow position. When the term of the loan expires you will still owe the same amount of principal as when you startedyou must pay it back to the lender or negotiate an extension/new loan. Before proceeding there are three underlying assumptions here. First, your particular loan contract must be capable of being renegotiated to drop the principal repayments. Second, your assets must be of good quality with an ongoing history of capital growth. Third, you must look at any slow down in repayment of principal in the context of your broader life plan or retirement plan to be debt free by a particular date.
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The figures in Table 4.5 represent potential returns to cashflow based on a mortgage with a 25-year term. The figures in the last two columns are only a guideactual numbers will depend on the details of your particular loan.
Table 4.5 Turning loans into interest-only
Loan principal Interest rate (variable, p.a.) 7.00% 7.50% 7.00% 7.50% 7.00% 7.50% 7.00% 7.50% Current annual repayment, principal and interest $8484 $8874 $16,968 $17,748 $25,452 $26,622 $42,420 $44,370 Potential annual repayment, interest only $7000 $7500 $14,000 $15,000 $21,000 $22,500 $35,000 $37,500 Money returned to cashflow p.a. $1484 $1374 $2968 $2748 $4452 $4122 $7420 $6870
$100,000 $200,000 $300,000 $500,000
Lets look at an example of a $200,000 principal-and-interest mortgage at 7 per cent per annum. The saving by converting to interest-only repayments will be around $2968 over the course of one year. This will finance further borrowings, at the same interest rate, of just over $40,000, again on an interest-only basis. Thats $40,000 you could put to work through investment or to shore up your position in hard times (provided, of course, you meet the lenders criteria). And there are more savings to be had when you take a component of your loan repayments which is not tax deductibleprincipaland use this money to repay interest on an investment loan. These savings wont actually come into your hands until you get your income tax assessment, so while they may be waiting down the track its best not to
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rush into a new loan position where you cant afford the repayments until the tax benefit flows through. Different deals will, at times, mean there will be either a lower or a higher interest rate if moving to a fixed-rate, interestonly loan. The loan term might be as little as one year or up to ten, with the ensuing problem of very high penalties (early exit fees) should you decide to end the fixed loan before the expiry date. If you want to avoid that situation you might prefer to shift to a line-of-credit loan (i.e. a mortgage that you run like an overdraft, making deposits and redrawing at will) on an interest-only basis.
Finding shares that focus on producing income

Telstra is a good example of a share which has been bad for capital growth but that remains a neat little earner in income terms. In late 2004, with its shares trading at $4.66 each, the company was paying a dividend of thirteen cents per share twice yearly, equal to a yield of roughly 6 per cent on your capital (with franking credits too). Thats not a bad return in simple cash terms but theres more: six months later the share price burst through the five-dollar barrier. Investors were getting a good cash return when the share price had fallen . . . and, if they had held on, were in a position to realise a capital improvement (before the price plunged once more). Note again how important it is to consider your goal: income or growth. Many investors panicked and sold their Telstra shares when the price fell, ignoring the useful role the income could
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play in their overall investment position. And then they missed out on the capital gain, too. Thats like being hit over the head twice. Telstra shares continue that rollercoaster ride, which is not necessarily a bad thing if you can handle the stress. So where do you go to find income-focused shares? In general, investigate the following: businesses which operate in an established market for their goods or services; banks; telecommunications companies; utilities; infrastructure (e.g. tollways). Those categories less likely to focus on producing income for investors include businesses that rely on a discovery or development; the mining and oil industries; high technology, including computers, Internet and software companies; companies involved in cutting-edge science.
Looking to your tax deductions

When was the last time you sought expert advice on tax deductions? We can go to the same accountant or tax agent year after year, simply relying on them to come up with the deductions. Your best bet is to turn this into a dialoguedescribe your job and your investments and discuss possible opportunities for tax savings. Table 4.6 shows a number of tax deductions related to investment assets. The message is this: you can increase your income without having to work longer hours. The way to do this is to plan your investments so that they deliver the higher income you need. This chapter has highlighted six ways of focusing on income ahead of capital growth; theres much you can do to boost your cash incomeeven if just in the short-termrather than relying on what your own exertion can achieve.
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Table 4.6 Are you getting your tax deductions?

Technique Interest paid on a loan for the purpose of acquiring an income-producing asset. Capital works deduction on residential investment propertyfor extensions, alterations, new construction or structural improvements. Depreciation of furniture and fittings in an investment or business property. Tax deduction 100% 2.5% p.a. if built on or after 16/9/1987. 4% p.a. if built between 18/7/1985 and 15/9/1987.
Ongoing fees charged by your lender. Ongoing fees charged by managing agent for your investment property. Repairs and maintenance of investment property. Insurance for business or investment purposes. Professional fees for tax advice. Carif used for business-related or investment-related travel.
Depends on the effective life of the object: e.g. from 7% p.a. over 30 years to 40% p.a. over four years (prime cost calculation method); rates are higher with the diminishing value method. 100% 100% 100% 100% 100% Varies according to proportion of business/investment versus private use. Depreciation rates depend on the effective life of the object: e.g. from 3% p.a. over 40 years to 33% p.a. over four years (prime cost calculation method); rates are higher with the diminishing value method. 100%
Regular expenses related to the running of your asset: e.g. council and water rates, unit levies, electricity, gas for an investment property rented out. Home office expenses. Capital gains tax (If you can delay selling or disposing of an asset earlier than 12 months after acquiring it, you should be eligible for a concession on the capital gains tax otherwise payable.) Buying private health insurance. Spending more than $1500 (after any refunds) on family medical expenses in one financial year.
A proportion of various bills: electricity, insurance, phone etc. 50% discount on your tax rate.
30%40% rebate/offset from government. Rebate equal to 20% of medical expenses above the $1500 threshold.
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9 do I want primarily income or growth from this investment (or some

of both)?
Save your money Before putting your money anywhere, ask yourself:
9 over-concerned with chasing capital gain at all costs, relying on increasing

their loans so as to acquire assets with long-term growth potential. This strategy, take the pressure off a little. Let the growth come more softly.
Save your relationship At this point in time Australians are arguably
though successful in the past, can be very stressful on your relationship and lifestyle. Consider ways to lift income as part of your investment planand
5
Get ahead fasterwith capital gain
Get ahead faster with capital gain
he last chapter covered increasing incomethis chapter looks at increasing wealth through capital gain. But can you plan for this? The beauty of chasing capital growth in Australias financial system is that even if you failand the asset shoots backwards in valuethere are strategies through which you can delve into the taxation rules to pull major deductions and concessions out of the hat, to take some of the heat off your predicament. But you have to know how and when to call these strategies into play. The second part of this chapter looks at a number of these opportunities. First, however, take a moment to contemplate this question: are your assets maximising your exposure to capital growth? In other words, have you bought the wrong things? If you own a home, for example, does it break the well-founded rules of
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capital growth? Try the exercise below to help you answer these questions. Rate your suburb on a scale of one to ten (with one being highly undesirable and ten being highly desirable). Dont try to do this as an expert, just make a quick and rough assessment based on your knowledge of where you live, where your friends live and what you know about your own city or town. Rate your little corner of the suburb in the same way. Think about the assets of your location: good shops; wide streets with trees; good parking for all; nearby parks/beaches/ recreation; an absence of factories and unsightly commercial strips; excellent public transport; low crime rate; absence of backpacker hostels, rowdy pubs or other colourful nightlife. Score your area out of ten. Be honest: are people flocking to buy a home and live there? Now rate your home within its street. Give yourself a ten if you have the worst home in the best street, or a one if you have the best home in the worst street. You could go further but this will do. Look at the numbers youve given your homewhats your score out of 30? Are you on a winner or is your major capital gains asset destined to underperform in the context of your city/town, even by your own evaluation? Should you do something about this? In many industries there is an unwritten rule that goes like this: you have to leave your job in order to get a decent pay rise. You might have come up against this one yourself. The person who loves their job and stays where they are year after year is destined to be paid less than if they resigned, worked
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elsewhere at a higher level, then returned to their former employer. In fields such as the media and parts of the public service you are expected, and sometimes encouraged, to chop and change jobs if you are to reach a high-paying position. Part of this means you will bring wider experience to the job but I strongly suspect that part of your pay rise comes from simply moving. When it comes to property, many people apply the same rule. Every few years they pack up, sell their home and move to a better property. Yes, it costs money in stamp duty, agents commission and legal fees, but these owners are targeting capital growth by maximising the base on which it accumulates. Of course, this strategy can be highly disruptive to family life and is certainly not for everyone. But at some stage of your lifeperhaps at a key moment like when you have your first child, when the nest empties, when you change jobs or retire you are presented with the opportunity to make a move in pursuit of long-term capital growth. Weigh up the costs. Contact an estate agent, ask about commission on sale and stamp duty on a new purchase. Is now the right time to improve your assets? What about your other assets? Shares, managed funds, investment property . . . have you put your money into assets which target income or growth? If you arent sure, and you feel your assets may have gone feral or lazy, get expert advice and ensure your money is working to your plan. Keep in mind the fact that income lets you pay the bills as they arise and lets you save . . . slowly. Its like a drip-feed. Capital gain, however, provides the opportunity for a substantial sum of cash all in one place at one time. This is what you need if you are looking to put a deposit on a home, go on an extended
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vacation, buy some beautiful things or acquire your own business. Whatever your dream may be, there are times when only a leap in the capital value of an asset will put the necessary lump sum of cash into your pocket. You will have to sell the asset to liberate the cash or, in the case of shares, managed funds or property, you might be able to borrow against the security of the asset. And so, as you set yourself up to pursue your dreams with vigour, you establish capital-growth assets as well as incomeproducing assets.
Savings gearing program

Once you set your mind to becoming more active in pursuing capital growth assets you will need to get a savings regime established. This will help ensure your wages dont just slip out of your hands (and accounts), providing both the pool and the management tool for executing your investment plans. When you start a savings program you should determine your attitude to borrowing money. Borrowed money provides leverage, meaning that any trend to capital gain (or loss) is magnified. If you have borrowed to buy a home or have used a personal loan to purchase a car, you should be familiar with managing debt and seeing it paid off. If you decide to go ahead with an investment planperhaps because youve read that shares are boomingyou might choose to borrow a large lump sum to add to your savings just as you did when you got your home loan. But there are different products available these days and they might suit you better
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than going into hock in a big wayparticularly if you are nearing retirement, or are raising a family and are caught up in this cash-expensive and draining period of life. Below is an example showing how a savings gearing program works.
Savings gearing programthe nuts and bolts

You have $10,000 which youd like to invest in capital growth assets. You use this as a deposit to kick-off a savings gearing program where your bank or other lender will match your contributions on a dollar-for-dollar basis. There are three ways of doing this.
1. Fifty-fifty
You and your lender provide $10,000 each to start the process. This $20,000 is used to purchase units in one or more managed funds. Each month you invest what you have established you can afford . . . $1000, for example. Your lender matches this with $1000 per month, so you will invest a total of $2000 each month less that months interest on the loan (around $6$7 per month per $1000 borrowed at current interest rates). This, too, is used to purchase units in the funds, and so the pattern continues. You could add the interest amount on top of your monthly contribution of $1000, or let the lender deduct it from their contribution. At the end of 12 months you will have invested approximately $44,000, of which $22,000 is your money and $22,000 is borrowed. Its a fifty-
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fifty arrangement which, generally, is considered a relatively conservative debt-to-equity position.
2. Low-debt start
A more conservative approach is to start with your $10,000 but not match this with any borrowings. Then, each month, you put in $1000 and borrow $1000, so your total monthly deposit is $2000. At the end of 12 months you will have invested approximately $34,000, of which $22,000 is your money and $12,000 is borrowed. At that point it is a 65:35 arrangement. As the years go by the ratio edges closer to 50:50 but, hopefully, your increased savings (and any capital gain) will soften the risk of a high-debt ratio somewhat.
3. High leverage
Of course, once you get the hang of it, and if your investments are performing well, you could negotiate with your lender to increase its contribution: say, adding $1500 for every $1000 you invest. Still, its best to start modestly and see how things go. You can always ramp up the debt ratio once you are comfortable with the process and have grown your capital.
You could fund a savings gearing program with a new loan but it might be preferable to use your existing mortgage if you have paid in advance of the minimum requirement and are able to make a redraw. While this has convenience on its side you must be careful to partition any private expenditure (e.g. your
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home loan) from tax-deductible investment expenditure or you risk messing up your tax concessions. Your bank or other financial institution should be able to set up the loan in an effective way for you.
Managing capital gains and losses

The wealth of a vast number of Australian families and businesses is built on property and the operation of capital gain. Some also find their feet with the stock market or managed funds, but for many comfortably-off Australians it comes down to escalating real estate prices. If youve got your own home youll know all about it. Perhaps you think you could have done more in the last property booma lost opportunity? Yet the great thing about the local property market is that you can throw away your regrets and launch into it at almost any time. In Tokyo people dont run to catch the train: there is another one coming every few minutes. They walk to the station calmly, find a spot in the crowd, step onto the next train and theyre off. Our residential property market is something like that. While it is fair to say that we have recently been experiencing unreal times, with almost 14 years of capital gain, you only have to look at your parents generation or even your grandparents generation to see how much of their wealth (if they have it) came through property. It is not a recent phenomenon. If you do your research and amass your deposit you will find a bargain at almost any time or stage of the economic cycle. So, no regrets please for what youve missed.
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A realistic pay-off
Gary had plenty of equity in his home, having worked hard to decrease his mortgage over the eight years since he purchased the place. Rising values had delivered a substantial capital increase which he was ready to now use as a deposit on the purchase of an investment property. He was fussy about where he would investonly the eastern suburbs of Sydney would do. After all, it was the only area with which he was familiar. Its not always where the prices move fastest, said Gary, but the gain is reliable. It is not an area which moves in and out of fashion. Ill be satisfied with steady capital gain I can rely on. Doing his numbers, Gary figured he could just, maybe, afford a plain two-bedroom home unit. He looked at the classified in the newspaper and knew, with luck, that he could do this. However, other events intervened: at work, in his private life, activities with his children, a little travel . . . and he missed his opportunity. Nine months later, when Gary opened the Saturday newspaper, he saw that prices had risen and his two-bedroom purchase could now only be a one-bedroom unit. Thats okay, he thought. Tenants like one-bedroom units near the university and the beach. But life continued to distract him. Finally, six or more months later, price rises had pushed Gary out of the one-bedroom market in his preferred location. While walking near the park one afternoon he bumped into what could only be a real estate agent standing out on the footpath. Gary looked up and saw the for sale sign for a studio apartment in a great location. The agent was waiting to show the property to a potential purchaser who had not turned up. On the spur of the moment, Gary asked to see the unit. He liked it and agreed to buy it. I had never considered buying an older-style
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studio apartment but, when I investigated the property I was amazed at what I found. There was a long history of strong capital gain going back before the current boom. The overheads were low and the rent as a proportion of the pricewas particularly high for this part of Sydney at around 6 per cent gross. Its unfortunate I didnt act earlier and get a two-bedroom unit, Gary reflected, because they are now way out of my league. But in some ways I might be doing better with the old studioits location is actually much more desirable than any crappy two-bedder I could have afforded anyway. I also had some money left overmy personal debt level was almost comfortable despite a high debt-to-valuation ratio on this investment. And my studio has remained tenanted throughout the whole period of high vacancy rates which plagued the early part of this decade. I believe that a poorly located two-bedroom unit would have been harder to rent over the critical period at the start of my investment when I was really relying hard on that steady cash flow.
Gary could have looked elsewhere other than the pricey eastern suburbs of Sydney for his two-bedroom investment, but he has no regrets. His vision was for an investment in the area he knew well, and this meant he had to lower his sights and take the studio.
Making the most of capital gain

There are many statistics on the growth of property prices in Australia and they are all different. What emerges from the confusion, however, is that the long-term trend is steadily
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upwards and well above the negative pull of inflation. Prices doubled nationally over the six years to the end of 2003. While some suburbs have seen house prices rise by 20 to 30 per cent in a single year recently, the long-term average across the nation is under 10 per cent. And thats fine. By 2004 the property boom was waning and prices in many areas were falling. Some investors saw this as the end of the worldbut they were losing a mere 20 per cent of so of the huge rises they had enjoyed on the way up. A marketplace correction was underway. Other investors saw the fresh opportunities made available by a falling market. A few years ago, Warren Buffett, one of the richest and most influential share investors in the United States, announced he saw no stock worth buying. He was sitting on his hands (and his money). He wasnt going to waste his savings on overpriced shares; he would not be pushed into hasty action by the frenzied boomtime investment going on around him. And, in due course when opportunities appropriate for his needs and plans emerged, he was cashed-up and ready to go. Heres an interesting thing. What were well-to-do Australians (broadly speaking, those who had already purchased their home) doing at the time the recent property boom ended and investment bargains were falling out of the sky? Were they cashed-up and ready to pounce? No. According to Australian Bureau of Statistics research we were splurgingrewarding ourselves for our skill in passively watching our home prices rise. Among the varied reasons for refinancing a home mortgage, almost 10 per cent of survey respondents said they were using the money for renovation and 21 per cent wanted the extra money to pay for a holiday, a car or similar consumption. According to the Reserve
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Bank: Prior to the late 1990s, the usual pattern was for the household sector to inject equity into housing, but since that time, households have borrowed more against their houses than they have spent building and renovating them.10 This signals an important change in the way we do things in this country. And it feels good, after all those years focusing hard on investmentsaving for a home deposit, paying off the mortgage, building up the super, getting sharesto finally spend some money on ourselves. A middle-aged woman expressed underlying feelings well when she recently told me this: My husband begrudges any money we spend on our home. As soon as he makes any money he looks to invest it. But all the time our home is a wreckand Im the one there during the day with the children, living in a broken-down dump! Perhaps for some couples its time to enjoy the fruits of their labours. For many others, however, there is the recognition that more investing needs to be doneand soon. Capital gain is the elevator we need to ride if we are to make this a reality. Following are seven practical steps an investor can take to make the most of capital gain.
1. Keep an asset long enough to gain a concession

