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Should I pay off my mortgage or contribute to super?

All / 12.04.2018

Should I pay off my mortgage or contribute to super?

One of the most popular questions we are asked by our clients is whether it’s best to pay off their mortgage first or salary sacrifice money into their super fund – or can they do both? The answer to this question is never the same considering that everyone’s needs are completely different, but we thought we’d provide an explanation with some examples to give you an idea of how both options work.

It’s not really a sacrifice

Salary sacrifice means arranging for your employer to pay part of your salary into superannuation instead of paying it to you in cash. It can be tax-effective because most of the personal income tax rates are higher than the 15% superannuation tax rate.

To explain, the table shows the difference for three people who invested $10,000. The top line is for someone on the highest tax rate. They would have $3,200 extra invested – a whopping 60% more by using salary sacrifice. The other lines show people on lower tax rates – you can see they both will have more invested by “sacrificing”.

IncomeMarginal tax rateInvested after taxInvested by salary sacrifice Difference 
$190,00047.00%$5,300$8,500$3,20060%
$90,00039.00%$6,100$8,500$2,40039%
$60,00034.50%$6,550$8,500$1,95030%

Salary sacrifice is made even more attractive as superannuation payouts for people aged 60 and over are tax-free.
If your employer allows salary sacrificing, talk to us before implementing an arrangement. You need to be sure you will still have sufficient income for everyday living; you won’t need that money before you retire; and other employment conditions are not adversely affected.

Should I pay off the mortgage or pay more into super?

The easiest way to show the difference is by using a case study.

Consider Christine who earns $100,000 a year. She is aged 50 and plans to retire at age 60. Christine is worried about paying off her $175,000 mortgage. The mortgage interest rate is 4.5% and she is paying $21,764 a year so it will be paid off in ten years.

An alternative strategy is to pay interest only on the loan and salary sacrifice into superannuation so her disposable income remains the same. Christine’s accumulation in super will grow faster and she can pay the loan off when she retires. The table compares the cash flows of the two strategies.

 Pay mortgage Maximise super
Income$100,000$100,000
Salary sacrifice$0$15,500
Taxable income$100,000$84,500
Tax and Medicare$26,632$20,700
After tax income$73,368$63,800
Mortgage payments$21,764$7,875
Disposable income$51,604$55,925

With her current strategy she pays tax of $26,632 and has $51,604 left over after paying the mortgage.

Christine has an upper limit of $25,000 on the amount of concessional contributions she can make into super. This includes the total of her employer’s Superannuation Guarantee contributions and any salary sacrifice amount.

Assuming Christine’s SG contributions are $9,500pa and she sacrifices an additional $15,500 from her salary, which is within the maximum allowed amount, and pays interest only on the mortgage, this is what she will achieve:

  • She will have $4,321 more disposable income and will pay $5,932 less tax.
  • She will have $15,500 extra per year going into superannuation.
  • The super fund will pay 15% tax so $13,175 will be invested. If the fund earns 7.5% per year after tax, her super will grow by an additional $213,000 in 10 years.
  • When Christine retires at age 60 she can cash out $175,000 from her super tax-free to pay off the loan and be more than $38,000 ahead of her current strategy.

It is important to note that the outcomes for different people will vary, and will depend on such factors as interest rates and investment returns. To find out what will work best for you, talk to your licensed financial adviser.

Note: all tax calculations include Medicare levy of 2%

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

 

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Getting more out of income protection insurance

All / 05.04.2018

If you’re working and haven’t yet reached the point of financial independence, then income protection insurance should be on your radar. As the name implies, it can help you protect your greatest asset – the ability to earn an income.

At the heart of all income protection policies is the promise to pay the policy owner a regular benefit, usually 75% of their normal income, if they are unable to work due to accident or illness. Payments are made after an agreed waiting period and continue until either the policy owner is able to return to work, or until the end of the agreed benefit period.

Core and supplementary benefits

In addition to the core provision to pay a replacement income, most income protection policies also offer a wide range of supplementary benefits. These vary from policy to policy, but may include:

  • Rehabilitation benefits.
  • Travel and accommodation costs, for example to return you home if you are injured while overseas.
  • Childcare benefits.
  • Specified injury benefits that pay an additional amount if you suffer things like broken bones, loss of sight, paralysis or other stated conditions.
  • Bed confinement or nursing benefits.
  • Elective surgery benefits.
  • Family support benefit or accommodation benefit, payable if a family member needs to travel from their usual place of residence to be with you.
  • Total and permanent disability benefit.
  • Death benefits.

