In today's tough economic climate, it is more important than ever to budget and establish a savings plan. This is because budgeting is the best way for you to take control of your finances, save money and plan for the future.
Some times it was easy to get away with a more casual approach to financial planning: you could be sure of earning enough to pay your bills, even if this meant looking for some extra overtime or taking a second job for a while. But those times are rare and wasted if you do not take advantage of them.
A sound budget and a savings plan will help you achieve your immediate needs and long-term financial security. Few individuals or families know just how they spend their money.
They know that at the end of their pay period - weekly, fortnightly or monthly - it is all gone. A budget will change this. It is the direct and sensible approach to personal money management.
Basically, a budget is a financial plan that itemises an individual's or a family's spending and helps accomplish short-term and long-term goals.
Its main purpose is not to get you out of trouble - although it will help. Better still, it will keep you out of trouble in the first place.
In fact, a budget is really an essential part of everyday life. Without a budget it just is not possible to cope with those unexpected bills and to see at a glance, how you can most easily cut back you’re spending.
The ultimate aim of budgeting is to ensure that you can:
o Adequately meet all your financial commitments and
o Have some money left over to save.
Set a savings goal that is within your reach and will not put a strain on your budget. Even if you begin by saving only a small amount each pay period, this will add up over a year to a respectable amount.
Everyone will have his or her own savings target. But, as a general rule, we suggest you aim to save 10 per cent of your gross annual income: five per cent for short-term aims and five per cent for longer-term intensions. While this may not be practicable now, it is worth aiming to reach this goal in the future - and sooner rather than later.
People with young families should aim to build up an emergency fund equal to three months take-home pay in case of retrenchment or emergencies. Remember:
o Your savings will help you through those difficult times and emergencies;
o Savings will free you from day-to-day money worries;
o If you have money saved, you can use it in emergencies instead of credit cards (with their high interest charges);
o By saving, you will establish a financial track record, which will be important when you apply for a loan for a major purpose (house, land or car);
o Your longer-term savings will help you build up income-producing investments for a better, more secure lifestyle;
o By saving and investing responsibly, you will contribute towards Australia's future by helping to create a national savings pool to fund our development and reduce our dependence on foreign capital;
o A dollar saved is a dollar earned
Deciding to budget does not mean that you have to cut out spending on discretionary items that are important to your lifestyle.
But you should be realistic about them and become a disciplined shopper (as well as a disciplined budgeter). This will help make your money work better for you. Here are just a few ideas on this important topic:
o Consider buying lower priced "generics" or items of a similar nature to your regular purchases;
o Switch to less expensive versions of goods or services.
o Shop harder for the best possible deals on items you must have;
o Avoid buying items that are of limited value to you or your family;
o Become a comparison shopper: watch the advertisements and be aware that prices vary from day to day on a whole range of goods from furniture to food;
o Watch for genuine sales and specials;
o Deal with shops, which offer good service and will take goods back without argument if they are unsatisfactory.
o Shop for seasonal specials and stock your freezer. But buy in bulk only when you know you can use everything you intend to buy - otherwise you will have to throw a lot of it out. Waste is costly.
o Phase your purchasing of big items like furniture and major electrical goods over three to five years and buy only when you really need and can afford the items;
o Think about buying good second-hand items - check-out auctions and garage sales;
o If you are holding money in a special savings account, you can often use it to pay for an item - and get a discount for cash;
o Buy Australian-made goods in preference to imports - buying Australian helps save jobs and reduces the nation's overseas payments and debt problems.
But you should be realistic about them and become a disciplined shopper (as well as a disciplined budgeter). This will help make your money work better for you. Here are just a few ideas on this important topic:
o Consider buying lower priced "generics" or items of a similar nature to your regular purchases;
o Switch to less expensive versions of goods or services.
o Shop harder for the best possible deals on items you must have;
o Avoid buying items that are of limited value to you or your family;
o Become a comparison shopper: watch the advertisements and be aware that prices vary
o from day to day on a whole range of goods from furniture to food;
o Watch for genuine sales and specials;
o Deal with shops, which offer good service and will take goods back without argument if they are unsatisfactory.
o Shop for seasonal specials and stock your freezer. But buy in bulk only when you know
You can use everything you intend to buy - otherwise you will have to throw a lot of it out. Waste is costly.
o Phase your purchasing of big items like furniture and major electrical goods over three to five years and buy only when you really need and can afford the items;
o Think about buying good second-hand items - check-out auctions and garage sales;
o If you are holding money in a special savings account, you can often use it to pay for an item - and get a discount for cash;
o Buy Australian-made goods in preference to imports - buying Australian helps save jobs and reduces the nation's overseas payments and debt problems.