Individuals are only charged capital gains tax on half the gain they make from selling an asset, provided they have owned that asset for at least 12 months. Sell early and you will be taxed on 100 per cent of any gain. This applies to shares, property, units in managed funds and most financial assets. If youve made an immediate profit on a share float, for example, seek advice on holding on to the shares for 12 months before selling.
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Trap: Bear in mind that the relevant date for calculating the 12-month period is the contract date not the settlement date, if that is later.
2. Extract profit out of the pain of a loss

Before you sell an asset at a profit, hunt around for any underperforming assets which can be soldwithin the same financial yearto offset that gain. Individuals can use a capital loss to reduce the capital gains tax (CGT) they might otherwise have to pay when they sell another asset at a profit.
Sharon sold an investment property and realised a gain of $30,000 after all deductions. This would be added to her income that year for the assessment of capital gains tax. Sharon also owned 2000 Telstra shares which she had purchased during the second stage of the Telstra sale for $7.60 each. Today those shares are worth only $4.60. If she sold them she would make a loss of approximately $6000. She reckoned she might incur the same loss whether she sold them now or in a year or two. But by selling now, the $6000 capital loss could be offset against the $30,000 capital gain, reducing her overall tax that financial year and rescuing something from her Telstra acquisition. If she sold the Telstra shares in a year when she had realised no capital gain on a sale, the $6000 loss would not reduce her tax. Note that a capital loss cant be offset against your income, only against a capital gain made that financial year.
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Tip: You might be sitting on a useful capital loss without realising it! For CGT you must calculate the cost base of the asset, adding to the purchase price any capital costs improving it, costs in buying and selling it (estate agents commission, conveyancing fees, stamp duty, marketing expenses) and any costs in defending or preserving your ownership of the asset (such as legal proceedings). After deducting all these costs it might turn out that it would be worthwhile getting rid of an underperforming asset in the same year as you are declaring a capital gain on another asset sale.
3. Carry capital losses even further into the future

If you find that your capital losses, having sold or otherwise disposed of assets, exceed your capital gains, you can hold them in reserve for later years, and offset them against capital gains to reduce your overall tax later that year. Some value can still be derived from a really bad run of investments, so dont despair! You dont have to tear up your ticket when your investment falters at the finish line. Keep your records in good shape and ensure your tax agent or accountant doesnt forget these losses.
Jacinta has had enough of her managed funds! After several years of poor or negative returns she began selling out of the units she has owned since the start of 2000. In April 2002 she sold out of one fund, making a net capital loss of $5000. As she had no realised capital gains that financial year she could not claim a tax deduction for the loss. Another fund was eliminated from her portfolio in July 2003. However, this year she also sold some shares and made a net capital
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gain of $6000. She was looking at paying a fair amount of tax on this $6000 net gain in the 0304 year, which would really take the shine off the dealuntil she brought up her old capital loss from April 2002. Jacinta offset her old $5000 capital loss against her current $6000 capital gain, resulting in a nominal gain after losses of only $1000. Now she also gets to enjoy the 50 per cent concession on CGT that applies to individuals, and her net capital gain is $500 to go in her 0304 tax return. Much better.
4. Consider a move
The general rule is: there is no capital gains tax payable on the family home, unless it is used to produce an income. For most families it is a real inconvenience and a distraction from more important aspects of life to buy a home, renovate it, then sell and have to move out and start over. But if you are looking to lift your financial position dramaticallyparticularly later in life when your investment time frame has shrunkthis tactic should be considered and discussed carefully. It should not be the main reason for buying a particular property, however. If you are looking to buy a property as your home and might, at some point, renovate it, it is a good idea to follow the classic guidelines: Buy in a go-ahead area with lots of desirable attributes good transport, schools, parks, beaches, water, university, shopping malls, no factories or major pollution, etc. Buy the worst house in the best street you can afford.
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Renovate and redesign it to lift the entire property up to a higher price bracket. Live in it while you work on itit must be your primary residence. Seek expert advice on the renovationdont rely on your own good taste. Allow, in your calculations, for the changeover costs of selling and buying. For every $20,000 you come out ahead you can borrow $80,000 (provided your income can meet the repayments). This sets you up for an even bigger home purchase later, or for equity support for other leveraged investments. Tip: Seek advice from a tax accountant. If you purchase property for the purpose of fixing it up and selling for profit you could cross the line into a profit-making business and jeopardise the tax concessions on capital gains. In other words, you could pass out of the capital gains sphere and back into income tax. Take precautions as advised.
5. You dont have to tie yourself to your home

Its one thing to know that your home is exempt from capital gains taxarguably the greatest tax-saving opportunity mere mortals have open to them. But its handy to know that there is more to this story. There are many rules surrounding capital gains tax to ensure it fits in with the realities of property ownership and the demands of family and work. One of the most useful wrinkles to this tax is that you dont have to be tied to your home for the entire
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period of ownership. Its a mistake to think you have to live there all the time. You can nominate a particular property as your tax-exempt principal place of residence and still live elsewhere, renting out the place, provided you do not stay away for longer than six years. This exemption is valuable if, for example, you have to move around for your job or you intend travelling for an extended period. Dont let the fear of losing this valuable tax exemption keep you locked away at home! You can keep your home as your tax haven, working for you far away. You can even put in a tenant paying rent over this period without losing the CGT exemption. Whats more, the six-year period of renting out the property need not be continuous but can fall in chunks over the time span you call the place your principal residence. If the property earns no income for you, you can keep it as your principal residence for tax purposes indefinitely, even if you are not living there. You can sell without ever returning to your old home. Or you can return, then leave again, starting a fresh six-year period of exemption while leased and earning income. A person might, indeed, switch their principal place of residence (which carries the exemption) from one property to another. However, only one property at a time will be free of capital gains tax, except for a permissible overlap of up to six months when you acquire a dwelling to become your main residence and have not yet sold the former home. Thinking of building? A second category of CGT exemption covers land or a home purchased with the intention of being built, repaired or renovated to become your principal residence. This CGT exemption will stretch back a maximum of four years
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from the time the dwelling is ready for occupation. And you must move in as soon as practicable after the work is completed or risk losing the exemption. A third exemption covers the situation where you might buy, for example, a duplex with the intention of living in one half and renting out the other half for investment. There will be a proportional exemption for your residence.
6. Dont accidentally lose the CGT exemption on your home

Here are three significant ways in which you can lose the CGT exemption on your home, so be careful: It can be tempting to move your investments into a family company structure, hoping to increase your tax deductions. However, seek expert advice before putting a company name on any asset as you will miss out on the 100 per cent CGT exemption for your principal residence (or the 50 per cent CGT discount rate on the sale of investment assets too). If your home has land over two hectares in size you might also miss out on the residence exemption for all but two hectares. Fortunately, you can choose which two hectares are your home for these purposes. If your home is used for an income-producing purpose any capital gain on sale or disposal of the property will be apportioned both for the period of non-residential use and the size of the area given over to this. Think twice before letting an enthusiastic tax agent claim deductions on your tax return for business or investment expenses incurred at home.
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7. Acquire bonus shares or reinvest dividends?

Its a popular investment strategy to take up offers of bonus shares or to let your dividends from shares or managed funds accumulate rather than take the money as cash. But before making this decision you should think about the capital gains tax situation and whether the rules work to your advantage or make the price less attractive than you first thought. Generally, any shares or units in a managed fund purchased as part of a reinvestment plan are considered as separate assets when it comes to CGT. Time starts from when you acquire the new shares or units. However, some bonus share offers might not be seen as fresh CGT acquisitionsand the tax office pulls them back to the time you bought the original shares on which the bonus share offer is calculated and based. In some cases an offer will be more attractive because, for example, the original shares predate CGT (which applies to assets acquired since 20 September 1985). Consider the gain youve made (if any) since the original acquisition when calculating the benefit of taking up a bonus offer.
Changes in expectations and profitability

Property investment is changing and may well be a somewhat different creature than when you last entered the market as an investor, so be thoughtful about what you take from past experiences. For example, the Reserve Bank had this to say, at the close of 2004 and the end of the recent property boom:
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The number of new dwellings constructed was not unusual compared with previous booms. What is new is that the quality and size of dwellings, both new dwellings and those being renovated, are higher than in the past. That is to say, the community has much higher standards for accommodation than was formerly the case, and is investing additional resources accordingly.
It is not as simple, now, to purchase a rundown property and put in a tenant, then expect the investment more or less to run itself. Quality expectations have risen sharply. Other market changes to note include: lower rental yieldsexpect 23 per cent return on your investment, not the former 5 per cent or more; higher vacancy ratesdifficulty finding and negotiating with savvy tenants; new apartments losing value between construction and completion dates; lending institutions lowering their loan-to-valuation ratios for small apartments in inner-city areas; land tax extending its reach to the small investor. Be informed before you act because these changes are shifting the balance away from the investor. Its been an easy ride, this first decade of the 21st century, for those fortunate enough to own a home and some other assets, even if just superannuation. After a long period of fairly reliable capital gains, we now have to adjust our sensitivities to a less certain future. This means it is now prudent to reflect on the
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assets we have gathered (if we have been so astute or even just lucky enough to have them) and contemplate the period ahead until retirement. Ask yourself: am I in the right home and have I got the best assets that I can afford working for capital growth?
9 prior advice to familiarise yourself with the many tax concessions and
benefits.
Save your money
Dont buy or sell major assets without seeking
9 ally attached to your home, or some other asset, that you could never
sell it just to cash-up for a smarter investment.
Save your relationship Dont simply assume your partner is so emotion-
6
Get ahead fasterby reducing debt
Get ahead faster by reducing debt
he early part of this decade was an enjoyable ride for many, with house prices rising, low unemployment and sustained economic growth. And we dug into our savings or equity and spent like there was no tomorrow. We borrowed money at twice the rate our incomes were growing. Household debt in the 1980s represented around 50 per cent of household disposable incomenow it is 150 per cent.11 Tomorrow has arrived and debt must now be reigned in. There are many basic rules of investing but, in our economy, you cant really go past this one: aim to control as many quality growth assets as you can afford. There are two tricks to this. The first is to choose the right growth assets for the times, and the second is to sort out what level and kind of debt you can afford. These simple rules can take a lifetime to master. If you have been a conservative investor all your life and
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now, sometime in the middle, realise you might have to pick up the pace a bit, you have to know how best to deal with debt. Other peoples money is the key to increasing the range of assets working for you. Youre probably quite familiar with many kinds of debt. If you own a home you will have (or have had) a mortgage; if you own a fairly new car it is likely you will have borrowed to buy it. And credit cards drive and bring together much of our household expenditure. Generally we give these financial products a little thought when we first set them up and then we tend to leave them running with minimal scrutiny. When you make a repayment on a household credit card or loan you are paying the interest out of net moneyfrom salary or earnings after tax. If the interest rate is 7.25 per cent, any additional repayments above the minimum required level will save you that 7.25 per cent (where interest is calculated on the daily loan balance). Its like earning around 14 per cent on your savings where your marginal tax rate is 48.5 per cent (including Medicare Levy). Potential savings on credit card debt can be double this. Its a fantastic, reliable way to target debt and reduce it.
Ten smart ways to reduce debt

We all have our debt disaster stories. Was it the credit card that got away from us? The unexpected illness? Taking out a loan to buy a new car only to have the car stolen or damaged, leaving us financially short? As survivors we can draw strength and resolve, enabling a tough self-assessment of our debt practices. Keep your goals firmly in front of you as you ask yourself: have
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I got the right loans? Have I got the right credit cards? What does it mean to me to be debt-free by retirement? Consider the following ten strategies for managing or reducing debt efficiently.
1. Fortnightly repayments
There is a hefty advantage in moving your mortgage repayments from monthly to fortnightly, making 26 repayments instead of 12 over the course of a year. On a $300,000 variable-rate mortgage at 7.32 per cent per annum this move alone will save you $120,000 and almost seven years over the full 30-year term. Magic? Sadly, no. In the end it is much more mundane: you are simply paying more money each month than you are required to. In fact, paying your loan off fortnightly is similar in effect to paying for thirteen months each year. But by spreading that thirteenth month across all 52 weeks it becomes much more manageable. Some loan products will let you take this a step further, with a weekly repayment schedule. This can put pressure on you if you are not receiving wages at the same weekly interval, so think twice before going this far. In any event, the figures show that a weekly payment does not have anything like the impact of the more fundamental move from monthly to fortnightly.
2. Occasional additional repayments of principal

Taking this idea further, why not adopt a system of making additional repayments of principal whenever possible? Its a productive investment. Tactics for occasional repayments include: putting your tax refund straight onto your mortgage; ditto with any end-of-year or performance bonus;
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dedicating one partners wage to your mortgage while living off the other wage; putting gambling winnings or any other windfall gain (or a set percentage thereof) onto your mortgage; linking your indulgences to your debt reduction program: whenever you want to spend a significant sum of money on yourselfa holiday, new seasons clothes, a car, furniture put a percentage onto the mortgage too. This associates saving with having a good timea fair motivation tool. Jump-start your motivation by taking a look at your life to see if you can link debt reduction with something you enjoy and kick a few dollars into your loans at the same time.
3. Claim the full range of tax deductions for each loan or debt
Your tax agent should take the initiative on finding all your possible tax deductions but many of these people are hard pressed for time and things can fall through the cracks. Expenses associated with private loansthe home mortgage, general credit card transactions, a private car loan, etcare not tax deductible. You have to look at your debts and see if in whole or part the purpose of the loan is to earn income from business or investment. If so, some expenses will be tax deductible each year (annual fees, package fees, government taxes, interest payments) while others will add to the cost base of the asset and help reduce the capital gains tax liability when the asset is sold (stamp duty, renovations, etc). Ensure you are not missing out on your deductionsparticularly those relating to earning investment income!
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4. Debt consolidation
Do you leave an unpaid balance on your credit cards most months? Do you have a store card or 24-month no interest furniture loan? If you have a trail of small debts behind you it is worth considering rolling them into a single loan with a lower interest rate. When personal loan rates are 10 percentage points below many other loan rates, why not save yourself some interest? At first glance this seems a perfect answer to getting out of crippling interest rates but it is not a solution for everyone. Think twice about consolidating debts if you are planning to roll them onto: Your home mortgage. A personal loan to buy a car, for example, has a term of up to five years because this relates to the period over which the vehicle will retain a significant part of its value. You want to have the loan substantially paid off by the end of the term, and repayments are designed to achieve this. But by rolling a car loan onto a 30-year mortgage you are setting yourself up to carry the debt (and pay interest on it) long after the car is dead and you are looking to borrow more money to get the next one. It is a trap! Seven per cent on a car loan of $20,000 can mean paying interest of a staggering $42,000 plus, compounding over the full term of a 30-year home mortgage. An investment property mortgage. Take care not to mix business or investment-related purchases with private purchasesyou could jeopardise valuable tax deductions.
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Your tax agent or accountant can help apportion expenses that might fall into both campssuch as the family car or home computer which is also used occasionally for work. A low-interest credit card which charges zero interest on outstanding credit balances switched from another financial institution. These are not as generous as they sound. Understand that financial institutions are hungry for the business of people who do not pay their credit cards off in full by the monthly due date. A zero interest rate on old debts is not a generous offer by an institution landing a fresh customer who will be paying high interest rates on everything new that they buy on credit. Check the interest rate on new purchases and cash advances and compare with other cards. A brand new mortgage. As noted in chapter 3, the warning has gone out that some mortgage brokers and financial institutions are using the subject of debt consolidation to lure debt-burdened customers into switching from their existing lenders and into a brand new mortgage with a new lender. Be suspicious: intermediaries earn substantial fees from this (albeit paid for by the new lender) and the deal might not be in your best interests. Tip: Why the rush to use a broker? It costs nothing to check with your existing lenders whether they can save you interest and fees by rearranging your various loans. Once you have the best deal from your current lender, speak to a mortgage broker and see if they can beat it.
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5. Offset account
An offset account is a moderately tax-effective way of paying off your loan faster. Unlike the line-of-credit loan, this one establishes a savings account running in partnership with your loan account. If you put money in the offset account it remains accessible while interest on your savings is never paidit is credited against the interest you must pay on the loan, or the balance in the account is deducted from the loan principal. Either way you earn no income on these savings and no income tax is payable. Check carefully: some deals provide 100 per cent offset while others offer only a partial offset. The 100 per cent offset account puts the same interest rate on both your loan and your savings account (around 7 per cent), while a partial offset arrangement only credits you with the difference between the higher loan rate and the lower savings rate (around 3 per cent).
6. Package loans
Although they are not widely advertised or promoted, many lenders offer reduced interest rates to desirable classes of customer such as investors, lawyers, doctors and members of particular associations. A common mortgage rate for these customers will be half a per cent below the standard variable home loan rate. This translates to a great saving over the term of the loan and is a fantastic way of reducing debt commitments. However, there are a number of catches to such arrangements. For example, cash redraws might be limited, pricey or time consuming, and annual package fees can be hundreds of dollars. They are ideal for those who can live with a set-and-forget loan.
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7. No frills loans
Why pay more? If you dont need the features attached to standard loanssuch as easy or low-fee redraw, linked cards and accounts, a cheque facility, low schedule of feesyou can save on your interest rate. And in the long-term its the size of your interest rate that counts. Consider whether any of your existing loans could be moved to a lower-interest deal.
8. Line-of-credit loans
These products are easy to use, and give access to huge amounts of our home equity, that great caution is required or you can soon find you are carrying the weekly shopping on a neverending interest spiral. These loans have no set repayments and, often, no end date. A line-of-credit loanparticularly one where you have your salary paid direct onto the loan thereby lowering the daily balance outstanding, is great for people who are routinely saving more than they spend. Tip: If you struggle to keep the household books in balance each month, these line-of-credit loans are not suitable for you indeed, they can become bad trouble.
9. Use the right credit card