Adding supplementary benefits adds to the cost of cover, and the value of any supplementary benefit depends very much on individual circumstances. Someone with a good income, modest expenses and a working partner may be able to easily meet costs such as childcare, even if their income drops to 75% of its usual amount. For someone on a tighter budget, supplementary benefits may be a way of achieving greater cover at a reasonable cost.

Tailored cover

Supplementary benefits allow cover to be adjusted to suit individual needs. Take Kate. She’s a single, 29-year-old marketing manager who lives alone. Kate’s immediate family all live interstate and she regularly holidays overseas.

Not surprisingly, Kate sees no value in the childcare benefit. With no dependents she also doesn’t require death cover.  However, with no close family living near her, the family support benefit and bed confinement benefit do appeal to her. Given her frequent overseas travel she also opts for the travel and accommodation benefit.

The ability to select only the relevant supplementary benefits means that Kate is able to design an income protection solution that suits both her needs and her budget.

Design your policy

Income protection insurance is one of the key foundation stones of an effective financial plan. If your income needs protecting, talk to your financial planner about designing the policy that best suits you.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.


Disclaimer

Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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A legacy isn’t just about money

All / 29.03.2018

Usually, you can do whatever you like with your money while you’re alive. But what control do you have over your assets when you die? It’s an interesting thought that most people don’t like to dote on, however with more wealth being created through superannuation funds, it’s a thought that will require action at some stage – and the sooner the better.

It has been estimated that members of the baby boomer generation will pass about three trillion dollars to their children or grandchildren over the coming decades. This wealth will in some cases come in the form of family businesses moving to the next generation. In others, it might be more passive investments, such as shares and cash. Astoundingly, more than $407 billion in property is expected to be transferred through inheritance by 2025.

Each of us might only have control over a small piece of this inheritance bonanza. Nonetheless, how much thought have you given to what it will mean to your beneficiaries and how they’ll remember you?

Preparing your legacy

The billionaire US investing guru, Warren Buffett, has some pretty clear views on the legacy he wishes to leave to his children. He has been quoted as saying that he wants to leave them enough money so that they will think they can do anything with their lives, but not so much that they can afford to do nothing.

The first step of course is to determine what assets you have that might form part of your financial legacy. Shares, property, superannuation and life insurance can be treated very differently under estate laws, so it’s crucial to have this checked by your trusted advisers.

Next, you might want to think about the opportunities and values you want to leave to your beneficiaries. Do you want to “rule from the grave”, or let them make their own decisions about how they tackle life’s challenges?

Perhaps other bequests — to charities, for instance — will be your way of reflecting both personal gratitude and your preferred value system.

Who can help?

On the practical side, there are various professionals to help you to create your personal legacy. For example, enlisting a solicitor to draft your will and related documents is crucial. And we can advise you on superannuation and investment matters.

It might be a good idea to take time out to reflect on these important issues. Don’t wait until you’re sick or old to plan your legacy. Start now and plan to have the time of your life so you’ll have something memorable to leave behind!

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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If I was 25 again I would……love budgeting!

All / 22.03.2018

If I was 25 again I would…

…love budgeting!

I wouldn’t be scared of the ‘B word’ – budgeting. In fact, I’d make a bit of a game of it, tracking where my money was coming from and cracking the mystery of where it was going.

There might not be much I could do about my income, so I’d focus on the spending side; working out how much I had to spend and what was ‘discretionary. Chances are I’d be shocked by what I discovered – spending on things I really didn’t need or particularly want, and not spending on things that are important to me.

I would also set some short-term goals such as saving for overseas travel, a home deposit or supporting a good cause, while leaving room for fun in the here and now. Without being too rigid my goals would help me to prioritise my discretionary spending, support a considered savings plan, and help me get more, not less, enjoyment out of life.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
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TNR – TNR Wealth Management Participates in Local Charity Event Raising Money for “Our Kids”

All / 15.03.2018

On Saturday 3 March 2018 TNR and TNR Wealth Management Sponsored the Prowler Push Leg of the Annual Lismore Samson Challenge,  a local charity event to raise money for “Our Kids”.

You may have seen our flags up at the event and our gang of volunteers helping out on the day, we couldn’t have done it without them!

The Lismore Samson Fitness Challenge is a major fundraiser for “Our Kids” helping to raise money to purchase paediatric equipment for the Children’s Ward and Special Care Nursery at Lismore Base Hospital.

