|
 
Budget (cashflow analysis) For most Australians, the only money you are likely to save and invest is the money that you don't spend. Lotto, grand inheritances and unexpected windfalls, may come to a few, but for most, we need to budget and plan. To save money you need to understand where your money is going and find ways to reduce or eliminate what you are spending on. The best way to do this is with a budget setting out your income and your expenses. Budget is not a dirty word, it’s just that most people don’t understand the enormous value in budgeting or cashflow analysis. While it’s true a lot of us have a dislike to compiling a budget there are compelling reasons why we all must use one. A budget will allow you to:
Business insurance Business insurance (dependent on type of cover) covers all business expenses incurred during a period of loss or damage. Such expenses could include loan repayments, rent and wages. This allows your business to continue as usual until you are well enough to get back on deck. Buy quality Ensure you don’t make common investing mistakes like investing without checking the quality or risk of the investment. Some investments may claim all sorts of benefits, be sure to check out your options thoroughly or use a professionally managed fund to do it for you. If you buy quality investments and diversify, you will reduce your chances of losing money considerably. And remember, if an investment sounds or looks too good to be true – it probably is. Capital Wealth in the form of money or property owned by a person or business and human resources of economic value. Capital Gains Tax A tax on the gains of an investment, payable only when the capital gain is realised by selling the investment. Cash flow finance Cash flow finance provides you with the means to expand your business by funding increased growth and to take advantage of business opportunities. It does this by -
Chattel mortgage A chattel mortgage is a type of leasing facility used to finance business equipment. The asset acts as security for the lender, and upon the final payment, ownership of the item is transferred to the lessee. It is specifically for business purposes and can be used to finance motor vehicles, plant and equipment. Like a standard loan facility, the lessee retains ownership of the asset throughout the term of the loan - the asset is effectively mortgaged to the finance provider until the final payment is made. Co-contribution The Superannuation Co-contribution Scheme is a Federal Government initiative designed to encourage people to accumulate additional savings through superannuation. To be eligible for a co-contribution, you generally must be under 71 years of age, derive at least 10% of your income from eligible employment, and have an income of less than $58,000. Australian residency requirements also apply. Commercial loans A loan contract between a business and a lending institution, either secured or unsecured, providing for the advancement of funds. Compound interest The earlier you start saving and investing the better. This is because of the impact that time and compounding have on your money. Interest will be earned on the original money you invested, plus additional investments made, plus all the interest previously accumulated. Also, the sooner you begin to save, the more experienced you will become. Remember it was Einstein who called compounding interest the “eighth wonder of the world!” Create a plan For most Australians, the only money you are likely to save and invest is the money that you don't spend. Lotto, grand inheritances may come to a few, but for most, we need to budget and plan. To save money you need to understand where your money is going and find ways to reduce or eliminate what you are spending on. The best way to do this is with a budget setting out your income and your expenses. While its true a lot of us have an dislike to compiling a budget there are compelling reasons why we all must use one. A budget will allow you to:
Credit Borrowed money or other finance to be paid back under an arrangement with a lender. Creditor A party to whom money is owed. Debtor Someone who owes money to someone else. Disposing of capital losses against capital gains. If your capital losses for the year exceed your capital gains, there is a ‘net capital loss’. This loss can then be offset against your capital gains to minimise tax. Diversify The wisest investment strategy follows the old adage, “don’t put all of your eggs into one basket.” Your investments should be made following a clear strategy that diversifies your risk through spreading your investments, though not too much. In addition, the best strategy for you takes into consideration your investment time frame, goals, current financial situation, and importantly your risk profile. Dollar cost averaging A regular savings plan over the long-term will help smooth out your purchase price of those investments through the market's ups and downs, thereby reducing the risk of investing in volatile markets. Dollar cost averaging happens when an equal amount of money is invested at regular intervals. Using this strategy investors buy fewer investments when prices are high and more investments when prices are low (when the sales are on!) The discipline of this strategy helps investors to reduce their risk and to avoid costly emotional investment decisions that can see investors selling at the bottom of the market and buying in at the top. Estate Planning So you’ve taken out the necessary insurances, but in the event of your passing, what can you do to ensure your wealth (including any insurance proceeds) is distributed to the right people at the appropriate time? It’s called Estate Planning and if implemented correctly will make certain that the beneficiaries of your estate receive their entitlements in a timely fashion and with minimal tax implications. Keep in mind that your family and friends will already be finding it difficult to cope with your loss, so don’t make it harder for them by not having the appropriate Estate Plan in place. Even if you only have a small number of assets, there is no need to wait until you’ve accumulated more. An Estate Plan can be started with as little as your everyday savings account, so don’t delay; start today. Family Trusts Are often used to minimise tax by diverting income from high income taxpayers to those who are in lower tax brackets. Most Family Trusts are discretionary trusts – i.e. they provide the trustees with the discretion (flexibility) to pay income where it will be most tax effective. Finance lease A finance