If you are naturally a disciplined person or couple, it can be a smart move to pay most of your bills with a credit card bearing a long interest-free period (up to 55 days in the cycle) and, each month, paying off the balance in full using redraw, an offset account or a line-of-credit mortgage. This keeps the maximum
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amount of your cash and savings working to reduce the outstanding loan balance for the longest time each month remembering that interest is calculated on the loan balance each day. Of course, if your loan applies a high fee for redraw (up to $50 in some cases) or sets a high minimum redraw amount it might be cheaper to change your loan if you want to work the loan and credit cards closely.
10. Convert loans to interest-only

An easily overlooked strategy for gaining some breathing space with your debts is to convert your loans from principal-andinterest to interest-only. This means you stop paying off the principal of the loan and repay just the interest. The result, if properly structured, is that your monthly outgoings on the loan will be at the minimum level. Clearly this will be handy at difficult times, such as during the most expensive years of raising your children, or following a separation or divorce, or at a crucial stage of your business if you are self-employed. You might choose to use this strategy for a short or clearly defined period or as part of a longer-term approach which relies on inflation (to lower the value of your debt over time) and capital gain (to increase your equity). Interest-only finance helps you control the maximum value of assets for the minimum holding costa fine aimbut it is not for everybody. More cautious investors often work better by chipping away slowly and inexorably at their debt principal, aiming to be debt-free by retirement.
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The honeymoon is slipping away

In the 1990s and early 2000s it was common to see banks and other lenders advertising incredibly low interest rates for the first few months or year of the loan. These are called honeymoon rates, presumably because the initial joy does not last. So, for example, you could get into a home mortgage with a starting interest rate of 4.99 per cent per annum which, some six months later, would rise to the standard variable rate of 7.05 per cent per annum. The aim (apart from attracting the attention of prospective customers) was to help people get into a new home at the lowest possible rate so they could borrow to the hilt. The underlying assumption, or hope, was that these borrowers would quickly get on top of their repayments or enjoy some type of natural wage rise which would help them cope. If not, they would simply have to cut into their lifestyle further. Honeymoon loans flourished until comparison interest rates became mandatory. Comparison rates take into account the interest over a number of years as well as establishment fees and annual fees. When you wrap all these figures together you end up with a rate which can be compared across numerous deals as a revealing (though imperfect) guide to the ongoing cost of a loan product. It comes as a surprise, in many cases, to find out that even a generous honeymoon period at a low interest rate counts for little as the years roll by. The most important factor is the longterm interest rate, which can be substantially affected by the
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fee structure. Table 6.1 outlines some comparison rates for a number of products.
Table 6.1 Low-start home loans
Loan Introductory interest rate (p.a.) 6.00% 6.09% 6.54% Interest rate (p.a.) after 12 months 7.32% 7.24% 6.64% increasing incrementally to 7.24% after four years 7.32% Comparison interest rate (p.a.) 7.23% 7.16% 7.30%
ANZ Easy Start Credit Union Australia 1-year Introductory Variable RAMS Easy Start
St George Introductory Fixed Home Loan
6.39%
7.36%
As at 25 May 2005. * The comparison rate is based on a variable-rate home mortgage of $150,000 over a 25-year term with monthly repayments.
What appears low can actually be highwhy doesnt that come as a surprise?
I travel a lot for my work, says Sarah, now that I own a couple of businesses. Most of the travel is over the same route along the east coast but increasingly, as the businesses expand, I head overseas. And all this travel can be really boring. So I read. Sarah spends a lot of time in airport lounges and has developed the habit of hanging around the bookshop. Although she has always drawn inspiration from personal finance self-help books, she is now constantly on the lookout for new titles to accompany each of her lengthy flights.
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Ive probably read them all, from The Richest Man in Babylon to
Rich Dad, Poor Dad, says Sarah. Of course I understand that the tax
situations are very different from one country to another but Im not concerned about that. What I really read the books for is the motivation they provide. I love to see the ways different people meet challenges in their business or investment life and how they overcome them. My circumstances might never be quite the same as theirs yet were all travelling the same road. Now, instead of virtually wasting all that time spent at airports, hotels and in planes I use the time to read and keep my motivation level high. This works for me over the long haul and helps prevent me becoming slack with my money.
9 your debt. Understand that you can have substantial debt and reduce
your overall risk, with expert guidance.
Save your money
Actively select the best strategies for managing
9 on reducing your debt. Its a fantastic form of investment and you will
find further motivation to stick to the plan by asking your banker to print out a graph showing your progress, how much interest you will save and how much time you have cut off the term of your loan.
Save your relationship Find the motivation to keep working together
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W
Get ahead faster by fine-tuning your superannuation
Get ahead fasterby fine-tuning your superannuation
e all know how difficult it is to retire with enough money to live onweve heard the stories of woe and/or we know retirees who are struggling. According to surveys carried out by the Association of Superannuation Funds of Australia (ASFA), in 2001 we thought that an annual retirement income of $20,000 would be just fine, but, a mere three years later, we decided it would take $30,000 p.a. to keep us happythough we probably need $40,000$50,000 as a couple. In 2001, one in three believed their current savings would be adequate to fund their retirement but by 2004 that figure had dropped to one in eight. Apparently only 30 per cent of us now believe we are likely to achieve the income we require in retirement. Something is odd here. There is a crisis of confidenceand this is at a time when superannuation savings have never been greater. Money is literally pouring into superannuation:
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Super assets increased by over 18 per cent in the 12 months to March 2005, reaching $496 billion.13 Super assets now comprise almost half of an average households total financial assets. For decades we have talked about the family home being the most significant household asset we Australians own. Yet the writing is on the wall: superannuation is in the process of taking over. Theres a fundamental shift in how we view our financial health and, therefore, our financial strategies must adjust accordingly. A huge issue to emerge from the ASFA survey was the anxiety and agitation Australians feel over retirement finances. Increasingly, people are asking: should I do more about my super? We are anxious, even though money is moving into super at a vast rate and although it may not be sufficient to keep us in the style we would like, we will nevertheless be the generations with more superannuation-funded cash in retirement than those that have gone before us. The cure for this anxiety is to have a strategy. Uncertainty is the money and motivation killer here.
Remind me: why is superannuation a good idea?

Sure, the government keeps changing the superannuation rules and it is a complex part of financial planning that is both boring and difficult to understand. Yet the advantages are simple and real despite the complexity. Super is good and, increasingly, offers a sound pathway to a faster accumulation of wealth. Are you hesitant about jumping seriously into the stock market?
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Cant put together enough cash to make a deposit on an investment property? Well, a more studied use of the superannuation system may be just the right thing for you. Even if you face hard times through life you will know you are building a retirement package for further down the trackand a time to enjoy the fruits of your labours. So, why super? It offers a low tax environment. The federal government rewards us for putting savings into super, to encourage us to save for our retirement and reduce the drain on social security. Money we put into super is concessionally taxed so we have more money working for us. Earnings on your super are taxed at only 15 per centmuch less than the tax rate paid by most employees (around 3047 per cent, plus Medicare Levy). Until recently, high-income earners (those earning over $94,691 p.a.) were hit with the superannuation tax surcharge (up to an additional 12.5 per cent) but this was removed in the 2005 federal budget, so the tax benefits for high-income earners have become much more attractive. You even win out of making capital gains. While your super fund is in the accumulation phase, 66 per cent of a capital gain made on disposal of an asset is declared as income and taxed at 15 per cent. This compares favourably with the usual 50 per cent (of the gain) taxed on assets held outside superannuation. These are savings that are kept out of reacha planning measure which reflects the reality of how Australians can best
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save. You cant get hold of your super until you reach whats called your preservation age (see below). If you are on a low to medium income (up to $58,000 p.a.), the government will pay you extra super, provided you put some money into your super account yourself that year. If you are employed, the money is coming to you anyway. It pays to be clued up about what to do with it.
As I near retirement age it is strange to think back to my early awakening to investment, says Ross. I do remember reading a book at school (set as a text or I wouldnt have read it), which first got me thinking about investment and the role of money in society. It was called The Man of Propertyone of the Forsyte Saga series by John Galsworthy. You probably know it well. I have very little recollection of what it was about but I think it may have had an influence on my financial view of the world. I may have read A Room with a View and it may have been similar. I always said (why, I dont know) that I would not leave home and pay rent. I would only leave home when I owned what I moved into. That has proved to be a financially sensible thing, only due to the history of Sydney real estate. I dont know much about mid-life crises, especially anything connected with money. I think Ive always been poor and always lived within my means, or been willing to live down to whatever my financial position was, so that if I did anything financially risky, I always accepted that I could live with the worst-case scenario. I guess Ive always imagined that retirement on the age pension would be acceptable. It had been in the past for many people, but of course the world doesnt really want people to enjoy that anymore,
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so its a case of having to look after yourself. So I have stuck at my sometimes difficult job in the public service, slowly increasing my contributions to superannuation and focusing on the flexible holiday optionsthis has kept my sanity and enabled me to last the distance. Ross will retire in the next year or two as a multi-millionaire. He and his wife own four or five properties, mostly in Sydney, and Ross will enjoy a generous government superannuation scheme boosted significantly by his more recent voluntary contributions based upon the advice of expert financial planners. It was also financially fortunate that Ross married late. By his midthirties he and his soon-to-be wife both owned their own apartments. His early motivation came not from inspirational, hard-hitting wealth books but from literature, where he picked up an appreciation of the need to interact actively with the financial marketplace. He acted conservatively throughout his life but was never a mere spectator when it came to investment.
When should I increase my superannuation?

Before looking at the ways of increasing superannuation it is important to know if it is the right time to do something. A brief, generic financial life plan might look like this: In your 20s. Maximise your qualifications, work on ways to increase your income, save for a home deposit; start superannuation. In your 30s. Buy a home, stabilise your budget if you have started a family, experiment with investments like shares,
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managed funds or owning a business; increase your understanding of different finance options. In your 40s. Pay off your home mortgage or move to a more valuable home, consider buying an investment property or using a margin loan for a substantial share or fund portfolio; preliminary planning for retirementthe view from a distance. In your 50s. Plan your retirement more throughly; consider making substantial contributions to super; establish strategies for dealing with actual or potential long-term unemployment. In your 60s. Same as for your 50s; consider selling highmaintenance assets which have the potential to destabilise your retirement finances (e.g. properties in need of refurbishment or major repair); plan your strategies for minimising capital gains tax; conclude your rollover and retirement planning. While you can contribute extra money to superannuation and it will almost always be a worthwhile savings planthere are periods of life when other financial strategies have a higher priority. The most obvious conflict is with the early, most fundamental aims: saving for a home, paying off the mortgage, supporting your family. Many experts agree that boosting your super is best left until you have these things under control. In a very general sense it is the decade of your 40s where super starts to become a higher-priority. If you own your business or are strongly motivated to make and manage direct investments in property and equities, it might not be until your 50s when time and money can be safely diverted to preserved superannuation. The government recognises this and encourages us to focus increasingly on superannuation as we move closer to retirement.
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For employees and the self-employed there are generous limits to the extra amounts you can put into your super fund while still gaining a tax concession (see salary sacrifice, below).
How much money will I need in retirement?

Rules of thumb 1. If male, aim to save at least seven times your estimated final annual salary at the time you retire (looking to the number of years to retirement and your expectations based on experience with your employer or in your industry); if female, aim for eight-and-a-half times (because women tend to live longer). 2. From these savings, aim to generate an annual income in retirement which is 5060 per cent of what you believe will be your final annual salary. 3. Do your calculations based on an annual income of 5 per cent of your capital (net assets and savings) if you dont want to eat into the capital, and up to 8 per cent if you will use a portion of your capital each year. For example, a net $100,000 worth of assets should produce on average around $5000 of income annually or up to $8000 if you run down your capital.
Fading out of the workforce supported by super

Superannuation rule changes in 2005 have opened the door wide for those wanting to pull back from full-time to part-time work, accessing their super to help make up the cash shortfall.
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More and more people are to some degree fed up with office politics, restructuring or fighting to hold onto their jobs, or they might just want to spend more time doing other things. This is now more possible than ever before. The transition to retirement rules give increased flexibility to your superannuation. You can fund a partial withdrawal from the workforce through using your super to buy an incomestream product. In brief: You must be at your preservation age: 55 if born before 1 July 1960, sliding up to 60 for those born after 30 June 1964. You convert some of your superannuation into a noncommutable income streamthat is, as an annuity, allocated pension or term allocated pension (TAP) which cannot be cashed-out as a lump sum. You can continue to work part-time. You can even return to full-time work later or mix full-time, part-time and casual work. It may be possible for you to switch your super on and off in the later stages of your working life. There is no work testthat is, the rules do not specify a required number of hours per week or month that you must be working. This change represents a fantastic opportunity that was certainly not open to our parents generation and which has the potential to radically alter the workplace landscape. Importantly, its a safety valve for those who are fed up with their employer or workplace yet still want or need to maintain employment. Keep this strategy in the back of your mindit may be handy some day.
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Thirteen strategies to increase your superannuation benefits

If youve been an employee all your working life it might take a little shift in your thinking to see that the 9 per cent superannuation guarantee is not all there is. Below are thirteen key tactics for increasing your household super position and, beneficially, you might even be able to design a strategy that extracts benefits from more than one approach at the same time.
1. Salary sacrifice
The trick with salary sacrifice is that by involving your employer you can get more money into your super fund than if you invested the money yourself. If investing yourself, you are using post-tax or net money. With salary sacrifice you ask your employer to take part of your gross wage and, instead of paying it to you, put it into your super fund. Here we are talking about pre-tax income.
Assume a marginal income tax rate (plus Medicare Levy) of 31.5 per cent applies. Leaving aside the tax-free threshold for the moment, for every $1000 gross you are paid, you receive only $685 in the hand. If you put this into super you are investing $685 out of your pre-tax earnings of $1000. There is no contributions tax charged on putting net money into super. If, however, you get your employer to put $1000 into super out of pre-tax or gross income, that full $1000 is invested. At this point
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there is a super contributions tax of 15 per cent, so your $1000 falls to $850and more cash is working for you in your fund. If your marginal tax rate is higher, the benefit increases. Although income tax thresholds have fallen since 1 July 2005, salary sacrifice remains a financially worthwhile tactic while your marginal rate remains above the concession rate of 15 per cent taxed on income earned by super. (The 30 per cent rate still kicks in when annual taxable income exceeds $21,600 per year).
Trap: You can only salary sacrifice from future earnings, not from past wages or a bonus, for example, which is based on past performance. So dont leave it until the end of the financial year to set up the arrangementyou cant salary sacrifice from whats already been paid to you. Trap: When you pull out money from salary and direct it into super you might also be removing this sum from employer benefits calculated on your salary, such as holiday pay, long service leave and, indeed, your employers super guarantee contribution. Check first what you might lose and negotiate with your employer. While your employer is under no legal obligation to set up salary sacrificing for you, it doesnt hurt them either. Its up to your skills to get the ball rolling. There are limits to how much money you can pour into super through salary sacrifice. The government knows this is a loophole and, though encouraging us to use it, doesnt want to make the tax benefit too generous. Currently, if you are aged under 35, the maximum amount you can put into super in the one financial
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year, either by salary sacrifice or employer contribution, gaining a tax concession, is $14,603 (for 2005/06). From 35 to 49 its $40,560. But if youre 50 or over the annual limit jumps to $100,587. These figures increase on 1 July each year. Finally, from 1 July 2006 it will be possible to salary sacrifice into a spouses superannuation account as well. This, too, is an avenue to boost retirement savings through smart use of the super concessions.
2. Government co-contribution
The government will pay up to $1500 annually to your super if you are on a low to medium income and are under 71 years of age. The maximum amount is paid to those earning less than $28,000 per annumput in $1000 and $1500 will be added to your super by the government. Thats a 150 per cent return the kind of investment you dont readily find. Can you find $20 per week to do this? There is a sliding scale based on income and how much you put into super yourselfso, for example, if your annual income is $40,000 the government will provide $750 if you deposit $900. Both contributionsyours and the governmentshave a further benefit: the money is not subject to the 15 per cent contributions tax or the 15 per cent tax if the money is withdrawn from the fund. If the superannuation benefit is converted to an income stream within the superannuation environment no tax applies at all. To get this benefit you must be employed, even if just parttime or casual. You must earn less than $58,000 per annum (2005 figures) and you must be earning at least 10 per cent of your income from employment-related activities.
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Tip: While the co-contribution is targeted at low to middleincome earners, those on higher wages can sneak under the cut-off point if they salary sacrifice sufficient earnings to pull their income down below the threshold, then make a super contribution out of net wages. This should then attract the governments co-contribution. This tactic will be particularly useful for people starting to ramp up their contributions into super in the years running up to retirement.
3. Paying super for a low-income spouse

You can claim a tax rebate of 18 per cent on annual superannuation contributions of up to $3000 made on behalf of your no- or low-income spouse. The maximum tax offset is paid if the spouses assessable income plus reportable fringe benefits is less than $10,800. For each dollar over that, the $3000 on which the offset is claimed reduces by one dollar.
4. Splitting super by directing contributions into the name of your spouse

