Get your S.H.I.T. together
Get your S.H.I.T. together
(Super, Home loans, Investments & Taxes)
Heading into the end of the year, many are looking at getting their S.H.I.T. sorted before Christmas.
Having your finances sorted can provide you with more choices for how you live your life both now & in retirement.
There are some important steps you need to take to achieve your goals for 2021.
They include:
Vision
What do I really want?
Values
What is important about it?
Methods
How will I get it?
Obstacles
What is preventing me from having it?
Measurements
How will I know I am successful?
Set Goals (Vision & Values)
Many people live day to day, week to week, without thinking of the future.
As humans we are wired to choose today over tomorrow, but we also hate to feel like we are missing out on something.
A recent research study was conducted with monkeys.
5 monkeys were given a banana each – and high levels of excitement were measured.
5 other monkeys were given 2 bananas each – and high levels of excitement were measured.
However, when a change was made, and the monkeys with 2 bananas had one taken away, they still had 1 banana, but they became angry and irate.
Does this happen to us?
Do we forget what we already have?
If we feel like we are losing something, then we avoid it, we don't do it.
This is why so many people do not save & invest.
Saving sounds like you are giving something up or losing something today. But you’re not. It is giving yourself a gift today of peace of mind, certainty, of a secure financial future.
Therefore, those that choose today over tomorrow, often find themselves at the cusp of retirement realising that they will not be able to continue their current standard of living. This is not a fun place to be and can cause a lot of stress and uncertainty. By having a goal and a plan can help alleviate stress both now and in the future.
Choosing your goals or knowing where you want to end up is a crucial part of setting your vision. They help lay the steppingstones to success.
When it comes to our financial lives, common goals are often “save for a house deposit”, “get out of debt”, “sort out my super”, “save for retirement” or “pay for the kids education”.
These are all fantastic goals.
In our experience, we have found when people attach their values or why this particular goal is important to them, it provides more meaning and increases the probability of achievement. Most of the time past experiences and individual filters will be placed on each goal. For example, I was not given the opportunity to go to a private school & I want to give my children every possible chance to succeed in the future by paying for their education. Or my parents are living off the age pension in retirement, I do not want this to be me. Or even, my friend had to set up a GoFundme page when he got sick, as he had no insurance, and I am to proud to have my family begging for money so I want to put insurance in place to support them.
What is important to look at is what type of lifestyle aspirations you want to achieve. Everyone has different goals and that is ok.
Money doesn’t buy happiness, but the unfortunate reality is that it does buy choices and choices are something that you want at all stages of life.
Get Help Making Your Plan (Method)
How will I get there?
Now you have your goals outlined & why they are important to you, it is time to start building the plan around this to map out how you will get there.
Much like a GPS – you know where you are now, you understand your final destination & now you have to work out the best route to get there.
Many people will opt to do this alone, however if you have had these goals for a number of years & are yet to achieve them, it may be time to bring someone else in to support you & keep you accountable.
Generally most people seek advice & support from family members or spouses, however your finances and goals can be very personal, where you may not want to share your goals or financial situation with your family.
The alternative is to outsource this to a financial advisor who can provide expert advice, support & guidance. This is their job that they do day in and day out. They have the experience of hundreds of clients before you, they understand what works and what doesn't work. You can also lean on them to avoid mistakes as you only have one opportunity at life and you want to ensure you get it right.
However you look to build you plan, ensure it has the steps to get you to achieve your goals.
What is preventing you from reaching your goals? (Obstacles)
Most people will understand what or who will prevent you from reaching your goals. So putting a plan in place to mitigate these obstacles will be critical to reaching your goals.
However, we need to be mindful that throughout life, markets, inflation, incomes, goals & your health changes. In short, life happens.
Your blueprint or financial plan needs to be fluid. A plan that sits on a shelf couldn’t possibly account for all that life throws at you, so we partner with you & adjust our strategies to accommodate as your life changes.
How will I Know if I am successful? (Measurements)
It is fantastic to have a goal, but what gives them more power is to quantify them.
By making your goals quantifiable they are measurable.
Instead of “I want to get out of debt” quantify it – “I want to pay off my $7,000 credit card debt in the next 12 months”.
Instead of “I want to save for retirement” quantify it – “I want to have $70,000 a year to live off in retirement”.
