September, 2022 - Macarthur Wealth Management

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Understanding Debt

When used properly, debt can be an effective tool that may help you to achieve your financial goals. Debt can be used to purchase a range of items before you have saved the full purchase price.

It is important to understand the difference between ‘good’ debt and ‘bad’ debt. Debt can help you buy the family home, purchase a car or consumer goods and also enable you to purchase investment assets such as shares, managed funds or a rental property.

Where debt is used to acquire investments such as shares or property, this is known as gearing. This is often referred to as ‘good’ debt because it gives you the potential to claim a tax deduction for borrowing expenses and assets that will hopefully appreciate in value over time.

Borrowing to invest (gearing) simply allows you to use a combination of your own money and borrowed funds to accelerate wealth over the long-term. However it is a higher risk strategy that magnifies both the gains and losses from your portfolio. The higher the proportion of borrowed funds compared to your equity, the greater the associated risks. Options to gear into investments include margin lending, home equity loans or geared managed funds that borrow internally.

‘Bad’ debt is non-deductible debt like borrowings for consumer goods such as cars and holidays. Even though a loan for the family home is non-deductible, it should not necessarily be viewed as ‘bad’ debt because the value of the home has the ability to grow over time. But looking at strategies to pay off this debt as quickly as possible will increase your wealth.

In any case, paying off non-deductible debt before deductible debt will usually be the most appropriate course of action for many people.

The cost of borrowing can be high so you need to be disciplined and consider strategies to reduce the total interest cost, reduce the term of the loan and improve your cash flows.

Some of these strategies may include:

Making loan repayments more often

Making additional payments

Repaying non-deductible debt first

Combining loans into one account with a lower interest rate

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

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What is a transition to retirement (TTR) pension

TTR strategies make use of a transition to retirement (TTR) income stream, which can be started as soon as a person reaches preservation age, without having to satisfy a full condition of release like retirement. A TTR income stream is subject to the same regulations as an account-based pension however the following limitations apply:

In general, lump sum withdrawals are not allowed.
Each fiscal year, there is a 10% restriction on income stream payments.

The most popular TTR strategy is the usage of concessional contributions along with it.

The advantages of employing a TTR approach can include:

Maximizing a superannuation balance tax-effectively in the years leading up to retirement (TTR and concessional contributions strategy).
Improved superannuation benefits by balancing the superannuation accounts of a couple’s members.
Reducing debt, including mortgages.
Cutting back on work hours before retiring and making up the difference in income with tax-efficient or tax-free income stream payments.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any* decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

Macarthur Wealth Management Links

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Pinterest https://www.pinterest.com.au/MacarthurWealth/

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Retirement: https://www.macarthurwealth.com.au/account-based-pension/

How to set goals

The starting point for any plan is to set your personal goals. Financial goals are likely to be different for each person and need to reflect your specific preferences, aspirations and needs. Your goals may vary from short-term goals (less than one year) like buying a car, paying off your debt or going on a holiday, medium term goals (1-3 years) such as saving for your children’s’ education or long-term goals (5 years or more) like saving for a comfortable retirement and leaving behind a legacy.

Your goals will be more real and achievable if you can apply the following attributes:

Specific: Make them specific to you and your family.
Measurable: Ensure there is a measurement in place to determine whether the goals have been met.
Achievable: The goals need to be achievable so while you may set a stretched target which requires you to be diligent don’t set the target too high.
Realistic: Your goals can be an aspiration but must still be grounded.
Time-targeted: You need to set time targets to achieve your goals.

Once you have determined where you are heading, you can work with your financial planner to develop the pathway to achieving your goals.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

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Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Claiming a tax deduction for carry forward concessional contributions

From 1 July 2018, individuals who don’t fully use their basic concessional contributions cap in a financial year, accrue an unused concessional contributions cap amount.

Unused concessional cap amounts are available to carry forward and (if eligible) apply (use) in any of the following five financial years.

If an unused concessional cap amount accrues during a financial year and is not then applied in any of the five following financial years, it expires.

USING CARRY-FORWARD CONCESSIONAL CONTRIBUTIONS

A individual can carry forward and apply available unused concessional cap amounts from any of the previous five financial years to increase their concessional cap in the current financial year if:

their concessional contributions for the current financial year exceed the basic concessional cap (currently $27,500), and
their total superannuation balance (TSB) just prior to the start of the current financial year is less than $500,000.

Where an eligible member makes concessional contributions that exceed the basic concessional cap, the amount necessary to accommodate the contribution is taken from the earliest unused concessional cap amounts within the five-year period first.

Last updated in September 2022

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

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Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Ten tips for setting a good budget

To put you on the path to building your wealth you need to start saving money. This may mean working out how to find more money. The best way to do this is to set yourself a budget.

Setting a budget is important for everyone no matter your age or how much money you have. It is especially important for people who are struggling to meet their goals or who keep building up debt.

A budget is not about just cutting expenses. It is about finding a good balance between your income and your expenses and deciding what is important to you so that you have money left over to save.

A budget is not a fixed forever plan. You can continue to make adjustments over time until you reach a comfortable outcome and have a good strategy in place that will meet your goals.

There are two sides to a budget:

Your income – includes income from all sources such as salary, interest, rental income and dividends, but only include your regular income and make sure you use after-tax income or allow for tax payable in your expenses.
Your expenses – includes mortgage repayments, bills and general living expenses.

Tip

Go through the following documents to check you have captured all of your income and expenses:

Bank account statements
Credit card statements
Pay slips (for both income and deductions)
Cheque book details
Expense receipts
Bills and insurance certificates

You could also consider keeping a diary to record all your expenses – and don’t forget all the little ones as this is where you can often make some significant savings.

Setting a budget is a simple step but sticking to the budget can be harder.

Below are ten tips for setting a good budget:

Make it realistic or you will never stick to it
Budget an amount for fun, leisure and personal expenses so you can avoid impulse buying
Save your pay rises, bonuses, special payments or tax refund
Look for small savings – for example, take your lunch to work, or use internet banking to reduce bank fees.
Pay by cash or EFTPOS to avoid credit card fees (and also avoid accumulating debt)
Reduce fees and charges – combine bank accounts to reduce fees
Put your change into a savings jar at the end of every day
Shop around and compare prices on insurance policies. Look for companies that offer discounts for multiple policies
Use lay-by options instead of debt and credit cards
Update your budget each year

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

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Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

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Retirement: https://www.macarthurwealth.com.au/account-based-pension/

What is an Account Based Pension

Superannuation can be used to start an account-based pension once a person retires (or meets another condition of release).

This allows income to be received as a series of regular payments (usually monthly, quarterly, half yearly, or yearly).

A minimum amount of income needs to be paid each year and additional lump sum withdrawals can generally be made at any time. The pension can also be stopped (fully commuted) and be rolled back to the accumulation phase of superannuation, or rolled over to start another income stream, or be taken as a lump sum. Restrictions apply to taking lump sum withdrawals where the pension is being paid under transition to retirement rules.

Account based pensions stop once the account balance is exhausted, the pension is commuted, or upon the death of the person unless there is an automatic continuation of the pension to a nominated reversionary beneficiary.

The maximum amount that may be used to commence a ‘retirement phase pensions’ is limited to an individual’s transfer balance cap. The general transfer balance cap is currently $1.7m however where a person commenced a retirement income stream prior to1 July 2021, their personal transfer balance cap may be less than $1.7m. Pensions paid under transition to retirement rules are not a retirement phase pension and are therefore not affected by the transfer balance cap.

Last updated in September 2022

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/