New rules which will come into effect from 1 July 2006 have opened up a whole new chapter of retirement savings through super: superannuation splitting. This move alone can be worth thousands of dollars to those prepared and able to take advantage of the opportunity. Employees can direct contributions of pre-tax (gross), salarysacrificed money into a spouses super fund. The result (if you continue with your own super fund contributions as well) is:
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as a couple you are better able to work towards two sizeable tax-free lump sums; and you will have much more room to move, so you can avoid exceeding the Reasonable Benefit Limits (RBLs), than if most of your households super was piling up in the name of only one person. With this strategy, you are splitting the super contributions across two individuals. This strategy is quite straightforward and sensible, particularly for high earners who risk breaking through the RBL over their lifetime. Tip: Superannuation is now part of property settlements when couples separate. In the past it was not uncommon for one partner to quarantine their super from their ex-spouse. However, it makes sense now for couples to consider building up their super using the new contributions power to top up the slower-growing fund and maintain a degree of equality in each name.
5. Self-employed: get the 100 per cent deduction

You get a 100 per cent tax deduction on your contribution of up to $5000 in a financial year, with a 75 per cent deduction on contributions above this (within age-related limitssee salary sacrifice , above)provided no employer is making super contributions that year on your behalf or paying you what amounts to more than 10 per cent of your income that year. Tip: It is a common strategy to sell off various assets as you near retirement and plough the money into the tax-advantaged area of superannuation. There could be capital gains tax (CGT)
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to pay on any growth in asset values but if you are self-employed (and no employer has made a super contribution for you that year), you gradually sell the assets that attract CGTparticularly thinking of shares and managed fundsand you can match the CGT with the tax deductions on contributions to super. In this way you can decrease the tax progressively.
6. Part-time and casual workers

Are you working part-time or casual hours and missing out on the superannuation guarantee from your employer? It might not take much additional work to get you to the point of a super windfall. You wont receive the 9 per cent super guarantee if you are paid less than $450 in a particular month. And if youre under 18 you must be working more than 30 hours per week to be eligible for the superannuation guarantee. So if you or your spouse works part-time or on a casual basis, see if it is worthwhile increasing hours or income so you fall into the super zoneit might not be a big change to your work habits.
7. DIY funds
Do-it-yourself super fundsalso known in financial circles as SMSFs (self-managed super funds)are now the fastest growing type of fund, and account for almost 25 per cent of total super assets (up from 14 per cent in 1999). They were worth a significant $143 billion as at early 2005. DIY fund membership has been increasing by almost twice the overall industry rate since 1999. Indeed, the interest has been nothing short of amazing,
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with around 2500 new DIY funds setting up each month and almost 600,000 members in all. On average, the DIY funds perform better than the average of all other types of fund: almost 50 per cent better in earnings, in fact, over the five years to March 2004. Theyll have higher balances, too, with an average DIY fund holding $250,000, compared to an average of just $22,000 for everyone else. Those who use DIY funds also follow a different investment path. They invest more heavily in domestic shares and trusts rather than in overseas assets. They also have high asset concentrations, with more than half the DIY funds having 70 per cent or more of their assets invested in a single asset class, such as property or equities. Experts suggest you need at least $200,000 in your super fund to make a DIY fund worth the effort, risk and costs (around $2000$3000 in fees annually); some think you can make it work with less, while certain SMSF promoters wont touch you until youve got $400,000 in super. At this point, your overall fees will be around one quarter of what they would be if you were keeping all your super in retail super funds. DIY super funds can have a rejuvenating effect on retirement planning for certain individuals who thrive on releasing their entrepreneurial spiritbut can also get you in trouble with the law. They are not for anyone who does not keep on top of their paperwork or who wont put in the time to manage their fund. And watch out for rip-off promoters who make good money out of persuading unsuited people into setting up SMSF. Speak to your accountant.
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Table 7.1 Should I start a DIY superannuation fund?

Factors in favour of DIY super funds Investment control. Flexibility. Factors against DIY Higher fixed expenses. Responsibility to obey corporate regulations. No one to blame but yourself. Members are trustees and have legal responsibilitiesincluding preparing annual accounts, keeping financial records, getting the accounts audited and following the rules. The sole purpose of any investment made by the fund must be to provide retirement benefits for the members. Your fund cannot: acquire property from a member or related party (subject to prescribed limits); borrow money; lend money to a member or a members relative. Lack of expert management.
No one to blame but yourself.
You can invest in managed funds, direct shares, property and more.
Tax planningfor example, you can target shares with franked dividends if you want to lower the tax being paid. Freedom of asset selection.
You might miss key market movements and signals. Smaller capital makes it difficult to spread your risk and minimise the impact of any downturn. You cant borrow money to leverage your funds investmentssuch as taking out a mortgage to finance the acquisition of a property investment.
Pay no fees to super fund managers (unless you chose to invest in this way).
You can leverage your money by investing in an internally geared fund where it is the external fund which is borrowing the money, not your fund.
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8. Making a recontribution
This is a popular area of retirement planning, relying upon the pursuit of greater tax relief by taking money out of a super account under one concession then depositing it back into the same super account or the account of your partner in order to gain further tax benefits. Its called recontribution.
Consider withdrawing from your super account a post-1983 lump sum up to the tax-free threshold (currently $129,751)which you then recontribute to your superannuation fund without claiming a tax deduction for it (that is, it is undeducted). This recontributed amount will ultimately increase the tax-free proportion for an income stream pension product in retirement. There are other tests surrounding this, so seek expert advice for the precise calculations for your situation.
Trap: Sometimes all this fancy footwork will be to no avail seniors retirement tax rebates and concessions might work in your favour so that there is little or no benefit in playing the rules hard. And a recontribution might cost you the Seniors Health Card. Of course, by doing nothing you might be depriving your advisor of various forms of remuneration, so be alert to any conflict of interest driving the advisors recommendations.
9. Retirement savings invested into partners account

There is a variation on recontribution that particularly applies to those in a relationship. If you and your partner have signifi-
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cantly different amounts in your super funds and will not be retiring at the same time, you can aim to take maximum advantage of concessions available to individuals such as the tax-free threshold and lower marginal income-tax rates. The first partner to retire withdraws part of their super and deposits it in the other partners super fund, bringing closer in line the amount in each accounteven if that partner is not working (but is under 65 years of age). The result should be that, as a couple, you will pay less tax overall on your retirement income streams than if one partner retired with a large amount in super and the other with a small amount. As noted earlier in this chapter, there may be other benefits or concessions available when making a super contribution for a spouse.
10. Continue to make super contributions although no longer working

Super laws changed in 2004 to allow a person (aged under 65) to make contributions to their superannuation fund even if they are now not working. In the past, you had to be working at least 10 hours per week to gain access to the super system like thisquite a hurdle if you are winding down from full-time work or clinging to work in a patchy fashion as opportunities arise. You can now plan quite strategically to continue putting money into your superannuation through many difficult stages of your working life, such as while having time off to raise children, while doing occasional consultancies, following redundancy, during periods of long-term travel, when working as a volunteer, or while writing that novel in the Greek Islands.
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11. Consolidate your funds

Over your working life you might end up with small fragments of superannuation in more than one fundthis money is often forgotten and expenses might be high. In many cases it can represent a saving on fees to close most of these funds and transfer various small amounts of money into one or two funds. However, first do your sums to see what you are really saving in the end it might not be much. Still, it is worthwhile taking a little time to look at your funds and consolidate your money into to what you regard as the best performers. You might want to seek expert advice before making the move. Trap: Watch out for any early termination penalties or fees.
12. Sell assets and put the cash into super: playing with the CGT offset
You cant isolate superannuation retirement planning from a total consideration of your other non-retirement assets and investments. Of critical importance is the need to consider whether you should sell certain assets at a pertinent time so as to maximise your tax advantage. For example, many people approaching retirement age will dispose of high-maintenance assets in preparation for their new stage of life on a fixed or more modest income outside the workforce. You might set up your retirement finances beautifully, only to have them devastated by a sudden need to replace a kitchen or roof on an investment property. What will be your capacity to handle unexpected calls for cash like this? Consider
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carefully why you might want to hang on to all your capital growth assets in retirement if they produce very little income. If you decide to liquidate some long-held assets, you will likely face a sizeable capital gains tax (CGT) burden. So, should you sell the asset before you retire or afterwards? A useful strategy, for those not in receipt of employer super contributions or aged under 65 and recently retired, may be to sell early and place the proceeds into your superannuation account. The tax deduction on the contribution (100 per cent on the first $5000 and 75 per cent on the balance, in the same financial year as the asset sale) will offset in whole or part the CGT on the sale of the asset. Alternatively, pre-retirees might want to delay the sale of an asset until after they retire, when a modest profit might attract CGT at a lower marginal rate than when the person was still in full-time work and paying tax at a high rate on their salary. Retirement offers useful timing and CGT tactics.
13. Make the most of superannuation choice

From 1 July 2005, all eligible employees will be able to have more control over how their superannuation is invested. You can choose the fund manager, the type of fund and how your money is invested (i.e. risk levels and potential earnings). This is called super choice. This gives you the opportunity to fine-tune your super strategy to chase what you see as good opportunities. Tip: Be alert for super choice rip-offs. The scheme offers the promise of freedom and control, but with control comes the danger that unscrupulous financial planners might target new
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customers and advise them, against the consumers best interests, to move their money between fundsthereby earning the advisor a commission. Out of these thirteen tactics you should find something useful. A key, once more, is to note how the financial system favours couples. Whether its for contributions, recontributions, finding value in setting up a DIY super fund or splitting super, the couple has an easier road than the single. When youre ready to lock away more money into superannuation, get expert advice on the strategy alternatives and supercharge your super! Dont worry about the figures used herethey will change over time. The important thing in this chapter is to become aware of the opportunities for strategic redirection of your superannuation savings program. In the end you should make your personal plans with the assistance of a specialist retirement financial planner.
9 employers fund any more. You can now invest as aggressively as you
want with this money.
Save your money You dont have to keep your superannuation in your
9 some of the information is too complex to try to explain later to your

loved one. And if youre not both motivated and clear on your plans, then some of the most valuable super strategies may seem like bullying to your partnerespecially as money moves in and out of each others accounts.
Save your relationship Dont see a superannuation adviser alone
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Stay aheadby minimising risks
Stay ahead by minimising risks
hen you look at your household financial position do you ever wonder where youre at, relative to those around you? The weekend newspapers are full of stories of conspicuous success . . . which can be demoralising. But the reality can be quite different. Its like studying for your school leaving certificate: it doesnt take much effort to get a better result than a huge section of the population sitting the same test. And in part thats because so many people are simply not trying hard at all. You might read a statistic like this65 per cent of us will end up reliant on the age pensionand think, Why bother then? Or you can use this statistic to motivate you. Motivation and appropriate role models are important in getting us set on a solid course. The last national census revealed that more than 350,000 families with children aged under 15 had no employed
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parent living in the home. Growing up in these homes are around 600,000 children. Rising out of that situation, to become financially independent, is no mean feat. And weve all heard or read of people who, close to achieving their dreams, lose all their money and end up depressingly poor. Why leave an opening through which bad luck or imprudent decision-making can rob you of your dream? Though you cant risk-proof the whole world, or even just your own life, there are solutions and strategies which improve your chances. One of the best things a motivated investor can do is educate themselves about the nature of financial risk and take measures to secure their gains against the trauma of dramatic and disastrous loss.
Your risk audit

Few of us have the financial resources to comprehensively insulate ourselves and our families against all financial loss. Its usually a balancing act: what we need versus what we can afford to pay. When people add up the premiums for all the insurances they pay, they are often shocked at the totalwhile realising they are probably still underinsured! Nevertheless, the starting point is accurate knowledge of your situation.
INSURANCE AUDIT Consider the various kinds of insurance listed below. For each, note whether you have a policy for that particular kind of insurance, and if so, if it needs work or expert advice. Check your insurances actually existthat the policy has not lapsed
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accidentally, that cover is adequate and premiums are paid up to date. You dont necessarily need all of these insurances but you might consider instructing an insurance broker to assist and advise. Life Income protection Trauma/health event Private health insurance Total and permanent disability Home (building) Home (contents) Business equipment kept at home Car Boat Jewellery and valuables Workers compensation at home Public liability at home Pets Travel Landlords insurance for an investment property (covering damage, loss of of rent, workers compensation etc)
CONTROLLING RISK FOR INVESTMENT LOANS Now, answer yes, no or needs work or expert advice for the following questions. Should some of my loans be fixed interest? Should some of my loans be variable interest? Should I keep all my loans and savings with one financial institution? Should I stagger the payment dates of my loans so they dont all fall due at once? If I have a margin loan, have I made preparations to meet a possible margin call?
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MY SHARES AND MANAGED FUNDS Again, answer yes, no or needs work or expert advice to these questions. Should I implement hedging strategies for my share portfolio? Have I sought advice on the current state of my share portfolio/managed funds and whether to buy, sell or hold? MY PROPERTY Answer these questions in the same way as above. Have I inspected my investment property in the last 12 months? Is my tenant causing me stress or financial difficulty? Have I purchased the wrong investment property? MY ADVISORSAM I SATISFIED WITH THE QUALITY AND COST OF: My stockbroker? My mortgage broker? My property managing agent? My insurance broker? My tax agent/accountant?
Tidy up your chain of command

It can be motivating to create a financial plan and know where you are going and what you have to do to get there. Another rejuvenating activity is to look at ways to ensure your plans and dreams will not easily be derailed by illness, injury or incapacity. It can be a stabilising influence in our lives to have prepared our finances and investments to be robust. In particular
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you should look at three things: a will; a power of attorney; access to cash and reserves. If you own any assets of value you should avoid the DIY will kits and use a solicitor. There are important issues of capital gains tax, succession, and potential maintenance of financial dependants and ex-partners, which should not be dealt with casually or cheaply. At the same session with a solicitor you can discuss creating a power of attorney, giving authority to your appointee to operate your finances and investments if you cant be contacted (such as when hiking in Nepal) or are incapacitated (such as in a coma after a car accident). You can choose: to appoint one or more attorneys (for example, your partner, a sibling, a trusted business or financial professional); to specify precise circumstances under which the power is activated; how the authority is to end; what tasks it will cover or exclude. You can then take the next step, if it suits you, and give your attorney the right to make health, lifestyle and ethical or religious decisions if you are incapacitated. For example: to turn off a life-support system; to take advantage of medical technologiesfrom blood transfusion to organ transplant or new therapy; to make day-to-day decisions about personal care in a hospital or other facility. Third, consider how your family would pay the bills and maintain your investments over any transition period involving
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death or incapacity. There would certainly be days, if not months, of uncertainty. It can be tempting for motivated investors to tie-up essentially all of their money in long-term projects. There might be no ready cash anywhere, perhaps merely a capacity to withdraw funds from a line-of-credit loan product or, in time, from a term deposit.
Crisis cash traps

Take a look at your finances and investments, assessing the total portfolio for crisis cash trap scenarios such as these: Although your investments are spread fairly between you and your partner, by chance it turns out that all the liquid investments are solely in the name of one of you. Your tax planning is so well-tuned to current incomes within your household that, as above, the liquid assets are in one name. Your cash is locked up in term deposits or debentures. Your most liquid money is in easily traded sharesbut your partner has no experience in selling shares and does not know your stockbroker. If you are counting on selling a property to release cash in the event of a death or emergency, are your mortgages fixedterm/fixed-interest? There could be huge financial penalties for getting out early. You dont know your partners account pin numbers and he/she doesnt know yours. (Strictly speaking you are not supposed to reveal your codes to anyone , but you can probably devise your own crisis procedure.)
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While there might be sufficient cash accessible for household living expenses, does your investment set-up require monthly transfers of money between accounts so that the loans all get paid on time? If so, does your partner know what has to be done? Is there a chance they would mistakenly use the emergency reserve for this purpose, leaving your family critically short of cash? Does your partner know whats what with the Internet banking facility (if you have one)? Are the account identifiers clear? Can your will, power of attorney and insurance policy documents be located easily?
The Dirty Dozen

Whenever people recognise that they need to pick up speed on investment or money-making, they become particularly vulnerable. We want to hear about other peoples success, we are tempted to follow their gurus and imitate their strategies. There is a whole industry of con-artists out there who are expert in detecting this vulnerability and preying upon it, so it is vital you learn to recognise their strategies and scams. Following is my Dirty Dozen of financial scams or money offers which pack a problematic punch.
1. Pyramid scheme
This is the most famous of them all, yet it continues to attract investors. A letteror seminar promotertells you to send a
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sum of money to the person at the top of a list of names. After sending the money you must post the list to five or more other people, having added your name at the bottom. Eventually, you are told, your name works its way to the top of the list and those on the lowest level send you vast sums of cash. It seems foolproofafter all, everyone gets a turn to winbut simple mathematics reveals the scam. Within only a few levels the number of people necessary to keep the scheme going will exceed the population of your town or city. So the first people in the scheme get the money and the last ones run dry.
2. Ponzi scheme
This is a gold-plated classic rip-off and difficult to pick, hence its longevity. By word of mouth you hear of an investment paying high returns. People tell you it is not a scam because they have received dividends already. And this is all true and verifiable. But this is how it works: the promoter promises you a return on your investment greater than 20 per cent, paid monthly. You follow your friend into the scheme and invest, say, $50,000 in January. In February you receive a cheque for $1000, then one in March and another in Aprilat this rate you will earn well above 20 per cent over the year! So you tell your other friends and family about this fantastic scheme and they invest too. Then the cheques stop arriving and the promoter cannot be found. He has taken your $50,000 and repaid you $3000 out of your own moneynothing was ever invested anywhere.
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3. The accidental tip-off