Again this year TNR and TNR Wealth Management had two teams that participated in the event that put four person teams through their paces , pushing them to their limits on each leg of the event.  As you can see from the photos, they all still managed to cross the finish line with smiles on their faces.

We would like to congratulate everyone who participated or volunteered on the day and helped raised $25,000 for Our Kids to help purchase an Ultrasound machine to monitor the health of babies in utero and during labour.

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How to understand the financial papers

All / 15.03.2018

Sometimes reading the financial pages of your daily newspaper or news website is like trying to understand a foreign language! To help you make sense of it all, we’ve explained what each column heading means.

Company Name:

This company name is the official stock exchange abbreviation, not the full legal company name.

ASX Code:

A code of at least three letters given by the Stock Exchange to each listed company. This code is expanded to identify securities other than ordinary shares.

Last sale:

This is the last sale price of the stock. It is worth noting that for smaller companies the sale may have been several days or more in the past.

Move +/-:

This shows if there has been any price variation on the day. It is quoted in cents per share and if there has been no change or no sale, it is left blank.

Quote Buy / Sell:

The buy and sell are the closing buyer and seller quotes. The buy quote is the highest price that prospective buyers are bidding for a stock. The sell quote is the lowest price sellers are willing to accept in the market.

Vol 100s:

The turnover figure showing the number of shares sold in multiples of 100. From Tuesday to Friday the figure is for the previous day’s activity but on Monday it shows the total for the entire previous week.

Day’s High / Low:

The price this share has traded at today at its highest and lowest point.

52-week High / Low:

The price this share has traded at for the past year at its highest and lowest point.

Dividend c per share:

The amount of the dividend paid in cents per share. ‘f’ means fully franked. ‘p’ means partly franked.

Dividend times covered:

This figure is a ratio representing the number of times a company’s dividend is covered by its net profit. It is calculated by dividing dividend paid into the net profit.

Net tangible assets:

This figure is calculated by deducting the intangible assets such as goodwill and the company’s liabilities from the total assets.

Dividend yield %:

This is the theoretical return on an investment if shares are purchased on the sharemarket at the prevailing price. It is calculated by multiplying the dividend (in cents per share) by 100 and dividing this by the market price of the shares (in cents per share).

Earnings per share

This is the profit per share that the company has earned. This is shown in cents per share, and is based on the company’s last full year’s profit.

P/E ratio (Price/Earnings ratio):

The price/earnings ratio shows the number of times the market price exceeds the earnings per share. It is calculated by taking the current share price and dividing it by the ‘per share’ earning rate.

 

A final word of warning

Try not to get into the habit of stock watching (checking your share prices every day). It can take all the fun out of investing for the long term. Timeframe is one factor which can constitute the difference between ‘speculation’ and ‘investment’. If you must check your share market values more frequently than quarterly, use a price chart which provides a pictorial view of medium-to-long-term price trends. It will put things into better perspective.

 

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

Read More >>

If I was 25 again I would… …love budgeting!

All / 15.03.2018

I wouldn’t be scared of the ‘B word’ – budgeting. In fact, I’d make a bit of a game of it, tracking where my money was coming from and cracking the mystery of where it was going.

There might not be much I could do about my income, so I’d focus on the spending side; working out how much I had to spend and what was ‘discretionary. Chances are I’d be shocked by what I discovered – spending on things I really didn’t need or particularly want, and not spending on things that are important to me.

I would also set some short-term goals such as saving for overseas travel, a home deposit or supporting a good cause, while leaving room for fun in the here and now. Without being too rigid my goals would help me to prioritise my discretionary spending, support a considered savings plan, and help me get more, not less, enjoyment out of life.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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The financial implications of technology

All / 15.03.2018

You can’t go anywhere these days and not see people glued to some device. Some of us wonder what we ever did without this modern-day “must have”, but love ‘em or hate ‘em, mobile (aka smart) phones are here to stay.

With all good things, there can be a downside. The cost of mobile phones and other devices is often not in the purchase but in the upkeep, and as many teenagers are discovering (some too late), smart phones can destroy a good credit rating even before they’ve left school.

Numerous young people (and some not so young!) get caught up in the advertising hype and believe they must have the latest toy with all the bells and whistles only to later learn that their low monthly rental can be a cover for restrictive terms.

The result of these savvy sales deals is that many thousands of Australians are talking themselves into unnecessary debt – a high price to pay for staying in contact with friends.

