To pay or not to pay, that is the mortgage question

Home ownership is the Australian dream, but we also have a lot of other big dreams… overseas holidays, buying a boat or sending the kids to a great private school. So how do you decide whether you should pay off your mortgage faster or invest it for your big dreams?

The debate on paying off your mortgage versus investing can seem never-ending and everyone has an opinion. When it comes down to it, the right course of action depends on your personal situation, risk profile and financial goals.

One way to evaluate the situation is to think mathematically– you can compare the tax implications, interest savings, rates of return and past market movements.

This sort of evaluation can be complicated, so it might be best to get your financial adviser involved to help with the quantitative analysis. Before you do that, you can ask yourself a few questions to start the decision making process.

How many years do you have left on your mortgage?

If you have less than 10 years left on your mortgage, you might want to consider paying it off, as 10 years may represent a short period to invest in the stock market or investment bonds.

How good are you at sticking to a plan?

Paying off your mortgage early may present you with a surplus of cash or disposable income. If you are not disciplined and stick to your investment plan, you may find yourself tempted to spend your surplus funds. This can set you up in a fantastic lifestyle, but it may not be sustainable through your retirement if you don’t save enough.

Is your lifestyle stable?

You know your personal situation best and you can decide how stable the future is likely to be or if there is a high probability that something will come along and derail your financial plans. If you feel secure in your job and that you won’t need to access a lot of cash quickly, then aggressively reducing the mortgage might be the best path for you.

If you are the sole bread winner or job security is an issue, you might look at investing so that you can access your money in case of emergency or leaving the surplus within a redraw facility.

If your mortgage does not have a redraw facility and you pay it off aggressively, you could run the risk of needing to borrow money later at a higher interest rate.

What are your investment goals?

If you need to invest for an important goal, you need to look at how much money you will need for that goal and how far off it is. If your goals are a long way off, you can have the satisfaction of both investing and making additional payments on your mortgage. It is as simple as allocating part of your available surplus funds for one goal and then using the remainder towards reducing your mortgage.

So, what should you do?

You need to look at both the mathematical and emotional parts of your financial strategy. Your financial adviser will help you weigh the pros and cons of different investments and can provide a financial analysis for each option.

Case study

Judith has a home loan of $250,000 with 20 years left to pay.

She is paying $1,908.35 per month of principal and interest and has an extra $100 a month to play with. She is considering the following options:

Option	Implication after 20 years
Use the $100 to pay off her mortgage, after she has paid off the mortgage after the 18^th year, she will have $2,008.35 a month in cash which she will invest	Judith will have $51,780 in her investment
Invest the $100 into an investment bond	Judith will have $43,888 in her investment
Invest the $100 as a contribution to super after tax	Judith will have an additional $46,655 in her super
Salary sacrifice the amount as $194.17 before tax	Judith will have an additional $77,001 in her super

Things Judith will need to consider:

The best option is for Judith to put her extra money into super via pre-tax salary sacrifice payments, however these contributions are preserved (locked away) until retirement and Judith may need to access this money before she retires.
If she pays off her mortgage, she will then need to look at her ability to redraw the money if she needs to access funds in the case of an emergency.
If she invests into the share market, she will have to pay tax on the investment earnings and capital gains upon sale of the investments.
If she pays the $100 into an investment bond, the investment earnings (including capital gains) will be taxed at a maximum rate of 30%. Withdrawing from the bond after 10 years from the initial investment means there will be no taxation implications.
The calculations in this case study are based on the following; the mortgage has 6.8% interest rate, her super fund, investment bond and investment portfolio returned 6.5% (inclusive of 3% pa growth, net of fees and excluding franking credits). Tax on earnings has been factored into all options (including the super fund and investment bond) whilst she paying 45% tax (not including the Flood Levy) on the investment portfolio. But these could change in the future.

Contact your adviser today to discuss the best options for you.

Source | IOOF

More than skin deep

August 1, 2013/in Personal Risk Financial Advice /by Fil-Battisti

The ‘bronzed Aussie’ is a cultural cornerstone. We’ve long associated the icon with all that’s Australian; the outdoors, the beach and an active lifestyle.

So it’s no surprise that, despite medical research and mortality statistics that suggest otherwise, 50% of Australians still believe a tan is healthy.

Glowing – with good health?

Tanning is a sign of skin damage – a response to ultraviolet radiation (UVR).

UVR exposure – be it from the sun, or via a solarium – poses serious health risks. These include sunburn, premature aging of the skin and optical damage.

It is also the most significant cause of skin cancer in Australia.

A sunburnt country

Australia has one of the highest incidences of skin cancer in the world. In fact, two in three Australians will be diagnosed with skin cancer by the age of 70.

The good news is, early detection can lead to a positive prognosis in most cases.

Non-melanoma

Basil Cell Carcinoma (‘BCC’) and Squamous Cell Carcinoma (‘SCC’), generally referred to as ‘non-melanoma’, are the more common type of skin cancer.

They form in cells near the skin’s surface (or ‘epidermis’). Symptoms may include sores that won’t heal, the appearance of new growths, or changes to existing warts or moles.

Non-melanoma is considered less dangerous because it typically doesn’t spread to other parts of the body. Even so, treatment is still necessary – usually in the form of removal, ointment or radiation therapy.

Melanoma

Melanoma is the less common but more serious form of skin cancer. It occurs when the skin cells produce excessive levels of melanin – to the extent they begin to grow abnormally and invade surrounding tissue.

Treatment for melanoma depends on the patient’s age, general health and how advanced the condition is. It may include surgery, radiotherapy, chemotherapy and immunotherapy.