Have you received a call accidentally left on your answering machine or email address clearly intended for someone else? This scam leaves a juicy investment tip-off in the message. But, of course, it is no accident and your money will be lost if you respond to the call and send a cheque or give your credit card details.
4. Get-rich seminars
There are no secrets that only the wealthy know, there is no hidden store of knowledge to be discovered. Sometimes the seminars themselves are what this scams all aboutthey provide a reliable source of customers for promoters who persuade their victims to buy into deals of questionable value. The power of influence is strong at these seminars and should not be underestimated. In my experience, the positives of moneymaking are emphasised and the negatives ignored or downplayed. At the very least you are not getting personalised financial advice tailored to your situationand youre usually paying too much for what you do get.
5. Travel to inspect
A classic way of exploiting vulnerability is to give potential investors a free flight to a location where they know no one and do not understand the local market. They are then hit with a hard-edged offer.
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6. International email
If an investment promoter has to use email (which costs next to nothing) to find customers, and that promoter lives in a different country to you, you should be suspicious. Phishing is the name given to another category of online scam, where a pop-up message or email purports to come from a well-known business or from your bank, asking you to confirm details of your accounts, personal identification numbers (PINs), credit card expiry dates or passwords. These messages can appear quite realisticbut never divulge financial or security details unless you know you are already inside a secure, trusted website.
7. Two-tier pricing
Property scams, such as have been found in Queenslandwhere there is one price for locals and one for outsidershave caused a stir in recent years, but it is easy to suspect that this has been going on in tourist areas forever. The remedy is to engage a licensed valuer when you are investing out of your own known territory.
8. No established market
The great thing about shares and property is that there are wellestablished markets for trading them. The same cant be said for many more exotic investmentsin fish, plantations, animals, high-tech businesses and so on. Always find out how you can sell something before you consider buying into it.
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9. Overseas experts
Australians seem to be suckers for self-improvement or moneymaking books which have been successful in the United Kingdom or United States; sadly, many personal finance books come onto our market, heavily promoted, without adaptation to the Australian tax system and economy and their advice can be wrong in our situation. The publishers should shoulder some responsibility and get these books and resources adapted. Read them, if you like, for the motivation they provide but not the particulars of where or how to invest.
10. Premium for buying new

This is particularly a problem with share floats and buying apartments off the plan (that is, before they are completed). The price represents what the seller would like to get and is often well above what those shares or property will trade at once there have been a number of purchases and sales. For example, I have seen brand-new apartments selling for 30 per cent more than the five-year-old apartments in a similar building next door. Wait a few years and their values will be similar and the premium for new will have evaporated.
11. Early access to your superannuation

This became a particular area of focus for the Tax Office in 2004 and 2005, with a number of promoters claiming to help people get their hands on their super, or divert it to personal
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rather than retirement use, via the establishment of a do-ityourself super scheme. The idea sounded good: release your superannuation to buy a house now, to pay off debts or to take a well-earned holiday. But, according to the Tax Office, this can be illegal. Yet there are some limited and rare circumstances in which a person can legally withdraw their super savings early as a lump sum. Alternatively, since 1 July 2005 it has been possible for those nearing retirement age to draw some income (not a lump sum) while continuing to work (see chapter 7). As mentioned in chapter 7, be wary of those promoting selfmanaged superannuation fundsthese funds provide an opportunity for advisors to maximise commissions and fees by redirecting a persons existing super assets. Its a lucrative field.
12. Easy-start credit products

The finance industry is not altruisticif a financial institution offers a customer a special low credit card rate, this is often because they are aware the customer is likely to default to a higher rate (typically in the range of 2030 per cent) through late payment of minimum monthly instalments or the like. When offered a low-start deal, always check the interest rate to which the credit card reverts after the initial low-rate deal and compare this against other products (see Resources, reading and contact at the back of this book). Look at the key terms too. For example, in 2005 there were several financial institutions seeking to attract new credit card customers by offering to transfer the outstanding balance on an existing card at an interest rate of zero, or at least a low rate, for six months. A neat touch was
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to then charge new purchases at the revert, or much higher, rate immediatelyso transferring customers did not get the low rate on everything.
Initially I just fell into it, says Melanie, a finance journalist and editor. I had studied journalism and, upon graduation, the first job I got was in Sydney working on a money publication. At the time I knew very little about investment and personal financeit was just a job. Then I was sent to cover the acquisition of a major Sydney CBD office block by a property trust. I got inquisitive. It was a time when big deals were going down all over town and getting featured in the newspapers. And soon the deals turned sour and peopleordinary investorsgot burned by these high-flying entrepreneurs and gogetters. They were almost evangelical in their spruiking about wealth generation. I got hooked . . . not just on the scammers but on the whole mood of the times. Money was there to be made. As a journalist I used to love phoning one of these high-flyers in particularhe was so wellconnected and knew all the gossip. I would get my cover story just from the phone call! And now hes in the papers again . . . in trouble. I suppose Im a bit of a contradiction really. I like making money and planning my investments but I also have a healthy contempt for money and its important place in life. I like to say that All we have is time and money: the smarter we are with our money, the more time we have to enjoy as we see fit. This mantra motivates me. Its also a sociological thing for me. I enjoy watching and learning how people respond to money and investment . . . and what it does to them. It amazes me how people complicate it when it really is so simple. I enjoy keeping moneymaking as simple as it can possibly be.
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Indeed, financial salespeople have trouble handling me as I refuse to fit neatly into the box for the investment and financial products they want to sell. After a while I find I can get the product or service I want, despite it being different to what they were trying to sell me!
Those impressive graphics

In September 2004, the Australian Securities and Investments Commission (ASIC) announced that it had acted to close down loan calculators found on over 100 websites used by brokers, credit unions and banks.14 What was so wrong about these calculators? Apparently the calculator, designed by a third party and used by so many financial institutions, made line-of-credit loans look preferable to ordinary principal-and-interest mortgages in terms of the speed with which the borrower would be paying off the loan. Impressively, the calculator even produced a graph to demonstrate this effectit made for quite a convincing show. However, the design of the calculator was not without problems, but these problems were virtually impossible for the customer to detect. First, if you made extra payments off your loan, these were credited to the line-of-credit loan but not to the standard loan. Second, although many standard mortgages were available at lower rates of interest, the calculators put line-of-credit and standard mortgages on the same rateanother free kick for the line-of-credit products. Third, the calculator did not make clear the minimal impact that an offset facility (where you put your salary straight into the loan account until its needed to pay bills or make loan repayments) would have on paying off the balance.
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The result was a calculator that made exaggerated claims for saving using line-of-credit mortgages ahead of lower-interest rate standard mortgagessavings which, in turn, might justify a financial institution lending higher amounts to the borrower. The implication for all of uslooking to make our money work harder than everis that we cant rely on what we see with our eyes on those computer screens when loan officers or brokers crunch the numbers. We can be grateful that ASIC is looking out for us. And we can remember the guiding rule of loansthat we only move ahead faster by paying more money, paying a lower interest rate, paying lower fees or paying money more often. Dont hold out for miraclesand beware the hypnotic power of computer presentations.
Investing with others

The final risk-management issue is about working with others. Sometimes it is prudent to acknowledge that if we want to speed up our savings we need to work more closely with other investors. Theres only so much we can do on our own before the level of risk in our investment portfolio becomes dangerously high. The most obvious example is direct property investment. Yes, if you have plenty of equity in your home you can get hold of the funds to establish a million-dollar property portfolio almost overnight. But are you building a house of cards, with no solid equity foundationthat is, real money you would keep, after deducting expenses and taxes, should you have to sell the assets quickly?
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Direct property and direct share investing become increasingly risky at the stage when you are growing your portfolio. The debt-to-equity ratio is high, the expenses have not yet paid for themselves, genuine capital gain hasnt kicked in, and you have a poor spread of investmentsless than a dozen different shareholdings or a single rental property. Managed funds are an obvious way of handling investment risk. Funds help spread your money across multiple sectors of the economy, both here and overseas, into a portfolio of a size you could never contemplate in your own name. An alternative is to invest through a syndicate or as part of an investment club.
Investment clubs and syndicates

An investment club is simply a gathering of individuals who share knowledge and effort but not ownership. A good club gives members access to professional skills within the group, from bookkeeping to legal and financial research. Particular stocks or properties can be debated and investigated; tasks can be allocated among the members; records should be kept so that progress is monitored. Such discussion, coming from different perspectives to your own, can be refreshing if you have always only relied on yourself to do everything related to household finances and investing. Would you benefit from belonging to an investment club? Maybe you could start one with your friends. An investment syndicate is more formal both in procedure and law. You put your money in with others to purchase and maintain investment assets. Ownership is shared. It is best to have a solicitor draw up a contract setting out the terms of the
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syndicate, including how long it is to last, how it is to end, how you can get your money out, and who is to do what. Think for a moment: without such a contract, how would you get your money out should you need it? You might not ever enforce this contract by taking your fellow syndicate members to court, but its presence adds muscle to the obvious moral obligation to help a member depart gracefully. Many syndicates are promoted through financial planners and have extensive documentation. Others are more ad hoc, put together by entrepreneurial real estate agents or other professionals who spot opportunities and match like-minded individuals together for a particular deal. Syndicates come with their own set of risks, of course. They are certainly not the place to put the bulk of your money. But if you start on a small project and do your research, you can take advantage of expertise beyond your ownfor example, linking with an estate agent and a builder or with an experienced and successful stock analyst. You then know their cash is on the line with yours. If you find your inspiration for investment has been flagging in recent years, perhaps a change of approachteaming with others and moving beyond your own limitationswill relaunch you towards your financial goals.
If it sounds too good to be true . . .

If the investment offer sounds too good to be true . . . it probably is! This is one of the classic lines in personal finance literature. It has been years now since the days of high-profile collapses of financial
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organisations like Estate Mortgage and HIH, so does the rule still apply? Sure, there are business entrepreneurs, without established names, who manage to cross the line and get into running scams, but they tend to make quite a noise about themselves, attracting unwitting victims and simultaneously driving away smarter or more experienced investors. It was therefore with some interest that I noted early in 2005 that ASIC had been investigating debenturesan old-fashioned, incomeproducing loan product.15 The Commission looked at the prospectuses of a number of debenture issues offering high yields to investors such as interest rates that were 4 per cent per annum above bank termdeposit rates. Of the eleven debentures examined by ASIC, three were temporarily suspended from seeking funds until defects were addressed and one received a final stop order which killed it off permanently. In addition, two misleading advertising campaigns were stopped and another two companies were required to improve the information they provided in their campaigns. Four common concerns were identified: aggressive or misleading advertising, poor disclosure about property developments, relatedparty transactions, and bad and doubtful debts. To give you an idea of what was found, several debentures sought to borrow money from investors and then lend it to property developers on a capitalised interest or pre-paid interest basisin other words, the developer would borrow both the capital of the loan and the full interest. This is a very high-risk strategy as the developer doesnt have to make loan repayments out of cash flow. And if the development doesnt reach completion and successful sale . . . ? In some cases, it might alarm investors to know, the properties being developed were valued for the purpose of the debenture at a
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completed value rather than the ASIC-preferred position of valuing the assets at the market value on or about the date of the prospectus offer. Big difference in security. And some of the companies issuing the debentures were lending money to related companies or other entities associated with the directors of the issuer, says ASIC. ASIC summed up its concern like this: More vulnerable investors, especially retirees, have been the target of these riskier investments. Often they dont have the information or resources to detect the extra risks. In many cases, they are offered investments that major financial institutions wouldnt touch without greater security or higher rates of return. Unfortunately, even with financial products that have been around seemingly forever, there is need for cautionand, frequently, expert advice to spot and assess the true risks.
9 caught by the scams or by inadequate supervision of their risk exposure.

Scams work because they are initially compelling and often logical. Bounce any investment proposal off a financial adviser before proceeding.
Save your money
Its not just the unsophisticated investor who is
9 many before youyou can probably guess the impact this will have
on your relationship with your partner. It provides fertile ground for laying blame and for regrets which will dog your relationship for years. So dont be embarrassed about seeking expert advice.
Save your relationship If you get conned by a money scamlike so
9
D
Stay ahead by surviving and avoiding relationship meltdowns
Stay aheadby surviving and avoiding relationship meltdowns
ivorce, separation, major illness or incapacitating injury, a death in the family or the death of a partner . . . these can all lead to crippling financial loss on top of the terrible emotional toll imposed by such life-changing events. A 2005 report by the National Centre for Social and Economic Modelling and AMP says that about half of new marriages in Australia will end in divorce within a 30-year period.16 Looking down the track, after a year of separation, the Centres research found that the average mans disposable income will have fallen by 8 per cent (by $4100 p.a.) and the average womans income by 42 per cent (to $21,000). Divorced men are less likely to live with their children and are more likely than their ex-wives to move into a new relationship. There are woes on all sides but the financial impacts are different. What can we do? We can recognise the friction points in
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our relationships nowover money or anything elseand be prepared to take action which will stand us in good stead when a crisis emerges. Sometimes its the simple things that start our finances unravelling. Consider once again your hopes and dreams for your life you might like to go back and look at your answers for the goal-setting exercise in chapter 2. As they pass through your mind, inspiring and motivating you to action, remember to slot your relationship (or your hope of a future relationship) in there somewhere among your key goals.
Money problems for couples

If you are in a relationship, what, if anything, annoys you about the way your partner handles the finances and investments? Some triggers include: Paying bills late through sheer lazinessIt was on my todo list. Deliberately leaving bill payment to the last day, and occasionally incurring late fees when this tactic slips up Well, that was a one-off accident, wasnt it? Late preparation and lodgment of tax returnsEveryone does it, so stop worrying! (For the self-employed) late preparation and lodgment of Business Activity StatementsIve heard the Tax Office gives everyone a period of grace . . . Stockpiling unopened mailI was getting to that. Secrecywhere one partner loses confidence in how the other is handling their money and investmentsDont you trust me?
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BravadoI know what Im doing! Inequality in spendingGee, we all need a little play money! The bargain hunterThese jeans were a fantastic special . . . so I bought five pairs. Dragging you in to justify what they want to spend money onYouve been working so hard lately . . . Id like to take you for a holiday where we, I mean you, can be pampered. Failure to stick to budget or planNext month Ill try even harder . . . Trying to win points by buying expensive gifts for youSee how much I love you? Buying expensive toys under the guise of a necessary purchaseYou know I needed a car for work . . . so whats wrong with a sports car? For single people many of the same issues may arise, but they are part of an internal struggle. Run through the same list and see which ones touch a nerve. These things can cost money and cause our financial and investment plans to falter. Yet everyone has individual needs and attitudes to money. Fortunately, there can be times in our lives where we and our partner are of one mind and progress can be made. So what do you do if you cease working together on your financial strategy or, as a single person, youve become apathetic?
See a financial planner

Good financial planners can excite us about our potential. Often, after years of neglect, we can suddenly see the way forward
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and feel we are finally making progress. But be prepared for a let-downthere might be no spark with the first planner. Ask friends for recommendations and hold on to your money until you know you are in the best hands.
Bring in another voice

Simple things can sometimes motivate a lazy or uncooperative partner. Get together with friends who are prepared to discuss their investments. Typically, people exaggerate their success and gloss over their failed enterprises but it is stimulating and informative to find out what others are doing with their money. Just dont believe everything you hear.
Draw something positive from a bad situation

An episode of ill health can bring home our mortality and motivate us to change the habits of a lifetimeto exercise more, to stop smoking, to change our diet. Similarly, the financial misfortune of others can provide a powerful incentive to avoid the same fateinadequate insurance, poor provision for emergency cash, superannuation spread all over the place.
Go to workplace seminars
Take your partner to a financial planning seminar if it is run by a body you trust, such as a union or professional association connected to your place of employment. This can be the jumpingoff point where your partner realises how much needs to be done. I would not include in this list a financial seminar or
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workshop run by an entrepreneur or self-made millionaire, despite the guaranteed inspiration.
Never quite theirs

When their mother died, Fran and Charlie were still university students. The main asset of the deceased estate was the old family home which was to be given to the children equally. Both were fairly poor at the time so they moved back home and shared the house. Fran and Charlies living arrangement continued quite comfortably for a number of years. Then Fran moved out, setting up home with her boyfriend. This left Charlie on his own. Not long after this he fell in love and married, and his new wife moved into the house with him. Every now and then, however, while Charlie and his beloved would be sitting in front of the television or walking naked to the bathroom, they would hear the sound of a key in the door. Fran was just popping in to kill time between lectures at university. The house was still jointly Frans property and, indeed, she kept most of her junk in her old bedroom. Initially this wasnt a big deal but slowly it began to grate on Charlie and his wife, who saw that this home would never be truly theirs. More to the point, the inheritance was actually setting them back financially. Property prices were booming and while Charlie and his wife enjoyed the capital gain they were stockpiling on their half interest in the old family home, they were missing out on a larger benefit had they sold the property and acquired a house in their names before the boom. Now they could see that their inheritance, wonderful as it was, had lulled them into complacency. They calculated what their half-
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share was worth and were depressed as they realised this amount was falling behind what would be necessary to buy a home of their own. Fortunately they took action in the early stage of the boom and sold the old family house. Both Charlie and his wife, and Fran, then purchased separate homes that were truly theirs.
Preparing to disagree: pre-nuptial contracts

