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The risks involved in debt consolidation

Posted on 24 November '20 by , under Money. No Comments.

Debt consolidation is a form of refinancing which involves taking one larger loan out to pay off multiple small ones. Although this might make managing repayments easier, you may end up paying more money interest rate or fees. 

There will be companies that make offers which are too good to be true. If you feel that an offer is unrealistic and the company is promising that they can get you out of debt no matter what your situation is, you should reevaluate using their services. Don’t trust companies that: 

  • Are not licensed
  • Ask you to sign blank documents
  • Refuse to discuss repayments
  • Rush the translation process
  • Won’t put all loan costs and interest rates in writing before you sign
  • Arrange a business loan when you only need a consumer loan

The goal behind the consolidation is to manage your payments, not create more fees and interest for you. Therefore, before signing onto an agreement, check how consolidation compares with your current fees and interest rates altogether. Also, take into account expenses and penalties associated with your existing loans and whether you will have to pay more money for paying off your loan early. If the expenses work out to be more, it might not be worth going through this entire process. 

Debt consolidation isn’t the only option if you’re struggling with repayments. Other options may be available which are more suited to you. You should discuss with your mortgage provider, credit provider or financial advisors to determine if there is anything that can be done. 

Why company culture is important

Posted on 24 November '20 by , under Business. No Comments.

Company culture has become an important part of how businesses are perceived. Businesses with a positive culture are more likely to attract clients and customers. Statistics also show that over 50% of executives believe that having a good culture can influence productivity, creativity, profitability, firm value and growth rates. 

However, while it can be easier to describe and quantify a company’s products and services, defining culture is a lot more difficult. It requires capturing the company environment, values and relationships. 

Identifying what your company culture is, or what you want it to be, will determine your work processes, hire new people into your team, and how you and your employees interact with clients. 

The first thing to do is to identify key traits that describe your culture. Bring together a diverse group of people from across your company and brainstorm words and qualities which describe the culture. Collate the words which you hear the most so that you end up with a list which is representative of the culture that employees most relate to. 

The next thing you need to do is distil this list down to the core values you can see in it. You can conduct surveys (if you have a large company) or talk to your employees (if the company is small) and ask them whether the values you have chosen resonate with them, and if not, which ones do. At this point, you should aim to have around 5 values, but this is a flexible number. 

Last of all, once the core values have been established, share them throughout the company. Employees should relate to these values and they should also feel motivated to embody them. Communicate with your employees about why these values may or may not be working/suitable. 

Remember that this is a process. You may not get it right the first time, which is why it is important to be receptive to feedback from all members of the company. 

Transition to retirement

Posted on 24 November '20 by , under Super. No Comments.

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work. 

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time. 

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer’s compulsory contributions as well as any voluntary contributions you may be making. 
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer. 
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

Tax contributions on your super

Posted on 24 November '20 by , under Tax. No Comments.

How much tax you pay on your super contributions and withdrawals depends on a variety of factors. The process takes into account your total super amount, your age, and the type of contribution or withdrawal you make. 

How are super contributions taxed?

The money that you contribute to your super account through your employer is taxed at 15%, and this is the same with salary sacrificed contributions. But there are exceptions to this:

  • If you earn $37,000 or less, then the tax will be paid back to the super account due to the low-income super tax offset (LISTO)
  • If your income and super contributions add up to more than $250,000, then you are also required to pay an additional 15% Division 293 tax. 

Any after-tax super contributions (non-concessional contributions) are not taxed further.

How are super withdrawals taxed?

How much tax you pay on withdrawals depends on whether you withdraw as a super income stream or a lump sum. Since this can be a convoluted process, it may be beneficial to approach an advisor and clarify any questions you may have before you withdraw money. 

What about beneficiaries?

If someone dies, then their super money will go to their beneficiary. This is known as a super death benefit. As a beneficiary, the tax you pay on the death benefit is dependent upon:

  • The tax-free and taxable components of the super
  • Whether you’re a dependant for tax purposes
  • Whether you take the benefit as an income stream or a lump sum. 

What to know before you apply for a business loan

Posted on 18 November '20 by , under Business. No Comments.

