Day: December 6, 2019

What is financial wellness?

How you feel, is your wellness. How you feel about your money is your financial wellness. This can be measured by the financial wellness index, which measures a person’s satisfaction with their current and future financial situation.

Some days you might feel confident you can meet your needs within the boundaries of your current income, whereas other days you may feel like you don’t have nearly enough funds in order to do so.

The truth is, you’re not alone. Nearly 2.5 million Aussies say they feel moderately to severely financially stressed, even though financial stress has been decreasing year-on-year in Australia.ⁱ

Improving your financial wellbeing

On a positive note, research identified that those who have been financially stressed in the past were often able to recover through changes to their behaviour and mindset.ⁱⁱ

Here are some suggestions of things you could do (if you aren’t already) which may help you to improve how you feel financially.

1. Create a budget that works for you

When it comes to creating a budget, try jotting down into three categories – what money is coming in, what cash is required for the mandatory stuff (such as bills), and what dough might be left over (which you may want to put toward existing debts, savings or your social life).

Writing up a budget may take an afternoon out of your diary, but it will help you to more easily identify where there’s room for movement. For instance, could you reduce what you’re spending on luxury items, subscription or streaming services, eating out or clothing?

2. Consider rolling your debts into one

If all the small debts you once had, have multiplied and grown into bigger debts – you could look to roll them into a single loan, and reduce what you pay in fees and interest.

This could help you to save a significant amount of money (depending on what you owe) and make it easier to manage your repayments, as you’ll potentially only need to make one monthly repayment rather than having to juggle several.

The main thing to ensure is you are paying less than what you are currently when it comes to interest rates, fees and charges, and that you’re disciplined about making your repayments.

3. Try to save a bit of money regularly

Even a small amount of cash deposited on a frequent basis could go a long way toward your savings goals, with a separate research report indicating the average savings target for Aussies is a bit over $11,000.ⁱⁱⁱ

Some tips people said helped them along the way was transferring spare funds into an actual savings account, setting up automatic transfers to their savings account (so they didn’t have to move money manually) and putting funds into an account which they couldn’t touch.^iv

4. Set aside some emergency cash

With research showing that an emergency fund of between $4,000 and $5,000 is generally enough to cushion most working Aussies when it comes to unexpected expenses, it’s probably worth some thought.^v

An emergency stash of cash could give you peace of mind and reduce the need to apply for high-interest borrowing options should you be faced with a busted phone, car tyre, or bad landlord.

5. Be open to talking money with your partner

One in two Aussie couples admit to arguing about money,^vi so if you haven’t already, it might be worth sitting down to ensure you’re on the same page and that both parties’ goals are being considered.

6. See if you can get a better deal with your providers

You more than likely have several product and service providers, and figures show you could save more than a grand annually on energy alone just by switching from the highest priced plan to the most competitive on the market.^vii

Again, this may take a couple of hours out of your day, but the savings you could potentially make may make a real difference to what you cough up throughout the year.

7. Don’t be afraid to seek financial assistance

If you are struggling to make repayments, you may be able to seek assistance from your providers by claiming financial hardship.

All providers must consider reasonable requests to change their terms in instances where you may be suffering genuine financial difficulties and feel help would enable you to meet your repayments, possibly over a longer period.

Of course it also helps to have an expert on your side and we are here to support you to achieve and maintain financial wellness.

1, 2, 5 AMP’s 2018 Financial Wellness in the Australian Workplace Report, pages 7, 8, 14

3, 4 MoneySmart – How Australians save money infographic

6 Finder – Heated conversations: 1 in 2 Aussie couples argue about finances paragraph 1

7 Mozo – Sick of high energy bills? Aussies willing to change providers could be saving over $1,000 a year paragraph 2

©AMP Life Limited. First published October 2019

By replacing your home loan with a new one, you could take advantage of a better deal.

Even if you secured a competitive package when you first took out your home loan, it’s worth reviewing each yearⁱ to make sure the interest rates, fees, features and terms & conditions continue to meet your needs.

And with interest rates at an all-time low in Australiaⁱⁱ, now may be a good time to refinance your home loan as you may be able to pay off your home loan sooner.

What is refinancing?

Refinancing is where you replace your existing home loan with a new one that’s ideally more cost-effective and flexible.

Why should you refinance?

You want to pay less. If you can find a lower interest rate, you could save money and reduce your monthly repayments. Even a 0.5% reduction on your interest rate could save you tens of thousands of dollars over the life of your loan.

You want a shorter loan term. When interest rates are down, you may be able to reduce the term of your loan—from 30 to 25 years for instance—without too much change to your repayments, meaning you may be able to pay off your home loan sooner.

You want access to better features. You may be looking for further cost savings and greater flexibility with the help of added features, such as unlimited additional loan repayments, redraw facilities, an offset account or the ability to tap into your home equity.