I once worked with a man whose second marriage lasted all of one weekendhow could they have got it so wrong? I was amazed to find that they had a pre-nuptial agreement in place, so had they anticipated the worst, engaged in behaviour which encouraged a split, or acted prudently? We put great pressure on our relationships to succeed and, as we move through life, we certainly have a lot to lose when things go sour. Its one thing to pledge financial intimacy in the throes of youthful enthusiasm, but the picture changes when we own some property, accrue a stack of superannuation or own a business. Then there are the debts. When people talk about pre-nuptial agreementscontracts entered into before marriage which determine how the finances are to be divided if the marriage failsthey generally focus on the assets. Yet these days it might well be the case that the household debts are as significant as the assets. Who is to keep making the repayments, when the relationship has hit the wall, to save the assets from being eaten away or lost? This, too, is a subject for thought and preparation.
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Much of what we know about pre-nuptial agreements we have absorbed from American television programsnot a particularly reliable source. The Australian position, in brief, is as follows. For many years it has been possible for Australian couples entering marriage to make a contract covering their finances, provided the terms were fair and both parties had independent legal advice. But this contract was not legally enforceable. There was always the risk that, come the crunch, one partner would litigate and the court could take a good look at the contract and vary it if it appeared unfair. The pre-nuptial agreement was really just of persuasive value and, to a degree, the court would certainly take this into account in reaching its decision, so it was certainly not a waste of time. However, new laws came into force in December 2000 which for the most part allow the married couple to tell the court to keep out of its private business. The court now leaves the financial agreement alone other than check that the process of making the agreement complied with strict rules set out in the legislation. These rules cover areas such as each party obtaining independent legal advice before signing, solicitors certification of the agreement, and so on. The court starts from the position that the terms of the agreementeven if apparently unfair are enforceable. It will check that procedures were followed correctly and can still intervene if these processes are found to have been flawed, such as where one party pressured their partner to sign on the day of the wedding. The agreement can also be set aside by the court if it turns out there was fraud (such as hiding an asset from inclusion) or if, through change of circumstances, the arrangements become impracticable, or
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where there has been material change to the circumstances of the welfare, care or development of a child of the marriage. In Australia we use the term financial agreement instead of pre-nuptial. The agreement can be made before the marriage takes place or at some time during the marriagewhich is important to know if issues arise down the track. A later agreement can override an earlier one and can even deal with an issue such as maintenance of one of the parties either during the marriage or after it fails. Of course, both parties must have independent legal advicepertaining to whether it is prudent, fair and advantageous to enter into that agreementbefore the document is signed. The legal position is different for couples who are living together but are not married. If married, the situation of financial agreements is covered by Commonwealth laws, while de facto relationships fall outside the Family Law Act and into the realm of individual state laws which are not consistent in their treatment of what might be called cohabitation contracts. Once your relationship develops a financial dimension it is important to obtain legal adviceperhaps as part of the less touchy issue of preparing willsso you know where you and your assets stand in the event of a split. It is possible to view pre-marriage or cohabitation contracts as applying pressure to the relationship at a time when everyone should be happy and in love. Does the act of preparing for the potential end of a relationship somehow curse the couple? Theres no doubt the process is stressful for it reaches deep inside the private lives of the individuals. But it also opens up communication on a subject which is the source of many cases of marital unhappiness and stress. You can then enter marriage with some
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degree of confidence that the secrets are all out in the open. A financial agreement is a business deal, but so are the many other arrangements and contracts you will have to enter into as a couple, from opening a shared bank account to getting a home loan, taking out insurance to giving guarantees for any business loans, to deciding whose credit card will bear the cost of booking a holiday or buying a washing machine. Couples are making joint financial arrangements from day one. Indeed, marriage itself is a contract. It is important to consider whether your relationship can handle deep financial discussion and whether your assets are such as to demand attention now. Issues might include establishing financial priorities such as private school or tertiary education fees for your children, deciding whether a significant inheritance will be treated as family money, and deciding how to split a shared business. If your relationship is sufficiently robust to handle the process now, having an agreement sorted out should substantially cut major legal costs in the future in the event of marriage breakdown. And if you have worked hard for many years to acquire assets and develop your investments, while your partner has been enjoying themselves travelling the world and spending every dollar theyve earned, you might feel you have a real justification for keeping some assets effectively off limits either forever or for a period of years. Pre-nuptial or finance agreements are not the only way to keep hold of those assets you really dont want to see walk away if your relationship should end. If this issue is important to you, then contact your solicitor to discuss the pros and cons of using
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a trust to hold and own the key assets of concern, and whether to write a new will to reflect your wishes.
9 give thought to investment choices which take the focus off the highhome. For example, you can use the equity in your home to support the
Save your money If things get rocky between you and your partner,
pressure, all-or-nothing problem where the only valuable asset is the family purchase of a second investment property now. Its a solid investment as well as expanding your accommodation options, should that be necessary. And it might be impossible to do this, and maintain a cool head, in some later period of emotional conflict.
9 pre-nuptial issue with an unwilling partner. Its only money after all.
Save your relationship Perhaps it would be better not to press the
10
Finishing workwhat to expect
Finishing work what to expect
f you think youve done all you reasonably could do to prepare financially for life after workperhaps paying off your home, making some investments and topping up the super you are in for a pleasant surprise. There is so much more you can do, with the help of a motivated advisor, to shape your financial position to take best advantage of the rules and maximise your income in retirement. Couples, in particular, are privileged under our financial and taxation systems. In some ways, retirement is no big deal. You still have your income assessed for tax, you still pay capital gains tax when you sell or dispose of an asset at a profitmuch continues as before. However, there are numerous strategies to help you pay less tax, with the encouragement of the government to use them. This aim of this chapter is to alert you to these strategies so
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you have plenty of time to discuss them with your partner, friends and financial advisors. This is not a book about retirement planninga highly complex area with regularly changing thresholds and eligibility criteria. What is important for those not yet at the end of their working life is a much simpler task: to understand the landscape of retirement finances. With a little information you can feel a lot more comfortable about the whole process. Think about your vision of what retirement should be like. How do you see yourself (and, if relevant, your partner too)? There will be financial choices to be made in the lead-up to retirement and choices upon commencing retirement which will impact greatly on how your retirement years unfold. They will determine whether, for example, you have large sums of money available for major expenditurea new car, world travel, a yacht, a sea changeor whether you set up a scheme that turns your savings into a tax-advantaged income stream. Or a little bit of both. Again, its important to keep your goals clearly before you as you plan your retirement years. Well-meaning advisors could direct you down a path which, though responsible and professionally sound, is simply wrong for you. Before you turn to the experts, consider your life goals and make some decisions.
1. Take a lump sum super payout or not?

Your super is, after any tax liability, your own money. Youve earned it and have stood back and watched it grow over the years. Note, however, that the government does not want you
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to get hold of all your super in one lump payment, because they are aware that the typical Australian will likely burn through it quickly and end up on a pension. If this were to happen, we would move from being potentially self-supporting in retirement to being dependant on social security. A new car, the overseas holiday, some renovations . . . and weve gone through $70,000 to $100,000. The government has a plan to encourage us to keep our hands off a large lump sum payout when we retire: the Reasonable Benefit Limits (RBLs). The RBLs are important because they set a cut-off point of great significance for those who have accumlated substantial superannuationthat is, an amount exceeding the RBL. The RBLs are indexed each year. At the time of writing (0506 financial year), the RBL for a lump sum was $648,946, increasing to $1,297,886 if you take at least half your super as a complying income stream such as an annuity or a term allocated pension (TAP). If your super is below the RBL then it is taxed concessionally. The precise amount of tax will vary according to when you started your super fund, how much you put into super at various stages and so onbut the tax will be at a reduced rate. It is only when you exceed the lump sum RBL ($648,946) that there is an issue and you still want to get a tax concession if you can. It becomes your choice: by taking at least the lesser of 50 per cent of your measurable superannuation benefit or 50 per cent of the pension RBL ($1,297,886) as a complying income stream, you can take the remainder as a lump sum or a non-complying income stream, such as an allocated pension, allocated annuity, etc.
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2. What type of income stream product is best for me?

You have the choice between three main types of income stream product. Table 10.1 shows the issues with each and highlights key features. Your decision here is whether you want absolute certainty of cash flow or whether you will trade some uncertainty or risk in return for potential reward: capital gain and increased income in the good years, reduced payments when the market is down. Tip: Many retirees use a mix of two or even all three of these options, gaining a little of the best of all threesome certainty of income, some potential for asset growth, some easier access to the age pension.
3. Am I aiming for the age pension and government concession card?

This is the focus of much retirement planning. Even if you intend having sufficient income for your retirement it is still of great value to be eligible for the government Health Care Card a concession card that offers reduced costs on PBS medicines; reduced fees for ambulance, dental and eye care; reduced public transport costs; reduced water rates; and reduced energy bills. Importantly, you receive the card and the full benefits even if you just scrape through the pension tests and are eligible for only a single dollar of pension per fortnight. Many of these benefits
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Table 10.1 Income stream products

Benefits Income yesbut generally lower income than from the same investment in an AP or TAP choose your income noincome is fixed each year provides a guaranteed annual income no no Complying annuity (CA) Allocated pension (AP) Term allocated pension (TAP)
yesincome varies with performance and within annual maximum and minimum limits set by the rules yes
noincome is a proportion of your account balance each year (which varies with performance) and the remaining term of the product yes
income tax saving income is paid to you for a fixed term Capital
yes
yesor even for your noonly until your yesto age 100 lifetime money in the AP runs (since 1 January out 2006) yesbut you can also suffer capital losses yes yesbut you can also suffer capital losses noTAP cant usually be cashed-in before the maturity date unused amount would go to the nominated beneficiary or to the estate, at the Trustees discretion
no your money continues to grow capital gain is possible can withdraw capital no sums when you die your unused capital returns to the nominated beneficiary the balance will go to the beneficiary (or estate, depending on product, etc.) only if it was term certain or, with a lifetime product, if death occurred within the guarantee period
unused amount will go to the nominated beneficiary or to the estate, at the Trustees discretion
Working the retirement rules social security privilegemaking it easier to meet the assets test for the age pension tax saving of the higher RBL Frequency of payments choice between monthly, quarterly, half-yearly, annually yes yes yes yes50% of money in a CA is exempt from pension assets test yes no yes50% of money in a TAP is exempt from pension assets test yes
no
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are also available, in some states, with the state-based Seniors Card. Check details with local authorities when you approach retirement.
4. Should I/we continue, in retirement, to put money into superannuation?

Previous generations didnt have this option. You simply retired and withdrew your super. Now, in recognition of the more casual and potentially reversible way we retire, super remains open past normal retirement age, subject to a work test being satisfied. This means you can continue to enjoy various tax concessions on your savings. After all, you wont need all of your money in one hit. Chapter 7 has information on superannuation, so check there and set your strategy with your retirement advisors.
What does it all mean?

In short, if you are prepared to hand over control of most of your superannuation, you should end up with a higher net income in retirement and potentially a higher level of the age pension and the government concession card. Thats what its all about: control. If you have spent most of your life seeking to maximise personal financial controldirect ownership of property and shares, selling assets when they underperform or to take a profit, buying when values are low and selling when high, operating
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a self-managed super fundit may be hard to relinquish control of your super savings in retirement. When you buy an income stream product you are limiting your opportunities for the future and agreeing to focus on the income stream. It will be hard (or impossible in some cases) to access this money for sufficient cash to fund the purchase of a holiday home, make substantial renovations or buy into a business, for example. However, if your financial life has been characterised by a willingness to let others do the planningbuying into managed funds, putting money into superyou could be quite content to hand control to an income stream company in retirement and enjoy the tax benefits for a higher income and age pension entitlements. Clearly these are matters for expert financial advice based on your personal situation. See a planner at least a decade before your planned retirement date to set your course, with further sessions to fine-tune your strategy as the time approaches. It will cost you dearly if you leave the decisions until you retire.
Over the long years of their life together, Maggie and John worked successfully as a couple and as an economic partnership. They had bought a block of land and built their dream home, later they purchased a small apartment as an investment and, for the rest, relied on a modest amount of superannuation. In their relationship the lines were drawn clearly: John was the provider and Maggie the homemaker. Their income was above average and they travelled occasionally to Johns work conferences overseas. They were pretty satisfied with their lot
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and both of them knew their place in the relationship and what duties were expected. Then John died. People were worried about how Maggie would cope, as John had always handled everything financial for the both of them. It came as a surprise to their friends when Maggie started consulting with financial planners and found her own stockbroker. It took a while for Maggie to discern the ins and outs of the household finances and it was with some shock she realised their savings and investmentswithout Johns fortnightly salarywould trap her in poverty. And she intended living for a further 30 to 40 years! The advisors informed Maggie that Johns investments had dropped her squarely in the hole where she would miss out on the age pension, yet she didnt have sufficient assets to generate a comfortable independent retirement income. She could either spend the super on a car and other consumer goods, aiming eventually to drop down into the pension category, or she could make her money work harder and smarter. She chose the lattereven though her advisors were recommending the former. Maggie blossomed in her new role. Although she is not one to admit it, John had repressed her entrepreneurial side. Clearly, she was the one with the financial head on her shoulders, but traditional expectations meant she deferred to her husband on these matters. Stepping out from his shadow Maggie quickly took off, seeking expert advice and becoming a voracious reader of financial pages in the newspapers and company reports. She quizzed her stockbroker about every decision and soon became knowledgeable about her shareholdings. Although she left her run a little too late to ever become wealthy, she is now well-off and, importantly, can see how her investments will finance the years aheadher diversified asset base
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is actually growing faster than inflation and faster than she is withdrawing cash.
Reverse mortgagescash to live on or tie you down?

When thinking ahead about how you fund your retirement, keep your eyes on developments in a financial product called a reverse mortgagea mortgage taken out by retirees over their home with all interest and principal repayments deferred until they die, sell or enter an aged-care facility. Its a product that has been around for many years, coming and going in popularity. But recently our financial institutions have rediscovered it and are promoting it with vigour. It sounds like an ideal solution for those who want to grow old gracefully in their home but who know they will run through their super and cash. Heres how a reverse mortgage works and what it can offer you: Security: mortgage over your home Maximum limit on borrowing: up to $750,000 depending on the age of the youngest person living in the home and the value of that property, etc. Minimum limit: $10,000 to $40,000 depending on the lender Loan-to-valuation ratio: around 1520 per cent, but up to 45 per cent is possible with some products Interest rate charged: 0.51.5 per cent above a standard variable rate home loan; most are variable-rate products Lump sum: depending on the product, you can choose to take the money as a lump sum or as a regular income stream.
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There are also some problems with a reverse mortgage, as outlined below: Compounding interest. At current interest rates your debt will more than double in approximately ten yearsand have multiplied five to seven times at the 20-year mark. Fees. Application, annual, periodic valuation, on redraw the fee tap is well and truly turned on. Agents. Watch out for self-serving advice from brokers and planners who see reverse mortgages as a way to reach into your home equity and provide themselves with a sizeable commission. Get legal advice before signing up. Effect on pension. If you will be relying on the age pension, check with Centrelink staff whether your particular intended reverse mortgage will impact on your pension eligibility or entitlements. While it is possible for a reverse mortgage to be an assessable asset, it is rare that it would affect a pension. Its worth noting that some providers offer a reverse mortgage product secured against an investment property. This, too, does not have to be repaid until death, nor must it be repaid should you move into assisted aged care. In fact, they could have an effect of increasing entitlement to a pension in these circumstances! Seek professional advice. Your estate. A reverse mortgage will cut a big hole in the inheritance you leave behind. Your options. The speed with which the debt increases will eat up your home equity and limit future choices such as downsizing (selling your home, buying a cheaper home and utilising leftover cash) or moving into a retirement or agedcare facility.
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Maintenance. You will be under a contractual obligation to insure and maintain your home so as not to jeopardise the lenders security. Surviving partner. The reverse mortgage conditions apply to whoever is on the legal title to the property. If there is only one name registered as owner, the loan falls due for repayment when that person dies or even if they enter an aged-care facility. A surviving partner could be left in the lurch. These are general guidelines and, increasingly, we can expect growing competition to deliver a wider range of options. As you can see, reverse mortgages are not simple and have potential problems that dont often make it into the glossy advertisements. As you look to the future, keep reverse mortgages in mind as an option but also consider these practical alternatives: Family members who are in line to inherit your home might well agree to assist you with cash for holidays, a car, medical treatment or a renovation. They will probably be in a better position than you to borrow money at the best rates. Alternatively, they might pay the interest for you. Be aware that lump sum payments from family could affect your pension entitlements so check with Centrelink first. Dont be pushed into a reverse mortgage by your bank or other financial institution! Shop around and you may be able to establish a line-of-credit loan secured against your home. For example, set up a credit limit, redraw small amounts as you need them and let the interest accumulate. The advantage is that you are not caught by the many peculiar conditions of a reverse mortgage (periodic valuations, minimum bor-
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rowings, higher interest rate, fees, issues over moving into a residential aged care facility). For smaller amounts, Centrelink runs a Pension Loan Scheme. The interest rate is around 2 per cent below current variable home loan rates and there are no repayments or ongoing feesthe loan falls due when you die or sell. The catch is that Centrelink wont pay a lump sum but will deliver the loan in fortnightly instalments. Shared equity schemes. Some lenders will lend you money now, deferring interest and repayment of principal, in return for a proportional share in the equity of the property when it is sold. Bendigo Bank offers this sort of product but you might consider discussing the scheme with your own bank or financial institution. With all options, remember to check with Centrelink staff about the impact on your pension plans.
9 Limitsseek early advice and projections so you can design your

pathway to retirement income.
Save your money Dont get caught out by the Reasonable Benefit
9 alternative (to buy an income-stream product to fund your retirement

or to keep control of your assets). Its an unbelievably important step and the consequences could impact on the rest of your life together.
Save your relationship Make sure your partner agrees with the chosen
11
I
Fitting your investment plan to your life plan not the reverse
Fitting your investment plan to your life plannot the reverse
f you think you have a different attitude to investing than your partner, youre not alone. People talk about gender differences in many contexts but rarely, in my experience, when it comes to how we make and control our money within a relationship. Rarer still is any data on this subject. Investment house Merrill Lynch carried out some noteworthy research on the different attitudes of men and women to investment, mistakes and risk, publishing their findings in November 2004, with further analysis in April 2005.17 Their survey of 500 men and 500 women (in the United States) confirmed a number of differences which led Merrill Lynch to identify four investment personalities. Of particular interest were some of the smaller points. The survey found that men: are more likely to hold onto a losing investment too long women tend to bail out earlier;
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are more likely to trade securities too often and get into a hot investment without doing any prior research; are more likely to allocate too much money to the one investment; are more likely to repeat their mistakes. In the same survey, women were found to: make fewer investment mistakes than men; report that they are not knowledgeable about investing; be more likely than men to seek expert advice about money issues; be less likely than men to gain enjoyment from their investing. While this survey is interestingand the research is aimed at encouraging men and women to seek out professional investment help from advisers like, well, Merrill Lynchits ultimate value lies in reminding us that a necessary pre-condition of successful investing is self-awareness. Studies like this one identify the sorts of issues where couples can be at loggerheads for years without understanding precisely why they cant reach agreement on an investment strategy or product. In some relationships, the terms men and women could be switched in the survey summary above and that might be more pertinent to your own situation. Are you the competitive investor, or is it your partner? Who does the research, who makes investment decisions by the seat of their pants? And who is dragged reluctantly into discussions over household finances? If single, how do you rate on these criteria? For example, do you gain enjoyment from your investing? Do you repeat your money mistakes?
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Studies are useful but reality is wilder and more wilful. Today you might be the capable, informed investor but what about tomorrow? People change. Our attitudes to risk, reward, research, using advisors and so on, dont necessarily remain static over the long haul. Relationships hit financially dangerous times when they lose their transparency, when one party doesnt really know what the other is doing. In recent times this was dramatically demonstrated in the lives of the Greenwoods.
You could write a book about that!

