Most of us know that there are things we should be doing to improve the way we manage our financial affairs, but we don’t get round to doing anything about. Chris Hogan shares some tips.
Right now, the end of the year is a good deadline for making improvement to finances, so the New Year is started in good shape.
Some financial settings are easy to change while others require a degree of initial effort, but less ongoing effort, with the benefits lasting for many years.
For example, five key areas to look at before the end of the year are:
For a couple, ensuring that interest-earning savings accounts are in the name of the lower income-earning partner, could give real savings by minimising tax.
For those with mortgages, it is important to regularly ensure that the interest rate is competitive. Where it is not, a call to the bank can often result in a surprisingly simple negotiation to a lower rate.
If the bank is not willing to negotiate on rate, re-financing the loan is an option. This might take more effort, including an assessment of initial costs, but it can provide significant interest saving over many years.
With interest rates at historic lows, consideration could be given to locking part of a mortgage into a fixed interest account.
Another good mortgage-related strategy that is simple, but often overlooked, is to arrange for mortgage repayments greater than the minimum. This can take many years off the term of the mortgage.
Regular savings plan
Building wealth needs a disciplined financial approach of establishing an investment portfolio and including a regular savings plan.
This set-up allows for maximum benefit from the power of compounding investment returns. It also has the added advantage of ensuring a regular contribution is made to the portfolio, regardless of market movements, thereby smoothing the ups and downs of the share market over time.
Most superannuation fund members should have received their statements for the last financial year by now.
A super fund review should look at the type of investments the fund holds and the fees being charged, and ensuring that the level of risk is appropriate, taking into account things like time to retirement.
Where there is a more appropriate fund available it can make sense to switch super funds. Some should also consider whether a self-managed super fund (SMSF) is an appropriate option for them, particularly those with large fund balances and, if so, they could aim to set it up before the end of the year.
Consideration should also be given to whether additional super contributions should be made to build wealth in a tax advantaged way.
For many, arranging insurance that will protect themselves and their family against an unexpected event such as illness, accident or death is a set and forget process. But regular insurance reviews are important, as policy costs and inclusions vary over time, as well as when personal circumstance change.
What was once a competitively priced policy, ideally suited to your needs, may no longer be the best option, especially if family circumstances have changed.
The insurances that need to be reviewed are term life, total and permanent disablement, income protection and trauma (critical illness).
Income protection insurance is also an area often neglected. People often don’t think to insure their income earning ability, which can be worth millions over their working lives.
While many people don’t like to think about their own mortality, ensuring that your and your partner have up to date Wills so that wishes are carried out upon death, and dependants do not inherent a problem, should be an essential decision.
Other key documents to review or consider are Powers of Attorney regarding financial decisions and Powers of Guardianship regarding medical and lifestyle decisions, and providing for proper care of children.Author: Chris Hogan, HLB Mann Judd, Sydney