Try to be as realistic as possible. Do not make the budget so tight and demanding that it will be impossible to achieve your goals. Do not make it too generous - or you will destroy your incentive to budget and save. Be flexible - but disciplined.
Partners should budget together. But involve everyone in your household - tell them about your budget and savings goals and why it is so important to achieve them.
Do not be discouraged if you cannot get your budget to work - try again. Once you have set up a workable budget, you will find that budgeting becomes a habit.
Today is the best day to begin budgeting.
There are two main items to consider: your INCOME and your EXPENDITURE.
In the section headed INCOME, list all your incoming money (after tax).
Expenditure:
o When you begin compiling your expenditure, it will be helpful if you have by you all the receipts from last year's bills that you can find.
o If you do not have these, keep a detailed list of your spending over the next few months. If you see some items that you can cut back on, note them for future attention.
o If you look after your possessions, they will last longer. Money spent on maintenance to extend life of a costly item can be money saved.
o Learn to be a good supermarket shopper. Make up a shopping list - and stick to it. Avoid impulse buying. Once in a while it is OK to buy something you do not really need. But if you let impulse shopping get out of hand it will overload your trolley and destroy your budget.
o When you have completed your Budget, add up all your income and expenditure and subtract the expenditure total from the income total. What is left over is your spare money for the year.
o As this is a yearly figure, you will need to divide this by 52 to bring it down to a weekly figure, by 26 to make it fortnightly or by 12 to make it monthly. This money is yours to spend or to save; we suggest you save it each pay period.
You may find that you have a shortfall - in fact that you are spending more than you earn.
If this is the case, you will need to go back and reassess your expenditure or, look for ways to increase your income. You may have made a mistake with your calculations. Or you may need to cut down on some area of your spending: entertainment, gifts, clothing, and luxury items.
It is better for you (or your family) to make these decisions, rather than have them taken out of your hands.
This will enable you to see at a glance the payouts you will have to make each month to the nearest dollar. This means you can calculate the minimum amount you need to have available to meet your bills.
Some months you will be more heavily committed to repayments than in other times of the year. Be sure you are adequately covered so you will not be short of money.
The contents of this blog are of a general nature only and have not been prepared to take into account any particular investor’s objectives, financial situation or particular needs. Where this publication refers to a particular financial product then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website. While the sources for the material are considered reliable, responsibility is not accepted for any inaccuracies, errors or omissions.
Tarnia Gurney (ASIC No. 292206) trading as Gurney Financial Services (ABN 85 296 598 954) an Authorised Representative of AFG Financial Planning, Australian Financial Services Licensee Number 247105, ABN 74 099 029 526.
Sunday, April 5, 2009
Importance of Insurance
Insurance is used as financial protection for a variety of personal and business purposes – for example, to protect income, repay debts, or provide for dependants. To minimize the loss that may result from your death or serious disability, it’s important to implement suitable protection strategies.
Protect your greatest asset – your income
What is your greatest asset? Your home and its contents? Your car? Your life? Many people insure these assets, yet, all too often they don’t adequately protect what is potentially their greatest asset – their ability to earn an income.
Take a moment to consider what could happen to your lifestyle if you were unable to work for an extended period due to illness or injury. Your expenses could quickly run down your savings. You may even need to sell your investments to make ends meet.
By taking out income protection insurance you can protect your greatest asset and avoid putting your family’s lifestyle at risk.
If you suffer an illness or injury and are unable to work, income protection insurance can pay you a monthly benefit (usually 75% of your pre-tax income) to replace lost earnings. You can generally claim these premiums as a tax deduction.
You can choose a range of benefit payment periods, with maximum cover usually up to age 65. You can also choose a range of waiting periods normally between 14 days and 2 years.
Eliminate Debt
If you’re like most people, you’ve used debt to finance a range of lifestyle purchases, including the family home. However, if you die, the loan repayments will still need to be made, even though the salary your family has relied upon is no longer available.
Your loan documents may even contain a clause that requires immediate repayment if you die or become disabled. However, sometimes this is not feasible, and the only option may be to sell the underlying asset to repay the lender. When this asset is your family home, your dependants could be in the unenviable position of either having to re-finance the loan or sell and downgrade their residence.
Maintain your family’s lifestyle
You also need to consider whether your family will be able to meet their ongoing expenses.