Angela Greenwood and her then husband had run a business together in the United Kingdom and raised four children along the way. On the surface it looked like they knew how to handle their money and were quite capable of achieving major goals. Having migrated to Australia with $800,000 in the kitty, Angelas husband said he was looking out for business opportunities. Unfortunately, he poured the family savings into trading in currency futures and lost the money and his marriage. This currency gambling had gone undetected for some time because Angela had left the finances largely in her husbands hands. Leaving aside the rights and wrongs of their unfortunate situation, it seems Mr Greenwood arranged to pick up account statements from the bank rather than leave them to arrive by post where his wife might open them. He used the chequebook and handled bill payments for the family. Angela somehow let herself slip out of the picture and it was not until she saw a letter to her husband from his father that she woke up to the fact there might be a problem.
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A troubling detail is that the lost money came from joint accounts and their bank had a substantial file on Mr Greenwoods spiralling currency trading fortunes and did not directly inform her about it. So Angela, with legal aid assistance, sued the bank over its involvement, finally reaching a financial settlement at the door of the court. But it was not an easy chase. It is obvious enough that we make trouble for ourselves when we opt out of direct involvement in monitoring the family finances. Yet its the second lesson of this tale that also strikes home: we cant rely on others outside our relationship to warn us when they become aware there is a money problem. Banks, solicitors, accountants, financial planners, stockbrokers . . . we can surround ourselves with experts, put joint names on the documents and know these people personally, but each of us has to step out of our comfort zone and, from time to time, ask these people frankly: Is everything all right with our investment? You can read the full story in Till Debt Us Do Part, by Angela Greenwood and Catherine McKimm, published in 2005 by Bantam.
How do you want to live?

This book began by questioning the conventional wisdom of working hard to support a carefree retirement. While that remains a valid goal for many, there are many other people who do not function well as lifetime savers. The goal is too far away and there are many exciting things to do along the way. What you must do is recognise fairly who you are and customise the classic but inflexible one size fits all financial strategy into a tailor-
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made strategy that works for you, whether youre single or part of a couple. The differences are real and are critically important if you are to find the strategy which will form the financial spine of your life. Buying the wrong assets and using inappropriate financial or investment products will hem you in, closing the door on opportunities for fulfillment. We cant afford to do everything! What follows are ten scenarios that attempt to put investment into a lifestyle context. I hope they stimulate you, in league with your expert advisors, to create your own optimised strategy so that your money serves your needs and desires without pushing you into a narrowed experience of life, weighed down by the demands of servicing debt or worries about the future.
1. If your cash flow is strong but you have become lazy with your money
CONSIDER: investment propertyparticularly residential for long-term capital growth; shares and managed funds which focus on capital growth ahead of income; property development; term deposits; an Internet savings account; salary sacrificing into your superannuation; contributions into the super account of your spouse; sharemarket optionsthese are a risky but potentially very rewarding direction if you are prepared to take an active interest and seek expert assistance.
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2. If your cash flow is poor but you dont want to move into a more demanding job
CONSIDER: shares which offer franked dividends and imputation credits to get tax-paid income; shares with high dividend yields; units in managed funds designed to chase income ahead of capital growth; debentures for holding your cash reserves; a cash management or Internet savings account; converting principal-and-interest loans into interest-only loans until your cash flow improves; avoiding margin loans for shares.
3. If your financial position is sound but you want to pursue higher income for a comfortable retirement
CONSIDER: investment propertythink about commercial or industrial. (The rental yield should normally be much higher than with residential property and, in addition, the tenant pays many of the outgoings. But long-term vacancy is always a risk and if maintenance or repairs have to be done you will have to find the cash without delay); shares which offer franked dividends and imputation credits to get tax-paid income; shares with high-dividend yields; sharemarket optionsthese are a risky but potentially very rewarding direction if you are prepared to take an active interest and seek expert assistance;
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units in managed funds designed to chase income ahead of capital growth; buying and operating an existing business with established cash flow and strong prospects for growth; debentures for holding your cash reserves; a cash management or Internet savings account; converting principal-and-interest loans into interest-only loans to release more income for other investment purposes.
4. If you are prepared to make sacrifices of income now, to accumulate assets for the future
CONSIDER: investment propertyresidential, in a good areas; shares and managed funds which pursue capital growth ahead of income, perhaps financed with a margin loan or a general savings plan; buying a more valuable home or developing your home to increase its value.
5. If you are easily upset by financial risk but need to increase your income
CONSIDER: bank term deposits to hold your cash reserves; managed fundsas a long-term strategywhich target income and use imputation credits; an Internet savings account; purchasing a residential investment property with at least 50 per cent equity and a tenant already in place.
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6. If you want to minimise your risk exposure while improving capital growth for retirement
CONSIDER: avoiding property investment if this involves a single property look for opportunities which spread the risk of vacancy: buying a lower-cost set of flats in a regional area, investing in a number of properties as part of a syndicate, focusing on property trusts instead of direct investment; using managed funds to buy sharesas a long-term strategy; avoiding online share tradingstick with expert advice; working closely with a stockbrokerseek advice on using hedging products to reduce risk exposure.
7. If you see yourself as an entrepreneur and will risk some losses for chasing quick profits
CONSIDER: working closely with a stockbrokerperhaps targeting company floats, as advised by your broker, that are hunting for profit; sharemarket optionsthese are a risky but potentially very rewarding direction if you are prepared to take an active interest and seek expert assistance; avoiding routine property investment; during an ongoing period of boom in property markets, consider the use of a deposit bond to acquire a property off the plan before prices rise, but leaving you substantial time over the contribution period to gather your forces to complete the purchase;
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bear in mind that investment assets sold within 12 months of acquisition do not receive the benefit of the 50 per cent concession on capital gains tax.
8. If you are a couple

CONSIDER: in whose name should an asset be ownedjoint names or in one partners name solely? This is perhaps the single most important issue. It can be tempting to purchase investment assets in the name of the partner paying the highest marginal rate of income taxthereby gaining more from the tax deductions if these are significant in amountbut you must also consider whether this tax position could reverse (such as through illness, when raising children or if one partner retires well ahead of the other). Asset transfers down the track might remedy some changes in tax position but will incur capital gains tax and stamp duty; splitting income to maximise tax advantages and increase overall household income. taking advantage of the many superannuation benefits, concessions and strategies available for couples (see chapter 7).
9. If you are single

CONSIDER: using tax-paid investments so as not to lose too much of your income as your marginal tax rate risesthink about shares and managed funds which focus on franked dividends, and insurance bonds over the longer term;
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the capital gains tax exemption for home ownership becomes even more important to working singlesaim to buy a home and, over your lifetime, to sell and buy again, moving to increasingly valuable property; investigating full insuranceat the minimum, use income protection to secure a long-term income in the event of illness or injury, and term life insurance with a 100 per cent prerelease of benefit in the event of a terminal diagnosis; finding a stockbroker who shows a genuine interest in your welfare; it can be difficult to move ahead successfully, as a single person, without the active involvement of advisors and a more active approach to investment. Beware of simply dumping money into a faceless managed fund and leaving it to its own devices; seeking advice from pension experts about the optimal make-up and design of your portfolio (assets, income, superannuation) so as not to jeopardise your best pension entitlement by decisions of marginal financial gain. Unless you have a high income and a frugal lifestyle it is quite likely you will retire with some reliance on the age pension.
10. If you want to travel forever and do not intend sticking to one job
CONSIDER: an Internet savings account; a regular (monthly or fortnightly) direct-debit saving plan; acquiring a qualification which will enable you to earn a good income all around the world;
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avoiding investments which can require a sudden injection of a large amount of cashfor example, residential property investment or a margin loan for shares/funds; maintaining a low marginal tax rate through the use of taxpaid investments such as franked share dividends; being cautious of financing investments with line-of-credit loans as the temptation is strong to dip into them for private expenditure when you lack the steady income to pay the balance off; using advisors to recommend and then monitor your investments (if you are not around locally you will not recognise when the economic situation is changing); maintaining your portfolio of shares and/or managed funds onlineeven if you rely on advisers for trading purposes, you should set up your investments so you can check performance and value wherever you find yourself; appointing a power of attorney, authorising someone at home to make financial decisions (and sign all necessary documents) in your absence; getting more liquid property exposure, such as listed property trustsremember that it can take months to get money out of a direct property investment, and it can be inconvenient and economically painful to arrange a sale when you are not at home; seeking advice, where possible, on timing an asset sale for a financial year when you expect to have a low income or when there will be a matching capital loss on disposal of another asset. For example, it may be financially detrimental to work extra hours all year to save for an extended travel period and then sell a valuable asset in the same financial year to cash-up
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for your tripyou could be maximising the tax youll pay rather than minimising it through strategic timing.
It was on an overseas holiday that Ray met Ayesha. Ray was very much a free agent, working odd hours as a counsellor with a youth refuge back in Sydney. He had decided early on that university was not for him and neither was a straight nine-to-five day job. It was while travelling in Asia on a fairly open-ended holiday that he fell in love. Ayesha, on the other hand, was a tertiary student, studying English in Japan with the hope of one day working in an English-speaking country. She was mid-course when she met Ray and it seemed their relationship would be doomed by geography. When Ray returned home, he knew his immediate task was to earn sufficient money to get him back to Ayeshabut what could he do? His work at the refuge left him with little more than rent and petrol money. Fortunately, Rays mother had a loyal and intuitive stockbroker with whom she had been dealing for many years. The stockbroker took the lovesick Ray under his wing and suggested he use his last savings to invest in a new company float on the stock exchange. Ray knew nothing about company floats but he trusted his mothers stockbroker with his $2000. Within days of the float this had swelled to $4000 in value. As Ray had no substantial financial commitments or debts to carry, he was able to use this money to fly to Japan for another two weeks with Ayesha. Upon his return to Australia, he called the stockbroker who suggested another ripe company float. Again, this was successful and Ray made a windfall, even after tax. This happened many times and the romance progressed with frequent flying time. Sometimes there were losses or floats which
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failed to perform to expectations but, on the whole, the strategy worked under the guidance of Rays dedicated stockbroker. Despite his lowly welfare wage, Ray was able to finance his modest lifestyle and devote all his savings to his immediate goalthanks to finding the right expert advisor.
Happy ever after

Have you found your motivation to do more with your money, to make your goals a reality? That was certainly my aim in writing this book and I hope you feel moved to action. Moneymaking is one of the few areas in life where you can be lazy but still successfulprovided you put in some initial effort to get your plan well designed and established. That effort can come later in life, too, at the point where you suddenly wake up to the fact that you are sitting on unproductive assets or simply when retirement ceases to be an irrelevant term that older people worry about. Our finances have become complicated and there are plenty of businesses aggressively targeting us with new products and the lure of easy credit. We need expert assistance to find our way through the maze. Yet we must be wary of being sold the wrong plansomething that works well for the advisor or for the majority of people. Do you want to go your own way? Customise your plan so that your money-making actually enhances your life, understanding with deep self-awareness what your ambitions are, your strengths and weaknesses, whether single or as a couple, so that you may strive to live happily ever after.
Resources, reading and contacts

Your finances
Reserve Bank of Australia: Phone (02) 9551 8111; rba.gov.au National Information Centre on Retirement Investments provides information on retirement product choices and options. Phone 1800 020 110; nicri.org.au
Interest rates
Here are some sites where you can find current interest rates for loans from a wide range of financial institutions: Cannex: cannex.com.au InterestRate: interestrate.com.au Infochoice: infochoice.com.au Ninemsn: money.ninemsn.com.au
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Yahoo: yahoo.com.au eChoice: echoice.com.au
Financial product comparison

If you want some guidance and assistance with comparing various financial products (banking, loans, deposits, managed funds), go to the websites below: Cannexfor comparison of mortgage rates, fixed-interest investments and much more: cannex.com.au Infochoice: infochoice.com.au Morningstarfor comparison of managed funds: morningstar.com.au Your Mortgagefor comparison of mortgages: yourmortgage.com.au Flick Your BankAustralian Consumers Association site for information on choosing the right bank accounts: flickyourbank.com.au
Financial planning
Here are some useful places for information on integrating your financial and investment projects: Ninemsn: money.ninemsn.com.au Moneymanager: moneymanager.com.au (part of the f2 network) ING/Financialpassages: ing.com.au AMPa fine personal finance site: amp.com.au Investorweba good place for information on property trusts: investorweb.com.au
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Financial Planning Associationhere youll find information on licensed financial planners and assistance via an online referral service: Phone 1800 626 393; fpa.asn.au
Online mortgage providers and brokers

There are many of these now. Dont know which loan is right for you? Online mortgage finders will help you. Here is a selection to get you started: echoice.com.au mortgagechoice.com.au wizard.com.au mortgagehouse.com.au homeloansnow.com.au peachhomeloans.com.au isay.com.au yeshomeloans.com.au
Credit records
Your credit recordat Baycorp Advantage you can check your credit record, for a fee: Phone (02) 9464 6000 or go to mycreditfile.com.au. Another major credit reporter is Dun and Bradstreet: dnb.com.au Consumer Credit Codefind out about a lenders obligations under the Credit Code, including the mandatory use of a comparison rate in advertising: creditcode.gov.au
Taxation
Income tax
Australian Taxation Office. Personal tax inquiries: Phone 13 28 61; ato.gov.au
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Stamp duty
For inquiries and information, call your state or territory revenue office or go to its website. ACT: Phone (02) 6207 0028; revenue.act.gov.au NSW: Phone (02) 9685 2122 or 1300 139 814; osr.nsw.gov.au NT: Phone (08) 8999 7949 or 1300 305 353; nt.gov.au/ntt/revenue QLD: Phone 1300 300 734; osr.qld.gov.au SA: Phone (08) 8226 3750; revenuesa.sa.gov.au Tas: Phone (03) 6233 3566 or 1800 001 388; treasury.tas.gov.au Vic: Phone 13 21 61; sro.vic.gov.au WA: Phone (08) 9222 8866; dtf.wa.gov.au
Land tax
For inquiries and information, call your state or territory revenue/land tax office, or go to its website. ACT: Phone (02) 6207 0047; revenue.act.gov.au NSW: Phone (02) 9689 6200 or 1300 139 816; osr.nsw.gov.au NT: nt.gov.au/ntt/revenue QLD: Phone (07) 3227 7577 or 1300 301 547; osr.qld.gov.au SA: Phone (08) 8204 9870; revenuesa.sa.gov.au/taxes Tas: Phone (03) 6233 3068 or 1800 001 388; treasury.tas.gov.au Vic: Phone 13 21 61; sro.vic.gov.au WA: Phone (08) 9262 1400; dtf.wa.gov.au
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Consumer protection agencies and associations

Australian Competition and Consumer Commission (ACCC). This independent statutory authority of the Commonwealth government administers the Trade Practices Act, Prices Surveillance Act and many other pieces of legislation. Phone 1300 302 502; accc.gov.au. Australian Securities and Investments Commission (ASIC). You can check with ASIC whether your financial planner is licensed. Information phone line: 1300 300 630; asic.gov.au. For general consumer and investor information and education go to ASICs fido website: fido.asic.gov.au. Commonwealth Ombudsman. The Ombudsman investigates complaints about Commonwealth government departments, agencies and officers. Phone 1300 362 072; comb.gov.au. Consumers Online. This is the Commonwealth governments consumer protection site; consumersonline.gov.au. Ministerial Council on Consumer Affairs. This division looks after product safety recalls and some elements of consumer protection education and policy; consumer.gov.au Australian Capital Territory Office of Fair Trading: Phone (02) 6207 0400; fairtrading.act.gov.au New South Wales Department of Fair Trading: Phone 13 3220; fairtrading.nsw.gov.au Northern Territory Department of JusticeConsumer And Business Affairs: Phone 1800 019 319; caba.nt.gov.au or nt.gov.au/caft
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Queensland Office of Fair Trading: Phone (07) 3246 1500; www.fairtrading.qld.gov.au or consumer.qld.gov.au South Australian Office of Consumer and Business Affairs: Phone (08) 8152 0732, or (08) 8204 9777; ocba.sa.gov.au Tasmanian Office of Consumer Affairs and Fair Trading: Phone (03) 6233 7667, or 1300 654 499; justice.tas.gov.au/ fair_trading Consumer Affairs Victoria: Phone (03) 9627 6000 or 1800 656 393; or 1300 558 181; consumer.vic.gov.au Department of Consumer and Employment Protection. Consumer Protection Division: Phone (08) 9244 1299; docep.wa.gov.au The Australian Consumers Association (ACA). Independent, non-party-political consumer organisation. Publisher of CHOICE magazine and lobbying organisation for consumer protection and policy development. Phone: (02) 9577 3333; choice.com.au
Superannuation and retirement planning

