2009 - the year it was!

1 Dec 2009

As 2009 came to a close it’s a good time to review what’s happened in our busy lives over the past 12 months and to ponder what lies ahead for 2010.

While it does seem to have flashed by, 2009 gave us plenty of highs and lows in the world of finance. From the fallout of the global financial crisis, to talk of recession, to government stimulus packages, a second-half share market rally and interest rates hitting a record low, and then rising again, it’s been quite a ride for investors. Encouragingly, super funds have made up some lost ground over the past six months and commentators are cautiously optimistic about a slow recovery over the next year. With the number of government-sponsored reviews underway involving superannuation and related financial policy like tax, 2010 is also sure to be interesting, if less volatile.

With Christmas and New Year now over, many people make resolutions – either publicly or privately - for the year ahead. More often than not these involve their health and an accompanying plan, however vague, to work on their fitness.

While personal health and fitness are indisputably the top priority for all of us, it also makes sense to add ‘improve my financial health’ to those New Years resolutions. The best way to do this is to schedule a review with your financial adviser and go through any changes that have happened in your life since you last met, as well as look at what’s ahead.

Plans can and should be changed from time to time and your adviser is the best person to talk to about this. They’re also in the best position to bring you up to speed on changes being made or discussed by the government or the financial services industry, including the likely impact on your situation.

In reviewing your financial health for the coming year you should focus on the four Financial Foundations. To help you think about your situation, we’ve put together a checklist, based on these foundations, for when you get to your financial resolutions and your adviser would typically cover:

1. Controlling debt
2. Building wealth
3. Optimising super
4. Protecting assets

If something sounds like an idea worth pursuing, contact Outlook on 1300 657 872 for an obligation-free chat about your financial health.

All the best for Christmas and 2010!

Controlling debt

‘Bad debt’ – a loan where the interest you pay isn’t tax deductible and the thing you buy isn’t necessarily making a capital gain over time, e.g. a new car.
‘Good debt’ – money you borrow to invest in property or shares and interest is tax deductible.

• Minimise your use of store cards or credit cards (beware Christmas time!).
• Pay your card bills off each month to avoid the high interest they charge.
• Consolidate your personal loans or even card debts into one low interest loan to minimise expenses.
• Ensure that you are getting the best deal or interest rate on your home loan.
• Fix your interest or extend the loan period if you are concerned about your ability to meet current payments.
• Reduce any bad debts if you receive a windfall of some kind, e.g. a tax refund, a pay rise, or work-related bonus. Golden rule: Always pay off bad debt before good debt.
• If you need to borrow, make sure you build in a buffer so you can afford repayments if interest rates rise.
• Do you have enough equity in your home to borrow money for investment? (Over time, this will help you pay off your home mortgage sooner).

Building wealth

• Choose the right account for your savings, preferably something flexible, with links to your other accounts and with a competitive rate of interest.

Before you invest, think about these things:

• Do you want your investment to provide you with some regular income, or capital growth or both?
• How long do you plan to hold on this investment?
• How much risk are you prepared to take with your investment? 
• Are you aware of the advantages/disadvantages of investing in shares versus property?
• Have you diversified your investments to manage the risk?

Optimising super

• If you have more than one super account, consolidate into one account to save on fees and to maximise your earning potential.
• Have you considered the quality of insurance cover, its cost and benefits before you decide which fund to use?
• Do you know what kind of super account you have, e.g. is your investment profile called ‘balanced’?
• Do you know the difference between a ‘balanced’ portfolio and a ‘conservative’ or ‘aggressive’ one?
• Do you understand whether this is the right profile for you at this time in your life?

Are you maximising your super contributions - where you’re eligible or it’s the best strategy for your current income level – by taking advantage of:

• Government co-contributions
• Spouse contributions
• Salary sacrificing
• Transition-to-retirement

Will you have enough super when you’re ready to retire? (Latest estimate from IFSA, the Investment & Financial Services Association suggests we need at least 65% of our pre-retirement income to maintain a comfortable lifestyle in retirement).  

Protecting assets

• Do you have enough insurance cover to protect you and your family in the event of unplanned or unwelcome events?
• Have you thought about covering your liabilities as well as your assets?
• Have you thought about covering your income?

Do you have a comprehensive insurance plan that includes:

• Life insurance – pays a lump sum should you die suddenly
• TPD cover - in case you are totally and permanently disabled through illness or injury
• Trauma cover – pays a cash lump sum should you be diagnosed with a specific and serious medical condition
• Salary continuance insurance – pays a regular income of 75% of your current income if you are unable to work due to an illness or an accident.
• Do you have a valid legal will?
• Is it comprehensive enough for your estate to identify any ‘controlled assets’ (e.g. super), versus ‘owned’ assets (to minimise the tax impact on your beneficiaries)?
• Have you assigned power of attorney to anyone?
• Have you determined who can provide enduring guardianship of your affairs should you be unable to make your own decisions?
  

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