Flexible Financial Solutions

With housing affordability issues currently getting plenty of media focus, I’m going to take a look at an approach that may be of interest to those looking to enter the property market for the first time. It’s also a good way for parents to encourage and even assist their children to get out of the family home so they can finally enjoy some peace and quiet!

The Australian Government started a scheme in 2008 called “The First Home Saver Account” (FHSA). It is an initiative designed to tackle the current housing affordability issues and give first home owners a solid start. The scheme provides a simple, tax-effective way of saving for your first home, with the bonus of Government contributions of up to 17%.

The idea is to give an incentive to save, with the target being the deposit required to secure a loan for that first home. To reward savers, the Government will add contributions based on what you save and provide tax breaks on the interest earned along the way. So far it sounds too good to be true!

Each year the Government will contribute an amount equal to 17% of your personal contributions, up to a maximum which is currently set at $5,500. So if you can save that amount, the Government will top up your savings by $935. Now that is a good help along.

The scheme also pays interest on your savings that are generally comparable with term deposit rates. You will need to do your own comparisons but the rates should be competitive.

Interest earnings from the FHSA scheme are concessionally taxed at 15%, as opposed to your marginal tax rate which can be as high as 46.5%. Hang on, we are talking about first home buyers so maybe your tax rate won’t be that high, but even so it can still represent a good boost to your savings levels.

Also handy is the fact you don’t need to report anything when completing your tax return, as it’s all taken care of by the FHSA provider (bank, credit union etc).

An example of how it can work

Alice is aged 18 and is looking to buy a property but wants to save a 20% deposit to avoid paying mortgage protection insurance. She expects to spend $350,000 on a property and therefore will require a deposit of $70,000.

Her parents are supportive of Alice’s desire to buy a property and move out. To help Alice get her savings on track, they have struck an agreement with Alice. For the first three years they will match Alice’s savings dollar for dollar up to $3,000 and the savings are to be placed in a First Home Saver Account.

Alice, not wanting to put her life on hold too much, believes she’ll be able to save $100 a week or $5,200 per year.

In the initial 3 years Alice’s savings (with the help of her parents who have agreed to contribute $3,000/year) will be:

• $5,200 + $3,000 = $8,200/year

On top of this the Government will contribute 17% up to the current maximum amount of $5,500

• $5,500 x 17% = $935/year

Therefore, each year $9,135 ($5,200 + $3,000 + $935) will be added to her FHSA , which pays interest of 5.5%. 

Being delighted at the results of her savings after the 3 year parent subsidising period, Alice decides to up her savings to maintain the yearly savings at $8,200/year, and is now putting aside $157.70/week.

As a result of this savings plan Alice is able to reach her goal of saving $70,000 for her home deposit just after her 24^th birthday.

The $70,000 will be made up of:

• $42,250 – Alice’s savings
• $9,000 – Alice’s parents contribution
• $6,545 – Government co-contribution
• $12,205 – Interest from the FHSA provider

Of course there are factors to consider before proceeding with opening an account, and it is a good idea to get advice before jumping in. Some of the factors include:

• Setting realistic savings goals
• Eligibility for opening an account
• Choosing the account provider for your FHSA
• There are specific requirements around accessing your funds and these need to be fully understood

We can help with any questions you may have about these issues or more information is available at the Guide To First Home Saver Accounts

If you wish to look at how your savings plan could work with a FHSA, click on the link http://www.moneysmart.gov.au/ and navigate to ‘more calculators’ followed by "First Home Saver Calculator".

Andrew George

 *Image by nickcname via Flikr

I had the privilege to see Peter Tucker awarded the State Adviser of the Year last Thursday night for our licensee group. It wasn’t a big affair, two awards to two very deserving winners. But it made me think about what the awards mean for the recipient, the clients, and for the company itself. I think it is a story worth sharing as it goes to the heart of being in a service profession.