Association of Superannuation Funds of Australia (AFSA). The super industry association. Phone 1800 812 798; superannuation.asn.au. Selecting Super. The governments site for information about superannuation choice: superchoice.gov.au. Phone the helpline on 13 28 64; selectingsuper.com.au
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The Australian Securities and Investments Commission (ASIC) has a downloadable brochure about making superannuation decisions on their website: fido.asic.gov.au The Australian Taxation Office has helpful information on superannuation and, in particular, the taxation aspects. Phone 13 10 20; ato.gov.au/super Disputes and complaints about superannuationcontact the Australian Prudential Regulation Authority on 1300 131 060; apra.gov.au or the Superannuation Complaints Tribunal on 1300 884 114; sct.gov.au National Information Centre on Retirement Investments (NICRI)for impartial information but not personalised advice. Phone 1800 020 110; nicri.org.au
Self-managed superannuation funds

For contact details on specialist advisers who can assist with a self-managed super fund go to rainmaker.com.au and use its links to find an advisor.
Information on superannuation fund performance

Rainmakers SelectingSuper at selectingsuper.com.au Whats What at superratings.com.au Chant West Financial Services AppleCheck at chantwest.com.au InvestorSupermarket at investorsupermarket.com.au
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Superannuation calculators
Here are five sites where you can find help with online superannuation calculators. Check the assumptions for each calculator to find the one that will best assist you in your situation: amp.com.au , mlc.com.au , superannuation.asn.au , rainmaker.com.au, fido.gov.au
Property associations
The Real Estate Institute. There is a national office and a separate office for each state and territory. Real Estate Institute of Australia: reia.com.au ACT: reiact.com.au Northern Territory: reint.com.au Queensland: reiq.com.au Western Australia: reiwa.com.au South Australia: reisa.com.au New South Wales: reinsw.com.au Victoria: reiv.com.au Tasmania: www.reit.com.au The Property Council of Australiapropertyoz.com.au Property Owners Association of Australiainformation and lobby group for landlords and small business operators: poaa.asn.au Registered property valuers. For a referral to a valuer, or to find out about their code of conduct, contact the Australian
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Property Institute. There are state bodies but the national secretariat is at 6 Campion Street, Deakin ACT 2600; phone (02) 6282 2411. National website: propertyinstitute.com.au Financial Planning Association of Australia: Phone 1800 337 301, or in Melbourne (03) 9627 5200, or for referral to a financial planner 1800 626 393; fpa.asn.au Tenancy Information Centre of Australia. This is a site very much for landlords, looking at how to check on prospective tenants: tica.com.au
Law societies
Do you need to find a solicitor? The local lawyers society or institute will direct you. Law Society of the ACT: Phone (02) 6247 5700; lawsocact.asn.au Law Society of NSW: Phone (02) 9926 0333 or 1800 357 772; lawsocnsw.asn.au Law Society of the Northern Territory: Phone (08) 8981 5104; lawsocnt.asn.au Queensland Law Society: Phone (07) 3842 5888; qls.com.au Law Society of South Australia: Phone (08) 8229 0222 or 1800 650 288; lssa.asn.au Law Society of Tasmania: Phone (03) 6234 4133; taslawsociety.asn.au Law Institute of Victoria: Phone (03) 9607 9311; liv.asn.au Law Society of Western Australia: Phone (08) 9322 7877; lawsocietywa.asn.au
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Industry complaints handling schemes

Australian Banking and Financial Services Ombudsman. The Ombudsman handles disputes involving member banks and their affiliates, and can make an award in the consumers favour up to a maximum of $250,000. There is no charge for this service. Phone 1800 337 444; abio.org.au
Credit unions and building societies

Complaints and disputes are handled by more than one potential agency. You may have to contact a couple of agencies before you find the right one for your particular financial institution: Credit Ombudsman Service: Phone 1300 780 808; creditombudsman.com.au The Financial Co-operative Dispute Resolution Scheme (FCDRS) deals with complaints from consumers about credit unions and building societies which are members of the schemeissues such as ATM, eftpos and credit card disputes. Phone 1300 139 220; fcdrs.org.au. This scheme does not replace an earlier dispute resolution scheme for complaints involving credit unions which are members of the Credit Union Dispute Resolution Centre (CUDRC). Disputes with participating credit unions (which abide by a code of practice) are handled without charge to credit union members. The centre has jurisdiction to handle complaints concerning amounts up to $100,000. A decision of the centre is binding on the credit union but not on the customer. Phone 1300 780 808; cudrc.com.au
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Australian Association of Permanent Building Societies. Building societies do not have their own dispute resolution scheme but have officers trained to handle complaints. Contact the head office of the society or go to the Australian Association of Permanent Building Societies for information on what to do. Phone (02) 6281 1588; aapbs.com.au
Financial Industry Complaints Service

This is a joint scheme from the Australian Banking and Financial Services Ombudsman, the Insurance Enquiries and Complaints Scheme and the Financial Industry Complaints Service. Phone 1300 780 808; fics.asn.au
Insurance
Insurance Ombudsman Service and Insurance Enquiries and Complaints Ltd. This scheme primarily handles complaints involving motor vehicle property damage and your insurance company, but also provides free advice about general insurance: property, contents, landlords policies and more (but not life insurance matters). The services are free of charge. Phone 1300 780 808; iecltd.com.au The Insurance Brokers Disputes Limited. This service handles disputes with insurance brokers. Its a free service and can handle complaints worth up to $50,000 for general and life insurance. Phone 1800 064 169; ibdltd.com.au
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Mortgages
Mortgage Industry Association of Australia. This is the industry body for non-bank mortgage providers, brokers and mortgage managers. There is a code of practicecheck the website. Phone 1300 554 817; miaa.com.au Mortgage Industry Ombudsman. The Mortgage Industry Association of Australasia (MIAA) established an ombudsman scheme in May 2000. It handles customer complaints about its members provided the customer has already attempted to resolve the dispute directly with the member but is not satisfied with the outcome. Members of the MIAA agree to abide by a code of practice, part of which includes an obligation to empower the Mortgage Industry Ombudsman to investigate, negotiate and ultimately make a decision on a customers complaint. A decision of the Ombudsman is binding on the Association member. An award can be made in favour of the customer up to a maximum of $100,000. The process is free of charge to the customer. Phone 1800 138 422 or in Sydney (02) 9267 1000; acdcltd.com.au
Stockbroker disputes and complaints

Go to the Australian Stock Exchange websiteasx.com.auor the government agency, the Australian Securities and Investments Commission, ASIC, which issues securities dealers licences, at asic.gov.au
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Stockmarket
Australian Stock Exchange: asx.com.au. For a stockbroker referral, phone 1300 300 279.
Property reports and marketing

Many real estate agents have their own individual websites. Contact them for the address. Here is a selection of more general property sites. Domain. A Fairfax publications site, domain.com.au, Domain is a good place to check real estate advertisements from the Fairfax publications around Australia. You can get a suburb snapshot, ask to be electronically alerted when a particular type of property is advertised, and can save particular property ads to your own short-list file. A mortgage comparison tool is also available. Australian Property Monitors. This site sells property reportsyou can select by postcode, suburb or even by street name. Auction results and a free email newsletter can keep you up to date: homepriceguide.com.au or apm.com.au HomePath. HomePath is an information site which is a subsidiary of the Commonwealth Bank. Free registration brings you information on aspects of buying, selling and investing in property, including calculators, some price data and a personalised property alert function: homepath.com.au
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Property. Here is a general website of interest with information on searching for properties, getting an agent, finance, etc.: property.com.au PropertyWeb. Although the focus here is largely on commercial and industrial property, there is still good information for those looking for homes or residential investments. Auction clearance rates and volumes (in price brackets) are a highlight feature. An interesting range of articles can be found here too: propertyweb.com.au Realestate. A property searching site: realestate.com.au Residex. Here you can get hold of price information and reports for Queensland and New South Wales for a fee. Performance predictions are a feature. Residex links to findmeahome.com.au where you can search for a property and mortgage: residex.com.au
Pre-nuptial agreements
Law Central. lawcentral.com.au Pre-nuptial Agreements Australia. pre-nuptialagreements.com.au Family Court of Australia. familycourt.gov.au/guide/html/property1.html Findlaw. findlaw.com.au/articles
Notes
Notes
1 2 3 4 5 6 7 8 9
National Savings: Trends and Policy, Malcolm Edey and Luke Gower, www.rba.gov.au/PublicationsAndResearch/conferences/ 2000/EdeyGower.pdf Reserve Bank of Australia Bulletin, table F.7 share market accumulation index Reserve Bank of Australia, Financial Stability Review, September 2005, p. 37, table 11 Private sector wealth, Federal Treasury figures, published by Australian Bureau of Statistics, 13 October 2004 Reserve Bank of Australia, Financial Stability Review, September 2005, p. 13, graph 20 Reserve Bank of Australia, Financial Stability Review, September 2005, p. 8, graph 10: house prices index Reserve Bank of Australia Bulletin, table A.2: monetary policy changes Reserve Bank of Australia Bulletin, table G.1: measures of consumer price inflations 2004 World Wealth Report published by Capgemini and Merrill Lynch, June 2004, www.us.capgemini.com/worldwealthreport/wwr05_2.asp
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10 11 12 13 14 15 16
17
Reserve Bank of Australia, Financial Stability Review, September 2004, pp. 1011 Reserve Bank of Australia, Financial Stability Review, September 2005, p. 11, graph 14 Australian Superannuation Funds Association, WestpacASFA Retirement Living Standards benchmark; ANOP Research Services reports on community attitudes: see www.asfa.asn.au Reserve Bank of Australia, Financial Stability Review, September 2005, p. 37, table 11 Australian Securities and Investments Commission, 16 September 2004, release 04-300 Australian Securities and Investments Commission, 17 February 2005, release 05-30 National Centre for Social and Economic Modelling and AMP, 5 April 2005: AMP Natsem Income and Wealth Report Issue 10: Love can hurt, divorce will cost, by Simon Kelly and Ann Harding, issue 10; see www.natsem.canberra.edu.au Merrill Lynch Investment Managers Survey, April 2005, www.ml.com/index.asp?id+7695_7696_8149_46028_47486_47543
Index
Index
additional repayments of principal, 867 advertising, 134 age pension, 117, 149, 155 ageing population, 27 allocated pension, 150 annuity, complying, 150 assets, household, 201 Australian Securities and Investments Commission (ASIC), 130, 1335 bankruptcy, xv bond funds, 56 bonus shares, 81 calculators, 1301, 178 capital gain, 6483
capital gains tax, 62 concession, 745, 166 home, 7780, 167 offset, 756, 11415 superannuation for selfemployed, 1089 timing, 81 capital loss, 70, 7481 carry forward, 767 offset, 756 capital stable funds, 56 capital works deduction, 62 car deduction, 62 cash flow, 149 cash management account, 52, 163, 164 CGT see capital gains tax company floats, 165
187
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complying annuity, 150 conflicts of interest, 46 Consumer Credit Code, 173 couples money problems, 1378 pre-nuptial contracts, 1415 privileges, xiv, xv secrecy, 137 credit cards easy start, 128 low-interest switching, 89 right one, 912 credit record, 173 de facto couples, 143 debentures, 52, 578, 122, 163, 164 debt consolidation, 889 household, 84 reducing, 8495 deductions see tax, deductions deposit bond, 165 depreciation, 56, 62 direct debit savings plan, 6770, 167 disposable income, 136 dividend imputation, 545 divorce, 136 Domain, 183 entrepreneur, 9 equity mortgage, 131 experts, 436
fees, 62 financial planner, 46, 1389, 152 fortnightly repayments, 86 franking credits, 545, 60, 163 gambling, 1601 get rich seminars, 125 goal setting, 2831 health cost blow-out, 67 health insurance, 62 home office deduction, 62 imputation funds, 55, 163 income disposable, 136 increasing, 4851 splitting, xv, 166 income stream products, 14951 industry complaints-handling schemes, 1803 inheritance, 156 insurance building and contents, 119 deduction, 62 income protection, 119, 167 life, 119, 167 risk audit, 119 trauma, 119 insurance bonds, 166 interest rates current, 171 interest-only, 92, 163 international email, 126 Internet savings accounts, 52, 1624, 167
Index
189
investment attitudes, 1589 clubs and syndicates, 1323 joint ownership, 166 land tax, 174 liabilities, 201 lifestyle, 15870 line of credit, 91, 131, 168 listed property funds, 56, 168 loan calculators, 1301 fortnightly repayments, 86 interest only 5960 restructuring, 5860 see also mortgage loan-to-valuation ratio, 154 lump sum, 1478, 154 LVR see loan-to-valuation ratio managed funds risk, 120 use, 1628 margin loan, 163, 168 mature-age workers, 57 median age, 2 medical expenses rebate, 62 middle age, xiv money killers, 3447 money tasks audit, 1820 mortgage equity, 131 fortnightly repayments, 86 honeymoon rate, 934 interest only, 92
line of credit, 91, 131, 168 low start, 94 no frills, 91 offset, 90 professional packages, 90 reverse, 1547 mortgage brokers, 89 mortgage funds, 56 name see ownership NICRI, 171 offset account, 90 online share trading, 165 options, 162 ownership joint, 166 sole, 166 syndicates, 1323 pension loan scheme, 157 PIN number, 122 Ponzi scheme, 124 power of attorney, 121, 168 pre-nuptial contracts, 1415, 184 preservation age, 99 principal residence, 7980 procrastination, 3942 professional packages, 90 property
investing, 1313, 1628

premium for buying new, 127 travel to inspect, 125 property syndicate, 1323 property trusts see listed property funds
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Its Never Too Late
put-down partner, 359 pyramid scheme, 1234 RBL see Reasonable Benefit Limits Reasonable Benefit Limits, 150, 157 recontribution to superannuation, 112 rent yield, 82 repairs deduction, 62 Reserve Bank of Australia, 812 retirement early, 45, 8 how much money? 102 income, 96 income stream product, 14951 preservation age, 99 strategies, 14657 transition to retirement rules, 1023 reverse mortgage, 1547 rich, how they invest, 323 risk audit, 11820 salary sacrifice, xv, 1046, 162 savings Australia, 1 gearing program, 6770, 167 short-term, 513 self-managed superannuation funds, 10911, 1512, 177 self-reliance, 423 seminars, 13940
Seniors Health Card, 112, 149, 151 shared equity scheme, 157 shares capital growth, 162, 164 income-producing, 601, 163, 166 options, 162, 165 risk, 120 situation analysis, 217 solicitors, 179 stamp duty, 174 success, measuring, 1011 superannuation after retirement, 113 benefits, 979 calculators, 178 capital gains tax offset, 11415 co-contribution, 1067 consolidation, 114 contacts, 1767 DIY funds, 10911 early access, 1278 income stream product, 14951 low-income spouse, 107 low-tax environment, 98 lump-sum payment, 1478 part-time and casual workers, 109 preservation, 99 salary sacrifice, xv, 1046, 162 self-employed, 1089 splitting, xv, 1078 transition to retirement rules, 1023
Index
191
superannuation choice, 11516 superannuation surcharge, 98 surviving partner, 150, 156 swore analysis, 227 syndicates, 1323 TAP, 150 tax contacts, 173 deductions, 612 home office deduction, 62 see also capital gains tax
tax-free threshold, xv term allocated pension, 150 term deposit, 52, 122, 162, 164 travel to inspect, 125 two-tier pricing, 126 unsecured notes, 52, 578 weaknesses, 15 will, 121, 123

Its Not Too Late For Financial Security

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Its Never Too Late

Its Never Too Late

Its Never Too Late

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Its Never Too Late

Acknowledgments and disclaimer

Its Never Too Late

Introduction: Having it all

Its Never Too Late

The new middle age

Introduction: Having it all

Its Never Too Late

I want my life back!

Its Never Too Late

I want my life back!

The ageing populationwill it hurt?

Its Never Too Late

I want my life back!

Where the jobs are

Its Never Too Late

Jobs with the highest rates of mature-aged workers

I want my life back!

A positive time to make your move

Its Never Too Late

Finding your motivation

I want my life back!

Its Never Too Late

I want my life back!

Its Never Too Late

I want my life back!

How I found my motivation

Its Never Too Late

9 truly the person you are.

9 financial motivation in a different place. Dont put yourself under needless

Recognise that each partner may find their

Your weaknesses, your strengths

Its Never Too Late

Man with the money

Your weaknesses, your strengths

Three revealing exercises

Its Never Too Late

1. Money tasks audit

Your weaknesses, your strengths

10. Indicate your level of desire to work to a household budget. Partner 1 * * * * *

11. Indicate your level of desire to implement a financial plan. Partner 1 * * * * *

Its Never Too Late

2. List your assets and liabilities

Your weaknesses, your strengths

Its Never Too Late

Your weaknesses, your strengths

Its Never Too Late

Your weaknesses, your strengths

Its Never Too Late

Your weaknesses, your strengths

How I found my motivation

Its Never Too Late

Six tips for setting goals

Your weaknesses, your strengths

Its Never Too Late

Goals (in order of priority)

Your weaknesses, your strengths