lease provides 100 per cent finance for the acquisition of equipment to be used in your client’s business. Financial plan A plan is like a road map; without it how will you reach your destination, or in this case your goals. It is much easier to get from a to b with a plan. Where to start? Your budget is the foundation to your plan. Get it right, fine tune it over time, and you will discover money you didn’t realise you had. Financial Planning Consultant (or Financial Planner) A financial planner is a professional person appointed by an Australian Financial Services Licensee and registered with the Australian Securities and Investments Commission (ASIC) as qualified to provide advice on financial planning. This planning advice in the form of a Statement of Advice is important at all stages of adult life regardless of the level of financial resources. Gearing The act of using borrowed money to create wealth. Gearing itself is a neutral tool of money, but the investments purchased with the borrowed money can be either:
Goals A handy tip is to have your list of goals somewhere where you can see them most days, like on the fridge, or attached to the bathroom mirror. That way you can stay focused on what is really important longer term, for example: those must have shoes on sale, or the family holiday you have planned? Hire purchase A contract where a person hires goods for a specified period and at a fixed cost. If he pays all the instalments over the agreed period, the goods become his property. However, he may return the goods during the specified period, and not be held responsible for paying any future instalments. Income protection There could be times when you are affected by a serious illness or have an accident that may keep you away from work for a lengthy period. While you concentrate on recovering, your Income Protection policy can pay out up to 75% of your average income per annum. Normally, these payments occur monthly to continue your existing level of cashflow. Income splitting As tax is charged on an individual’s income, it is possible to reduce the amount of tax you have to pay by splitting income and assets with a family member who has a lower marginal tax rate. Inflation An index measuring the prices of a selection of goods and services. This allows a comparison of the relative cost of living over time, which is known as inflation. Inflation of just 2% p.a over 10 years will reduce the buying power of $1000 to about $820, and at 3% it would reduce to about $740. Consider what the impact of 3% inflation over 30 years, say the time someone is saving for retirement. Your $1000 now only has the buying power of about $400. Put another way, if I could buy 1000 crunchy bars with my money today, I need to still be able to at least buy 1000 in the future, however far away that may be. Insurance Promise of reimbursement in the case of loss or damage paid to people or companies so concerned about certain hazards that they have made prepayments to an insurance company. Investment An asset purchased with the intention of producing capital growth or income, or both, for the owner. Leasing Leasing is a financial instrument enabling the use of a given fixed asset without owning it outright. Lending The act of either borrowing or loaning of money. Life insurance Upon your passing or the diagnosis of a terminal illness your Life Insurance policy will generally pay out a lump sum to the legal owner of your insurance coverage. This could be your spouse, dependant or a business partner. Managed investments or funds A unit trust that allows investors to pool their money with that of other investors so that the fund can buy a wide range of investments. Investments are managed by a professional Fund Manager who makes the investment decisions. Now available through myblueprint master fund. Novated lease An employee leases a car and then sub-leases it to their employer who pays the lease rentals. Employee remains fully liable for the debt. Prepaying interest Lenders can offer borrowers the opportunity to pay interest in advance, the advantage is that your interest rate is lowered. However, depending on the circumstances it is not always the best option. Risk The variability of your return. Generally, the higher the level of risk an investor is prepared to accept, the higher the potential return over time may be. Salary sacrifice Salary sacrifice is an expression used to describe the payment of salary as a benefit, rather than as "cash". Superannuation is one of the most common forms of salary sacrificing. Correct structuring of salary sacrificing arrangements is very important. Therefore, you are urged to seek professional advice from a financial planner or accountant to ensure that any salary sacrificing arrangement you enter is appropriate. Sole trader A sole trader operates as an independent entity. Super Choice Super Choice is a Government initiative. As of 1 July 2005 employees have a say in how their super is contributed. Super Choice gives eligible employees the ability to choose where their Superannuation Guarantee (SG) contributions are invested. In short, you are able to choose the superannuation fund that best suits your needs. Superannuation A tax effective means of putting aside money during your working life for use in retirement. Tax effective investments Certain projects are attractive to investors as they often offer generous tax deductions. Some examples of tax effective investment are: agricultural, entertainment, franchise, and film schemes. Time Have you heard experts say, its time in the market not timing that counts? The sooner you start saving, the better. Total and Permanent Disability (TPD) insurance This form of insurance is normally available as an option with a Term Life or Trauma policy. The benefit is paid in the form of a lump sum in the event that you become Totally and Permanently Disabled. Totally and Permanently Disabled means that you are unlikely to ever work in your own or any occupation for which you are suited by training, education or experience. The lump sum could be used to help pay for debt reduction/elimination, income generation and all other facets of permanent disablement such as medical expenses. Trauma insurance Trauma insurance is often offered along with your Life Insurance policy. If you were to suffer from a range of predetermined medical conditions such as a heart attack or cancer, your Trauma insurance may pay out a lump sum to ease any financial hardship during your recovery. As an example, this payout could cover the costs of further treatment or home modifications.
|