Instead of “I want to pay for my kids private school fees” quantify it – “I want to save $140,000 over the next 7 years to pay for kids school fees”.
Measurable goals also enable you to be able to break them down into smaller bite size pieces or steps. In the credit card example, you could then look at what you need to pay off each month to reach your goal.
Get your S.H.I.T. together
Why S.H.I.T. ?
We found when speaking people that “get your S.H.I.T. together” resonated more then anything else.
Finance can be a boring topic, so simplifying things to ensure you have the following sorted out, goes a long way in taking control of your finances and setting you up for financial security.
This simple phrase also supported many more people understand what a Financial Advisor actually does.
We help sort your S.H.I.T. out!
What is S.H.I.T. ?
S = Superannuation.
Super plays an integral part in establishing financial security in retirement.
At present, 9.5% of your salary is contributed to superannuation & for many Australians (outside your home) this will become your most valuable asset, so it is important that you understand the basics, what you are invested in, associated fees, the mechanics of your particular super fund, and how this will support you to retire on your terms.
The Government has made superannuation very complex, so it is recommended you seek professional advice from a financial advisor, as you have only one opportunity to retire and you want to avoid the mistakes that may impact your retirement plans.
H = Home Loans
Home loans are critical to your overall financial plan.
For many, your mortgage repayment strategy will determine when & how you retire.
Therefore, it is important to understand how different features of a home loan can support you in achieving your financial goals.
This includes considering an offset account, fixed or variable rate, weekly payments or monthly payments, 20 year term or 30 year term and the list goes on…
Furthermore, interest rates have not increased in 10 years. Therefore, now may be the perfect time to review your home loan to ensure you are not paying too much interest.
I = Investments
It is difficult to earn your way to wealth. That’s a mistake that million of Australians make. We think if we work harder, smarter, longer, we will achieve our financial dreams, but our paycheck alone– no matter how big – isn’t the answer.
For most of us, our earned income will never bridge the gap between where we are and where we really want to be. Because earned income can never compare to the power of compounding.
When Benjamin Franklin passed in 1790, he left $1,000 each to the cities of Boston & Philadelphia. His bequests came with some strings attached:
specifically, the money was to be invested and could not be touched for 100 years. At that point, each city could withdraw up to $500,000 for designated public works projects. Any remaining money in the account could not be touched for another 100 years.
Finally, 200 years after Franklin’s death, a period of time that had seen stocks grow at an average compounded rate of 8% each city would receive the balance – which in 1990 amounted to approximately $6.5 million. Imagine that $1,000 grows to $6.5 million, with no money added over time.
How did it grow?
Through the power of compounding.
Yes, 200 years is a bloody long time – but a 3,000% rate of return, is almost worth the wait.
Understanding how investing can support you & your family by providing financial security is important for all Australians.
As investments can not only provide you with financial security, but also the choice of how you live your life.
Money is certainly one of the ways we can turn the dreams we have into reality.
T = Taxes
When talking about getting your taxes sorted, we are not just talking about completing your tax returns.
We are talking about tax planning. Planning to invest your monies in the most tax effective manner.
This includes considering any income throughout the investment and also your exit strategy. As when selling investments there is a potential for capital gains tax. Understand what the most appropriate vehicle or entity is to hold different assets in can make all the difference.
We recently spoke to a couple who had just retired & sold their investment property.
They had a $100,000 capital gains tax liability that was crystallised as a result of this sale.
If their assets had been structured correctly, this $100,000 tax bill could have been reduced to $0.
Seeking professional tax advice can be worth every cent.
Protect what is important to you
An important part of having a clear plan is knowing that you and your family are protected if something was to happen to you.
Most Australians are good at insuring their house & car, but they seem to miss the fact that their greatest asset is really their ability to earn an income.
The primary “money machine” in your life is you.
You may have some investments, but if you stop working, the machine stops, the cashflow stops, and your income stops.
Basically your financial world comes to a grinding halt.
It’s zero sum game, meaning that you get back just what you put into it.
If you stop working, you stop making money.
Therefore, if your investments assets are not yet built up to replace your income & your ability to work was taken away how would you support your family?
Personal insurance can protect your income earning ability and provide security for the future. Some people think that they can’t afford personal insurance, but many can be paid for through superannuation. Not all insurance policies are the same, so it is important to get expert advice to know that you are effectively covered in the event of a life changing incident or illness.