Peter Tucker, Stephen Redbond and Craig Todd, my fellow directors here at Sage, have each won one of the two awards over the last few years. In Peter’s case, he has now been the State Adviser of the Year twice – a rare feat. Obviously there is a theme and a reason for these wins. It isn’t a random piece of luck, but a commitment to being the best and doing your best at all times.

To be the State Adviser of the Year you must be nominated by your peers and satisfy a variety of criteria before making it to the judging panel. The finalists must all show outstanding abilities as a financial planner, demonstrating care and duty to all clients of the highest calibre. They must be compliant with the rules governing the profession and run exemplary business. Their ethics and behaviour are scrutinised to ensure a track record of honesty and transparency. Most importantly, they must have community involvement and spirit.
Peter’s nomination clearly showed how he met all the criteria and excelled in all areas. The judges agreed that Peter was indeed a worthy candidate providing a consistent performance through the years.

Along with all this Peter is humble about his achievements, focused on the next improvement, focused on his clients well being, passionate about his family and business and always generous with his time and knowledge to help and support others. Peter leads his life with a few simple rules – whatever you are doing try to have fun, whatever you are doing do it to the best of your abilities and don’t accept second best as good enough.

At the core of Peter’s success has been his caring attitude. This is on display in three distinct areas of his life and the relationships he builds, with clients, business colleagues and family and friends.

Peter cares deeply for his clients. He cares for more than just financial outcomes, working to achieve lifestyle aspirations and peace of mind. The psychology of investing can be tortuous and the strategies to achieve good outcomes with adequate protection mystifying. Peter takes the time to explain and educate about the “why” aspect of these important decisions. Never dogmatic,  just working through a tried and tested structure to get the best options for each situation.

At work Peter is a steady example to all. He is an active mentor for other advisers and everyone coming through the organisation. His passion for financial planning and Sage Financial Group is visible and real. Peter championed the term ‘quality advice’ many years before it became a commonly used term. Having worked in the profession for over 35 years he has plenty of experience to draw on and share. He remains an inspiration to all who work with him.

Less visible to most is Peter’s work behind the scenes with the licensee, associations and peer networks to create a vision for the future and lift the overall standards and outcomes of advice. His contribution has been both generous and infectious.

Similarly, in his private life Peter, and his family, have made a significant contribution to helping others. Being involved with Princess Margaret Hospital and creating support groups to assist families facing uncertainty and great difficulty.  He continues to be actively involved in community projects and is highly regarded for his work.

Last Thursday Peter’s humble nature and desire to avoid to the limelight came undone when he was named the State Adviser of the Year. I was proud to be part of the audience to see his efforts rewarded. It is clear to me that Peter would be top of his game without awards, without fanfare because of his commitment to quality in everything he does. My congratulations to Peter, a deserving winner and an example to all service professionals.

Trevor

Events within global markets are concerning for many investors. Despite strong overall returns in the two years to the end of April, sharemarkets globally have fallen sharply on the back of:

•    US economic growth concerns;
•    Debt issues within the Eurozone; and
•    Low market confidence in the ability of policymakers to increase economic activity.

While I am confident of better times ahead, I recognise that these types of market conditions can test the resolve of even the most experienced investors. Making sense of the current mess is testing the experts and I am far from being called that. So I have had some help putting the following together to give you some perspective on events and some guidance for the future.



Current Issues

•    The US debt ceiling debate has drawn attention to America’s public debt problems and brought forward fiscal austerity at a time when the US economy is showing new signs of weakness (e.g. slower than expected GDP growth, weak manufacturing data). The recent credit rating downgrade is another headwind for the US economy.

•    There is growing concern that the sovereign debt saga in peripheral Europe could worsen and spread across the broader region. The potential sovereign debt liquidity issues affecting large European countries (particularly Italy and Spain) have seen bond spreads growing to post-euro record highs. Currently the attention is on Italy (Europe’s biggest debtor) and its capacity to rollover its debt.