A business loan can give you the support you need to fund growth or temporarily relieve cash flow pressures. These are some things to know before applying for the loan:

  • Understand the purpose of your loan: You should be sure about why you want a loan and what you will be doing with the loan. 
  • What loan amount do you need: Realistically calculate how much money you need and how you’ll be allocating it to your needs
  • What can you afford to pay: Consider the length of the loan, payment options and other details before you apply. Think about what you can afford to pay so that you can discuss which of these features can and cannot be adjusted to suit your needs. 
  • Secured or unsecured loans: A secured loan means that you provide an asset for the loan, your interest will be lower than for an unsecured loan and the lender may be able to sell your asset if you are unable to pay the loan. An unsecured loan means that you don’t provide an asset so that the interest rate is higher. It may be difficult to get approved for an unsecured loan. 
  • Fixed or variable interest: If you are confident that you can meet the repayment requirements even if the rate increases but a fixed rate makes it easier to manage your cash flow as all your repayments are the same. 
  • Fees and charges: The true cost of any loan is only apparent when you take into account all the additional payments that are incurred. These could include early repayment fees, exit fees, valuation fees (to secure your loan), etc.
  • Paperwork: Planning your paperwork ahead of time will make it easier for the lender to approve your loan, this will also make the entire process faster.
  • Consider speaking to an expert: You may want to discuss with an advisor about whether a loan might be the best option for you and what alternatives are available if any. 

Superfund categories and what they mean

Posted on 18 November '20 by , under Super. No Comments.

There are four different categories of super funds. These have different primary features and are more applicable to certain people than they are to others. 

Retail super funds

Anyone can join retail funds. They are mostly run by banks and investment companies:

  • Allow for a wide range of investment options.
  • Financial advisors may recommend this type of fund as they receive commissions or might get paid fees for them.
  • Although they usually range from medium to high cost, there may be low-cost alternatives.
  • The companies that own these funds will aim to keep some of the profit they yield

Industry super funds

Anyone can join bigger industry funds, but smaller ones may only be open to people in certain industries i.e. health.

  • Most are accumulation funds but some older ones may have defined benefit members
  • Range from low to medium cost
  • Not-for-profit, so all profits are put back into the fund

Public sector super funds

Only available for government employees

  • Employers contribute more than the 9.5% minimum
  • Modest range of investment choices
  • Newer members are usually in an accumulation fund, but many of the long-term members have defined benefits
  • Low fees
  • Profits are put back into the fund

Corporate super funds

Arranged by employers for employees. Large companies may operate corporate funds under the board of trustees. Some corporate funds are operated by retail or industry funds, but availability is restricted to employees

  • If managed by bigger fund, wide range of investment options
  • Older funds have defined benefits, but most are accumulation funds
  • Low to medium costs for large employers, could be high cost for small employers

Self-managed super funds

Private super fund you manage yourself. Many more nuances to this type of fund. Most prominent feature is the autonomy over investment. 

Small business CGT concessions

Posted on 18 November '20 by , under Tax. No Comments.

Businesses receive four different types of concessions on top of CGT exemptions and rollovers which are available to everyone. These allow businesses to disregard or defer some or all of the capital gains from an active asset which is used in the business.

The four additional concessions include:

  • 15-year exemption: If the business has owned an asset for 15 consecutive years and you are 55 years or over and are retiring or permanently incapacitated, then the capital gain won’t be assessable when you sell the asset.
  • 50% active asset reduction: Being a small business, ATO permits reduction of the capital gain on an active asset by 50%. This is in addition to the 50% CGT discount if ownership of the asset extends over a year. 
  • Retirement exemption: Capital gains incurred from the sale of active assets are exempt up to a lifetime limit of $500,000. However, you must pay the exempt amount into an appropriate super fund or retirement savings account if you are under 55 years of age.
  • Rollover: You may defer all or part of a capital gain for two years upon selling an active asset. Your deferral period can be longer than two years if you acquire a replacement asset or incur expenditure on making capital improvements to an existing asset. 

Note that these concessions are only available upon disposal of an active asset and either of the following:

  • Small business with an aggregated annual turnover of less than $2 million
  • Asset used in closely connected small business
  • Net assets have a value of no more than $6 million (this excludes personal assets e.g home, as long as these have not been used to produce income)

There are also other criteria and conditions that the business will need to meet but you can apply to as many concessions that are applicable to you. Importantly, you can only apply to these in a certain order so be wary of this. 

Tracking your spending to spend less and save more

Posted on 11 November '20 by , under Money. No Comments.

It’s hard to know where to start when you decide to take control of your money. It can be helpful to know exactly how much money is coming in and going out to start this process. 