You want a better deal, more flexibility or security. Converting to a fixed, variable or split-rate interest loan may provide you with these things.

You want access to your home equity. Equity can be used to secure finance for big ticket items such as an investment property, renovations or your children’s education. This can be risky though because if you don’t make the repayments, you could lose your home as a result.

You want to consolidate existing debts. If you have multiple debts, it could make sense to roll these into your home loan if you’re diligent with your repayments. This is because interest rates associated with home loans are generally lower than other forms of borrowing.

What you need to think about when refinancing

Do you know what you want?

If you’re looking to refinance, do you know what it is you’re after—a lower interest rate, added features, greater flexibility, better customer service or all of the above?

Do the financial benefits outweigh the costs?

You might be able to save money over the long term by refinancing, but the upfront costs can still be expensive. For this reason, it’s a good idea to investigate where costs may apply, or be negotiable—think discharge fees, registration of mortgage fees and break costs if you have a fixed-rate home loanⁱⁱⁱ. Also think about application costs if you swap lenders—establishment or application fees, legal fees, valuation fees, stamp duty, and lender’s mortgage insurance if you borrow more than 80% of the property’s valueⁱⁱⁱ.

Have you spoken to your current lender?

Before you jump ship, it may be worth a chat with your current lender as they might be willing to renegotiate your package to retain you as a customer.

Has there been any change to your personal situation?

An application process if you want to refinance will apply. This means your lender will take into account things like your employment situation, additional debts you’ve taken on, or if you’ve got a growing family as all these things can affect your borrowing potential.

Like to know more?

It’s important to evaluate the pros and cons if you are considering refinancing. These can be complex so you may wish to speak to us.

i https://www.finder.com.au/how-to-review-your-home-loan

ii http://www.rba.gov.au/statistics/cash-rate/

iii https://www.finder.com.au/how-much-can-i-save-refinancing

©AMP Life Limited. First published December 2019

Running your own super fund means you have extra responsibilities as a trustee 

If you’re running your own self-managed superannuation fund (SMSF) you’re likely to be acting as both a member and a trusteeⁱ. The two roles are very different.

• • As a member you’re making and receiving contributions to build your wealth and save for a comfortable retirement.

 

• But as a trustee you’re responsible for making sure the SMSF complies with various rules and regulations.

It’s important to know which hat you’re wearing, particularly when you’re making sure that contributions to your super fund conform with the rules. As a trustee you need to be able to spot an incorrect contribution and make sure it’s refunded in time.

There are two scenarios when a contribution can be refunded:

1. The SMSF isn’t allowed to accept the contribution under the Superannuation Industry (Supervision) Act and Regulations. This depends on factors including:

• • your age

 

• • whether you meet a work test if you are older than 65 but not yet 75

 

• • the type of contribution, and

 

• whether you have provided your tax file number (TFN) to the SMSF.

Contributors to an SMSF can include employers, spouses and parents for their children. Here are some examples of invalid contributions that cannot be accepted by a super fund and must be refunded.

• • Mark is 75 and makes a personal contribution.

 

• • Sally is 66 and hasn’t worked for several years but makes a personal contribution.

 

• • Nick hasn’t provided a TFN but makes a personal contribution.

 

• Peta makes a spouse contribution for her husband who is 67 and hasn’t worked for several years.

And here are some examples of valid contributions that are not refundable.

• • Tran makes a personal non-concessional contribution of $400,000.

 

• • Makayla has a total superannuation balance of $1.8 million and makes non-concessional contributions of $200,000.

 

• Frank is 60, retired and makes non-concessional contributions of $200,000.

It’s also important to keep up to speed with changing laws around SMSF contributions. For example, until 1 July 2017, an SMSF couldn’t accept a contribution that was larger than the member’s non-concessional limit, which was $180,000 for over 65s and $540,000 for under 65s.

2. The SMSF can make a refund under the legal principle of restitution for mistake.However, it’s not enough simply to spot an error. You’ll need to prove it’s a legal mistake, which could be either:

• • a payment meant for someone else—such as rent wrongly paid to a super fund instead of a landlord, or

 

• when the contributor wrongly thought they had a legal obligation to contribute.

You’ll also need to make sure you take action quickly. As a trustee, you are responsible for refunding such contributions no more than 30 days after becoming aware that a troublesome contribution was received by the SMSF.

Ways to help you stay compliant

• • Get some advice before making super contributions.

 

• • Engage with a professional fund administrator to help keep your eye on the ball.

 

• Put in place some checks and balances to work out the types of contributions your SMSF can and can’t accept.

If you miss something, a range of possible penalties could apply.

i Or a director of a corporate trustee. Many SMSFs have a corporate trustee of which the member(s) is/are directors (as required by law).

©AMP Life Limited. First published October 2019