•    Markets are worried that policy makers will not be able to put the economy back on a path of growth with proper job creation. These worries have been amplified in recent weeks in the US (i.e. political dysfunction exposed by the debt ceiling debate) and in Europe (i.e. policymakers continuing to be reactive rather than pre-emptive).

Outlook

Actions taken by governments and central banks (in the main in Europe and the US) will remain a key driver of market volatility. Sovereign debts levels will continue to disrupt markets until balances become more manageable though it is likely markets have already priced in much of this concern. A few points to make here are:

•    There is a lot of cash on the sidelines;
•    Most large corporations have strong balance sheets and increased profit numbers;
•    The outlook for China is positive and despite recently putting the brake on a possible property bubble and inflation concerns, China has the luxury of being able to use both a brake and an accelerator;
•    Australia is well placed with low unemployment, a high savings rate, the ability to reduce interest rates and introduce more fiscal stimulus if need be; and
•    While the ride for sharemarkets and other assets may remain rough in the short-term, taking a longer term view they are likely to be supported by attractive valuations.

As you already know, we believe that reacting after markets have already declined usually does more harm than good. I also believe that the probability of long-term investment success is higher for investors who plan and implement a sensible investment strategy and stick to it. A lesson learned from the Global Financial Crisis (GFC) and other similar unnerving market declines is to ensure that cash is set aside for short term liquidity needs. Beyond that, look to reinforce the importance of portfolio diversification and a long-term investment focus. The message during this period of heightened volatility is no different.

Market downturns can be an uncomfortable time for investors. Watch our blog posts and Facebook page for updates. And remember, you are not alone at these times, every investment portfolio is feeling some pain.

Trevor Hutchings

Insurance is the foundation of any financial plan.  I find that when people think insurance, they think Death cover; they then do a little mental arithmetic and figure they have more assets than debts, so things will be fine in the event they die.

Life cover is just one aspect of insurances when looking at building your foundation.



When you look at insurances, I believe, you need to ensure you are doing two things; protecting the present and protecting the future.

Present covers are your General Insurances such a House and Contents, Car, Health or even Travel. These covers will look to put you in no better position than you were in, if you were to make a claim ie if your car gets stolen, it gets either replaced or sufficient monies are paid to buy another.

These Present covers are the most common. T, they are generally easy to get and can be easier to comprehend due to the tangible nature of what they cover ie House insurance covers your house, bricks and mortar (which is also one of the reasons why it is a more popular investment asset but we will save that for another day).

Future covers are looking to protect your potential, whether this is your income, your wealth accumulation strategies, your family or even medical care. When looking at these types of cover, a bit more thought needs to be done as values become a bit harder to calculate (there is no Red Book for Medical care and trust me I have looked).

When looking to protect future potential income, we want to ensure people are aware of their worth and then show the importance protection plays.

As an example, someone earning $50,000 a year who receives a pay rise of 5% yearly and taking into account inflation, their future worth in 10 years would be $628,895 or in 20 years $1,653,298.

Naturally we don’t look at ourselves in this way but if we were a machine that sat in the corner and printed $50,000 a year, most people would be onto their local insurer to ensure the machine was protected for replacement and would probably even fork out for the extended warranty.

But as people we don’t just sit in the corner, we put ourselves out there, trusting that when we drive our cars nothing will happen to us and those bad medical conditions will happen to someone else.

Protecting your strategies becomes another area commonly overlooked, some of the biggest goals and dreams in life are buying houses and accumulating wealth, if something happens to you, should this mean that your goal of owning your own home has changed or your dream of owning multiple investment properties has stopped.

By not having any protections in place, generally means that you don’t get a choice of what will happen to your goals and dreams when the unwanted happens. I will not go into the statistics of how many Australian’s are faced with this issue every year, it is scary. So make sure you get to choose what you are covered for and know what that cover means to you and your family.

John

*Image by David Hilowitz via Flikr