Protect yourself

Get covered

There are many tips that can help protect you from UVR exposure, thereby reducing the risk of melanoma. But in the event that skin cancer did occur, how would you manage?

Critical Illness Cover can protect you – and your loved ones – from the financial consequences.

A Critical Illness claim provides a lump sum payment. This money can be used to fund medical costs, keep up with mortgage repayments and pay for day-to-day expenses – allowing you to focus on your recovery.

Insurers today will pay full benefits for more severe forms of melanoma. Partial payments are typically also available for early stage melanoma in the ‘premier’ versions of their contracts.

To find out more about Critical Illness Cover, speak with your financial adviser.

Source | TAL

Money coming your way? Don’t waste it, invest it!

July 30, 2013/in Estate Planning, Financial Advice General Info /by Fil-Battisti

Are you about to inherit a small fortune? Have you been awarded a sizeable compensation payment or had a serious lottery win? Or maybe you are expecting a retrenchment package? If so, you need to think carefully before you decide what to do with your new found ‘wealth’.

Certainly you should consider paying off some of your debt, particularly if it’s getting hard to handle. You may also want to buy one or two useful items to make life more comfortable, but it makes sense to put the bulk of it to work for your future well-being – through investing.

Many Australians see investing as something other people do. They either don’t know how to go about it, or think they need a lot of money to make it worthwhile. Yet investing sensibly gives the average

Australian opportunities to transform ‘windfalls’ into longer term security.

In fact, most of us are investors already, through our superannuation fund which invests in a number of different investment areas, such as shares and property. An increasing number of us are taking a more direct interest, by investing in share offers such as Queensland Rail. There are various ways to invest, and numerous investments competing for your dollars.

So how can you work out what investments are best for you? You really need advice from an experienced professional financial planner who can look thoroughly at your circumstances, preferences and your attitude to risk before recommending investments suitable for your particular needs.

Source | IOOF

Becoming Money Smart

July 30, 2013/in Financial Advice General Info /by Fil-Battisti

Results from a recent survey on financial literacy in Australia revealed that one in every three people find dealing with money stressful, even when things are going well.

If this sounds a little like you, you’re not alone. Financial matters can sometimes seem overwhelming and it may be difficult to know where to begin.

The key to overcoming this stress is to boost your financial IQ so you can make informed judgements and effective decisions regarding the use and management of your money.

A great place to start is by visiting the MoneySmart website (www.moneysmart.gov.au). Run by the Australian Securities and Investments Commission (ASIC), the MoneySmart website offers free, independent information to help everyday Australians make smart choices about their personal finances.

The website provides tips on managing and investing money, borrowing and saving, superannuation and retirement; plus the latest consumer finance news and scams to avoid. There are also handy calculators

to check your financial health status and forecast your financial position based on a variety of scenarios.

Taking control of your finances doesn’t mean you have to go at it alone though. As your financial adviser, we can provide you with guidance to help you set your financial goals and reach them sooner. This may involve providing advice on how to:

Manage debt
Create a savings plan
Invest for wealth
Achieve tax savings
Make the most of your super, and
Plan for your retirement.

Why not take the next step in your financial health by speaking to us so we can help you further.

Source | IOOF

Ever wonder where your money goes?

July 23, 2013/in Financial Advice General Info /by Fil-Battisti

It doesn’t matter how much money you have or make, sometimes it just doesn’t feel like it’s enough. When you create and stick to a budget, at least you know how much you actually have and what you can do to make the best of it.

Budgeting shows you where you are financially, and helps you map out a path to where you want to be.

By creating a budget and setting aside a few minutes a week to keep track of your money, you will be able to:

Make informed decisions about what to do with your money
Figure out what changes you should make in your spending habits
Start getting into good saving habits.

Step 1 – Track what is coming in and out

The first thing to do is figure out what money you have and where it goes. Try to keep a diary of your expenses and your spending for a couple months. This will enable you to calculate where your money is and how much spare cash you have after everything is paid.

Make a list of all the regular expenses you have such as credit card bills, rent or mortgage payments and grocery bills. Don’t forget items that pop up unexpectedly such as holidays, birthdays or insurance premiums.

Step 2 – Manage your budget

Regardless of whether your budget is in the red or in the black there are things you can do to be thriftier. Some easy ways to reduce your spending are:

Find small, non-essential items you can cut back on.
Are there any direct debit payments which are being paid without you actually using the service? This could be an old internet provider or a gym you don’t go to any more.
Can you get a better deal on your services? Sometimes switching your phone, mobile, gas or electricity can provide you substantial savings, it helps to look at all your options.
Can you pay more than the minimum on your debts? Whether it’s personal loans or credit cards, paying the minimum will hardly make a dent as you will only be paying off the interest.

Whatever happens, don’t ignore the problems. By being open and honest about your financial difficulties with me, we can look at solutions to help you out.

Step 3 – Make goals and stick to them

It is time to get your money to work for you by making financial goals:

Short term goals – make them achievable in a realistic timeframe. They could be as simple as paying off your credit card or saving up for a family holiday. Make sure you reward yourself when you have achieved them.
Long term goals – these can be harder to achieve as they seem so far away, but look at goals such as saving for a deposit, paying off your mortgage quicker or saving for your retirement.
Expect the unexpected – it is a good idea to put some money aside for emergencies or unexpected events. You could aim to save enough to cover the cost of replacing an expensive household item, but a lot of people aim to have three months’ pay saved up.

Once your goals are made, stick to them. But don’t beat yourself up if you slip up for a month or two; simply reassess your goals and get back to them.

Step 4 – Speak to a professional

We are here to help. If you feel that you are in over your head and or just want to get a step up with your finances, make an appointment today and we can help you create a financial strategy that will help you achieve your financial goals.

Source | IOOF