On a brighter side, used sensibly, mobile devices can be very cost-effective. It all comes down to making sure you’re aware of all the costs associated, and controlling your habits.

Easier said than done when peer pressure abounds, but there is a smart alternative – choose prepaid. You know how much you’re paying upfront and when you run out of credit, you simply “buy more time”… and stay in control.

Other suggestions for managing your smart devices include:

  • Be sure of what you’re signing up for… read the small print and ask questions;
  • Ignore the advertising spin that tempts you to constantly upgrade to the latest model;
  • Use a PIN to access your phone. This stops others using it without your consent and is particularly helpful if you lose your phone.

 

Help is available

If you are in the market for a new mobile device and are bamboozled by the seemingly hundreds of options, there is a plethora of comparison websites available. These compare the phones, plans and telecommunications companies. Some provide calculators – type in your current usage and you receive a comparison of the alternatives available.

If you or your children are looking to buy or upgrade a mobile phone, take the time and do your research first… before you talk to a salesperson. As always, the time spent in the short term will be well worth it in the long run.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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The super scheme for first home buyers

All / 08.03.2018

You’re moving into your new home; corks are popping and there are smiles all around – classic advertising that for many seems unattainable.

Although many Australians may want to bash the banks over tighter home lending criteria, it’s the bank regulator, the Australian Prudential Regulatory Authority (APRA) that has set these requirements to address the risks in the mortgage market. Low deposits were increasing the risks carried by lenders.

A poll conducted by MoneySmart showed that 43% of Australians don’t save. Of the number who are saving, only 16% are doing it comfortably.

The reasons are varied, but for the most part, modern families are over-burdened with commitments and more pressing priorities. Meanwhile, home ownership slips further away.

But fear not!

In December 2017, the First Home Super Saver (FHSS) Scheme was legislated.

In a nutshell, the scheme allows you to save your first home deposit within your complying super fund; meaning that you can take advantage of the tax and savings benefits unique to superannuation.

If it seems too good to be true, it’s not – but it could be. You’ve heard the term, ‘conditions apply’? Well this is no exception.

Read the fine print: the FHSS scheme is strictly regulated – after all superannuation’s ultimate goal is to preserve your savings until retirement.

Further, not everyone is eligible. To qualify, you must not have owned property in Australia; have never previously requested an FHSS release; and promise – on pain of Tax Office strife – not to use FHSS money to purchase a non-occupiable property, motor home, houseboat or vacant land. And not all super funds will be permitted to participate in this scheme.

So, let’s see how the figures stack up.

Say you’re putting $500 per month into a savings account earning around 2% per annum interest. You’ve paid tax on that money, at your marginal rate, so already you’re behind. But the kicker is that you must pay tax on the 2% earnings as well.

Not floating your boat?

Taking care not to exceed your annual contributions cap, consider contributing the same monthly $500 to an FHSS Scheme. Post-tax contributions to super are subject to a flat 15% contributions tax – and no tax on the earnings. Those choosing to salary sacrifice their contributions can use pre-tax money.

To access these funds for a deposit, you must wait until after 30 June 2018 and apply to the Commissioner of Taxation. You can apply for the release of eligible FHSS contributions up to $15,000 over one financial year, to a total of $30,000 over all years. You then have 12 months from the release date to purchase your first home.

Accumulated savings not used for your deposit will remain in your super fund, contributing to your long-term retirement plan.

There may be tax implications so seek professional advice before making any decisions.

The FHSS scheme may not be for everyone as some people feel that tying their cash up in a super fund is too restrictive; they’d prefer to maintain access to their money. Since the scrapping of the home saver account scheme, savers looking for cash accessibility and flexibility can consider a regular savings plan or a term deposit.

It all comes down to what suits you and your lifestyle. Chat with your financial adviser and work out the best way to take your first step towards your first home… and that bottle of bubbly!

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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More Equity = Lower Interest

All / 01.03.2018

More Equity = Lower Interest

Ever wondered why some people get better interest rate deals than others? Perhaps you’ve had a chat at a barbecue and discovered your host is paying a lesser rate than you?

This could be the reason…

Lenders reward borrowers who hold more equity in their property. A lower rate will be offered if you have 70% equity compared to 20%. Why? Because it reduces their lending risk and the related saving can be passed onto the borrower.

This also means that as you build up equity in your property, your lender could be more amenable to negotiating a lower rate.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your
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