Understand where your money is going

Although it can seem daunting to track every dollar you spend, it will give you a clear view of where you are spending your money. Small things often go missed when you estimate your spending, so taking note of these will help you understand the gap between your estimations and your actual spending. 

Track your spending and expenses

You should start tracking your spending every day for a set period of time. This could be a few weeks or a few months. You will begin to notice patterns of spending the longer you track your expenses. 

A simple way to track your spending is through a phone app. Certain apps will even allow you to limit your spending and give you an easy-to-understand overview of your expenses. 

If you regularly use your card, then your bank statement will contain every translation detail. Views these regularly or at the end of the week. 

Alternatively, you can also write down where you spend your money and how much you spent. This is especially useful if you regularly use cash. 

Reflect on your tracking

At the end of this tracking period, you should be able to see where you most spend your money. Being aware of this might help reduce your spending but there are also other things you can do. 

Take note of where you can save your money. There may be certain items that you regularly buy over time, which you might be able to cut down spending for by buying for the long term. 

You should also distinguish between what you ‘need’ and what you ‘want’. This will give you a good estimate of what ‘wants’ you are spending most on and how to best cut down on them. 

Test out a budget

Using this information, test out a budget and see if it works. This time, you should aim to set a realistic limit for the next week or month. You should account for some of your wants as well as your needs. 

Your budget may require revising, but you should create one which balances your previous spending habits, and your future financial goals. 

Why you should have a written partnership agreement

Posted on 11 November '20 by , under Business. No Comments.

Having a strong relationship with your partners is extremely important, but sometimes it isn’t enough. Having a document which covers all aspects of running the business, both those which are liable to disputes and those which are not is essential. 

If you haven’t done so already, the following are some reasons why you should create a written agreement now:

  • You and your business partners have a clear understanding of the rules and regulations which will apply to the business and to your business relationship.
  • If there is no agreement in place, then all the partners share equal profits and cover losses equally. This will be regardless of how much time and effort each partner contributes to the business. Creating an agreement will allow partners to tweak these aspects and create a unique division which represents the partner contributions more accurately.
  • If there is no agreement in place, then the terms of the partnership will be covered by the legislation of your state or territory. These have a one-size-fits-all approach which might not suit your business. Creating an agreement specific to your partnerships will mean it is tailored to the specific circumstances and relationships within your business. 
  • Minor disagreements can lead to bigger problems if there is no set method to resolve them. A written agreement will allow you to create clear and unambiguous procedures to deal with those sorts of matters and allocate roles to each partner so that there are no confusions about decisions-making. 
  • Creating an agreement will allow you to focus on the business end of things as opposed to spending time on dealing with specifics of the partnerships. 

A written partnership will help streamline the nitpicky processes so that you can focus on the growth of the business. 

What is an annuity?

Posted on 11 November '20 by , under Super. No Comments.

An annuity provides guaranteed income for a number of years, or for the rest of your life. It is also known as a lifetime or fixed-term pension. 

You can buy an annuity from a super fund or life insurance company. You are able to choose whether you want the payments to last for a fixed number of years, your life expectancy, or the rest of your life. 

In order to buy an annuity through your super fund, you must be in the ‘preservation age’ which is between 55 and 60. Additionally. You are required to meet a condition of release e.g. permanently retiring. 

You are also able to buy an annuity in joint names using savings. Through this method, you can split income for tax purposes. If either you or your partner dies, then the survivor has ownership and access to the funds. On the other hand, buying an annuity using a super lump sum can only be in the name of the owner.  

When you buy the annuity, you decide the payment amount you will receive. This can increase each year by a fixed percentage or indexed with inflation. Further, you can also choose if you are paid monthly, quarterly, half-yearly or yearly. There are some conditions the ATO has about minimum annual payments if your annuity is bought with super money e.g. must pay a certain percentage of the balance based on your age. 

You decide what happens with your annuity if you pass away. You can either nominate a reversionary beneficiary or choose a guaranteed period option. A reversionary beneficiary will receive your income payments for the rest of their life, usually at a reduced level. The guaranteed period option will allow your beneficiary to receive their payments as a lump sum or an income stream. 

An annuity will impact your eligibility for the Age Pension as it is accounted for in the income and assets tests which are conducted. You should discuss exactly how the annuity will impact Age Pension entitlement with a Financial Information Service (FIS) officer.