With June 30 behind us, now is the ideal time to take stock and ensure you are in good shape for the coming financial year, says Chris Hogan, wealth management director at HLB Mann Judd Sydney.
Simply by evaluating the current financial setup and making changes where a deficiency exists or a better option is available can yield immediate and longer term benefits, Mr Hogan says.
“Some financial settings are easy to change while others require a degree of initial effort, but less ongoing effort, with the benefits lasting for many years,” he says.
There are five key areas HLB Mann Judd looks at with clients.
For a married couple, ensuring that interest-earning savings accounts are in the name of the lower income-earning spouse, to minimise tax, is key, Mr Hogan says.
“Where a mortgage exists, it is important to regularly ensure that the interest rate is competitive. Where it is not, a call to the bank can often result in a surprisingly simple negotiation to a lower rate.
“If the bank is not willing to negotiate on rate, re-financing the loan is an option. Naturally, this does take more effort, but it can provide significant interest savings over many years.”
Another good mortgage related strategy is simple but often overlooked.
“Where cash flow can be found, arranging for repayments greater than the minimum can save many years off the term of the mortgage.”
Investment portfolio with a regular savings plan
It is hard to build wealth when there is no clear place to build it, Mr Hogan says.
“Having an appropriate investment portfolio with the right ownership is the starting point. Following this, establishing a regular savings plan is the way to really build wealth.
“A regular savings plan is a regular commitment, usually monthly, that is added to the investment portfolio. The amount tends to be arranged via an automatic monthly direct debit into the investment portfolio.
“This setup allows for maximum benefit from the power of compounding investment returns. It also has the added advantage of ensuring you make a regular contribution to the portfolio, regardless of market movements, thereby smoothing the ups and downs of the share market over time.”
The new financial year is a good time to review your super fund to ensure it is still appropriate for your needs.
“A super fund review should involve looking at the type of investments the fund holds and the fees being charged, and ensuring that the level of risk is appropriate given attitude to risk and time in relation to retirement.
“Where there is a more appropriate fund available it can make sense to switch super funds. Many may also consider whether a self-managed super fund (SMSF) is an appropriate option for them, particularly those with larger balances.”
Consideration should also be given to whether additional contributions should be made to build wealth in a tax advantaged way.
“Additional contributions allow for the creation of wealth in a similar manner to an investment portfolio with a regular savings plan,” Mr Hogan says.
For many, arranging personal insurance that will protect the individual and family against an unexpected event such as illness, accident or death is a set and forget process. But regular insurance reviews are important, as policy costs and inclusions vary over time.
“What was once a competitively priced policy, ideally suited to your circumstances may no longer be the best option for you,” Mr Hogan says.
“The insurances that need to be considered and reviewed are term life, total and permanent disablement, income protection and trauma (critical illness).
“Income protection insurance is an area often neglected. People wouldn’t consider not insuring their $30,000 car, but often don’t think to insure their income earning ability, which can be worth millions over their working lives,” Mr Hogan says.
“While many people don’t like to think about their own mortality, ensuring that you and your partner have up to date Wills to ensure that wishes are carried out upon death and the family does not inherit a problem, should be a crucial consideration.
Other key documents to review are Powers of Attorney regarding financial decisions and Powers of Guardianship regarding medical and lifestyle decisions, Mr Hogan says,
“Too often people don’t take action with their finances because they feel they don’t have the time or lack the expertise to identify deficiencies and better options. This is where expert assistance may be required,” Mr Hogan concludes.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.
For more information please contact:
Chris Hogan – Phone: 02 9020 4216
15 July 2014