How to understand the ins and outs of a self-managed superannuation fund

A self-managed superannuation fund (SMSF) can be a vehicle to help you take full control of your retirement with property, but David Hasib of Chan and Naylor says investors must know what they're in for prior to setting one up:
1. To set up a viable SMSF it's wise to have at least $200,000 in your existing superannuation fund otherwise the costs of administering the fund (minimum $1000 annually) can make the exercise unviable.

2. Your SMSF must be classified as a complying Australian superannuation fund.

3. You must become a trustee of the SMSF - this means you're responsible for managing the fund and only access it according to the law.

4. You must set up and execute an appropriate investment strategy with the assistance of SMSF professionals.

5. You must always comply with the sole purpose test in the fund to maintain tax concessions are available (eg. buying a holiday home to occupy is in most cases a no-no).

6. Always keep assets separate from personal affairs.

7. Follow the superannuation and tax rules in the trust deed, which are set up and updated by an SMSF professional.

8. Know your restrictions - what you can or can't do (eg. borrowing and lending).

9. Know what retirement planning strategies you can use to achieve your goals and objectives.

10. Do you need to outsource? Know what you're truly capable of doing and what you should outsource (eg. tax returns, administration, reporting and auditing). If you're satisfied you have what it takes to set up a SMSF then you need to: set up a trust, choose to be a regulated fund with tax file number and Australian Business Number, write your investment strategy, then set up the trust bank account. The rest is history.

For more information about self managed super funds, speak to one of the financial planners at Intellichoice today.

Tax break for savings to benefit millions of Australians

More than five million Australians will earn more interest on their savings in banks, building societies and credit unions, under a government proposal to halve the tax paid on the interest they receive.

Instead of paying $160 in tax on $10,000 of savings in a bank account that earns 5 per cent interest, the Australian taxpayer will only have to pay $80 in tax on the interest earned in 2012-13.

Under the present system, all interest earned on savings is taxed. The interest is considered additional income, which is added to the taxpayer's annual earnings.

With the proposed changes, the taxpayer will be given a tax rebate of 50 per cent on the interest earned.

The importance of property

A recently released report by global real estate firm Knight Frank and Citi Private Bank highlights the important part that property plays in the lives of the wealthy.

The report looks at the property habits of those who have fortunes of more than $100 million and found that these wealthy individuals have 35% of their wealth in property.

After their own business they see property as their most important investment and are currently more likely to invest in property than any other asset class.

Reasons for investing

When considering your investment be sure that you understand your reasons for purchasing an investment property.

Remember that you are investing to secure your financial independance, which means you want to create a passive income and build equity.

Many people try to pick the market cycle but never actually buy anything because it is not the "right time".

It's important to plan for the future and not get so caught up in the process that you could end up failing to act.

It's extremely important to get moving and do something as the cost of doing nothing can be very expensive.

The ideal time to buy is when it is right for your individual circumstances and when the opportunity presents itself.

Once a decision is made, act quickly and with confidence.

The second half of this year will bring many opportunities ; the question is, is it the right time for you?

Three quarters of us are in credit card debt

One of the myths of the credit card market is that only a minority of cardholders carry a balance on their cards from one month to the next.

In fact the opposite is true.

According to Reserve Bank credit card figures, the “revolve rate” on cards is 72% (the revolve rate is the finance industry term for cards that carry a credit balance from month to month).

Consumers spent an average of $15,963 on their credit cards over the past 12 months and carried an average account balance of $3,234.

And whilst spending on cards increased by a fairly modest 3.3 % over that 12-month period, balances still increased by 6.9% - which means we are reining in our spending on cards but accumulating more debt.

Customers with multiple credit cards should always pay off the one with the highest interest rate first.
Alternatively they should consider consolidating the debts into a low rate card through a balance transfer offer, or consolidate into a personal or home loan.

For assistance with managing your debt or if you would like more information about debt consolidation loans, speak to one of the financial consultants at Intellichoice today on 1300 55 10 45.

Financial wellbeing index Q3

The Financial Wellbeing Index measures people's financial wellbeing in relation to six focus areas. Here are the key findings in Quarter 3 (September – December 2010)

•  Aussie households have reported feeling less comfortable across the six focus areas of: credit card and mortgage debt, savings, investments, household income and the ability to pay bills.
• Aussies have shown determination to stay on top of their mortgages, with 49% of households with a mortgage making additional loan repayments.
• Credit card debt has increased substantially – up 24% from Q2 to Q3.

the over reliance on credit cards is a worrying trend and we encourage everyone to look to savings as a way to buffer against unexpected costs.

For assistance with budgeting, setting up a savings plan or financial planning for a secure future, speak to one of the financial planners at Intellichoice today.

Budget for Success

Keen to save more and make a big dent in your mortgage?

By budgeting better, you can reach your goals sooner. Here is a guide to get your New Year started in the right direction.

1. Record your expenses

Carry a notebook around with you for a month and write down everything that you spend money on and the amount. Don’t forget daily coffees, magazines, eating out, etc. Record it all.

This will show you how much you’re spending and may prompt you to realise how much you spend on non-essential items.

2. Calculate your income and expenses

Calculate how much income you make after tax every month and write this figure down. There are a number of good budgeting tools available on the internet to help you easily track your expenses. If you can’t find one, just use a notepad.

Divide your expenses into those that are essential (for example, groceries, bills and transport costs) and those that are non essential (for example takeaway food, entertainment and indulgent purchases) and calculate how much these cost you each month. For example, if your quarterly electricity bill is usually $450, you will need to divide this figure by three to get monthly cost of $150.

When this is done, subtract your expenses from your monthly income. This will show you whether you are spending beyond your means or whether you have some cash to spare.

3. Change your spending habits

To free up some cash to make extra repayments on your home loan or achieve or financial goals, you will need to scrutinise how much you are spending and work towards reducing this amount.

The non-essential expenses column is the first place to start cutting back, If you are spending a lot on takeaway food, start eating at home more often and pack your lunch to take to work.

If your petrol costs are high, consider taking public transport or walking if possible. Perhaps you could invest in a bicycle so you save money and gain a health benefit at the same time.

4. Stick to your budget

Once you have allocated a budget to each of your expenses, stick to it. If you have budgeted to spend $60 a month on eating out, make sure you don’t spend any more.

It will take discipline, but by following your budget you could cut thousands of dollars interest off your loan and pay your mortgage off much sooner.

Savings Tips

Here are some savings tips to help you on your way:

• Have an easy access cash account for everyday needs with a debit card attached
• Save a fixed amount of money every pay in a separate account
• Save your pay rises, bonuses or special payments or tax refund
• Put your change into a savings jar at the end of each day
• Pay your mortgage fortnightly and pay an extra 5-10 per cent on your mortgage every month
• Budget a specific amount for leisure, mortgage repayments and personal expenses
• Make extra superannuation contributions from your pre-tax salary otherwise known as salary sacrificing.

Time for Super

The average Australian spends 2,555 hours a year sleeping and around 910 hours a year watching television.

So shouldn’t we be spending more than half an hour a year thinking about our super?

When the average Australian sets out to buy a car, they may spend weeks weighing up their options. Buying a house sometimes takes months, or even years, of searching, planning and saving.

Even smaller financial purchases such as stereo, DVD player or computer take more than a couple of hours of shopping around.

And yet recent research revealed that the majority of people spend less than 30 minutes a year thinking about what is usually the biggest investment they have after their home - their super.
So what’s to think about?

Many people think of superannuation as a “set and forget” part of their lives - their employer sets it up and puts money into it on their behalf and it’s not something they have terribly much control over. However, this is something of a misconception.

Even though your employer contributes money to your fund, superannuation is still your savings for your retirement. You are still able to control things such as which investment option your money is invested in and how much you contribute yourself.

It’s therefore worth taking the time to find out about your options within your super fund and thinking about how you can make them work for you.
Are you in the right investment option?

Most funds offer different investment options so you can choose the one that most closely meets your needs and retirement objectives.

If you haven’t already made a choice then your money is normally invested in the default or balanced option.. This may turn out to be right for you, but you’ll need to spend some time finding out about it and comparing it with other options on offer before you decide.

To help make a considered decision, look at:

• How comfortable you are with receiving returns that are different to what you expected
• How long you have until retirement
• Whether you need to see financial advice.

Once you are happy with the option you have selected, make a note to review it at least once a year to see if it still meets your needs.

Will you have enough?

That’s a big question. First you need to work out how much will be enough to live the life you want in retirement. Whether you’ll have that amount depends on how much super you have now, how much is being contributed to your account, the fees being charged, the returns on your super and how long you have until you retire.

There are calculators on many of the big funds’ websites that can help you to work this out.

How do you contribute more?

If you think that you won’t have enough, you can help make your super grow by adding to the contributions your employer makes. You can do this from before-tax income (salary sacrifice) or from after-tax income. A benefit of making after-tax contributions to your super is that, if you are eligible, the Government may give you a helping hand by making a co-contribution. To find out more about the co-contribution, visit www.ato.gov.au/super.

Do you have more than one super fund?

If you have more than one super fund, consider consolidating them all into one account. This can also help to grow your super because you’ll only be paying one set of fees and insurance premiums.

Before you go ahead check the exit fees, any extra benefits and the insurance arrangements of the funds you’ll be rolling out of. Sometimes the fees can be so high that it may be best to leave your money where it is. Also, your insurance arrangements may cease, or provide a different type of cover.

If you think you have more than one super account but you’re not sure how to track them down, try www.unclaimedsuper.com.au or the Tax Office’s SuperSeeker at www.ato.gov.au/super.

Do you have insurance through your super fund?

Chances are that, unless you specifically said no to insurance when you joined the fund, you will have at least minimum disability income protection and death insurance. But is it enough to meet your needs?

The first step is to find out what cover you have now and then think about whether the amount of benefit that may be paid would cover all the expenses you need it to. Although taking out insurance through you super fund is generally cheaper than purchasing it directly, keep in mind that the premiums for insurance through your super fund come out of your super account so increasing your premiums will impact on your super balance.

What other benefits does your fund offer?

Many superannuation funds offer access to other products and services, including financial products you can use long before you retire. These products may include low cost banking products, managed funds with no entry or exit fees, financial planning services and discount health insurance.

Aussies lose track of a third of their cash - every week!

A survey commissioned by Visa shows Australians cannot account for $59 cash a week (that's $3,068 per person a year) - more than double the international average in the survey.

Where does the cash go?
In Australia, consumers who lost track of their cash said they were more likely to "mystery spend" (meaning spending cash they can't account for) while purchasing food and groceries (44%), socialising (40%), leisure shopping (38%), buying snacks (30%), or dining out (24%).


It's easier to keep track of where you're spending your money if you have a budget.