Death, permanent disability or a serious medical condition can have a big impact on a family’s finances and standard of living. If something should happen to the main breadwinner, the emotional strain could be significant.
Protect the homemaker
It’s also potentially dangerous to overlook the insurance needs of the person who predominantly takes care of the home and the children.
If something should happen to the homemaker, the family can suffer financially, as well as emotionally. Despite advances of modern technology, there are still plenty of things that need to be done around the house and hiring someone to provide home help and child care services can cost a lot of money.
To protect your household (and avoid putting a big dent in the budget) it’s important to include the homemaker when developing suitable insurance strategies for your family.
Keep your business running
While income protection insurance should still be considered, it’s also important to protect the very thing that generates your income – your business.
By taking out business expenses insurance, you can cover certain ongoing expenses and keep your business running while you recover.
If you are self-employed or in a small partnership, business expenses insurance can help you meet 100% of your share of eligible business overheads, should you be unable to work due to illness or injury.
This can help keep your business afloat and ensure that, in the worst case scenario, there is still a business to sell should the need arise.
Expenses that can be covered with this type of insurance typically include, amongst other things, office rent and mortgage payments, equipment or vehicle leasing costs and utility bills such as electricity, heating and water.
Cover the key person in your business
The most valuable business asset is the one that produces the most profit – your staff. Material assets can be easily replaced, staff can not.
The loss of a key staff member can have a substantial impact on profitability, operational management and the goodwill of your business. Many businesses also find there are no suitable candidates readily available within the organization and it can take substantial time and money to recruit and train an external replacement.
By covering your key person, you can help fund the loss of a valuable employee by providing an injection of cash for a revenue or capital purpose.
Establish a Will for your Business
Establish a Will for your business by creating what is known as a Buy / Sell Agreement.
A Buy / Sell Agreement is a legal contract which can facilitate the orderly transfer of a person’s share in a business to the remaining owners when certain trigger events occur (such as death or serious disability).
The contents of this blog are of a general nature only and have not been prepared to take into account any particular investor’s objectives, financial situation or particular needs. Where this publication refers to a particular financial product then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website. While the sources for the material are considered reliable, responsibility is not accepted for any inaccuracies, errors or omissions.
Tarnia Gurney (ASIC No. 292206) trading as Gurney Financial Services (ABN 85 296 598 954) an Authorised Representative of AFG Financial Planning, Australian Financial Services Licensee Number 247105, ABN 74 099 029 526.
To help fund the transfer, the agreement normally uses life insurance so that sufficient capital becomes available to buy out the departing owner’s share in the business.
Protect your greatest asset – your income
What is your greatest asset? Your home and its contents? Your car? Your life? Many people insure these assets, yet, all too often they don’t adequately protect what is potentially their greatest asset – their ability to earn an income.
Take a moment to consider what could happen to your lifestyle if you were unable to work for an extended period due to illness or injury. Your expenses could quickly run down your savings. You may even need to sell your investments to make ends meet.
By taking out income protection insurance you can protect your greatest asset and avoid putting your family’s lifestyle at risk.
If you suffer an illness or injury and are unable to work, income protection insurance can pay you a monthly benefit (usually 75% of your pre-tax income) to replace lost earnings. You can generally claim these premiums as a tax deduction.
You can choose a range of benefit payment periods, with maximum cover usually up to age 65. You can also choose a range of waiting periods normally between 14 days and 2 years.
Eliminate Debt
If you’re like most people, you’ve used debt to finance a range of lifestyle purchases, including the family home. However, if you die, the loan repayments will still need to be made, even though the salary your family has relied upon is no longer available.
Your loan documents may even contain a clause that requires immediate repayment if you die or become disabled. However, sometimes this is not feasible, and the only option may be to sell the underlying asset to repay the lender. When this asset is your family home, your dependants could be in the unenviable position of either having to re-finance the loan or sell and downgrade their residence.
Maintain your family’s lifestyle
You also need to consider whether your family will be able to meet their ongoing expenses.
Death, permanent disability or a serious medical condition can have a big impact on a family’s finances and standard of living. If something should happen to the main breadwinner, the emotional strain could be significant.
Protect the homemaker
It’s also potentially dangerous to overlook the insurance needs of the person who predominantly takes care of the home and the children.
If something should happen to the homemaker, the family can suffer financially, as well as emotionally. Despite advances of modern technology, there are still plenty of things that need to be done around the house and hiring someone to provide home help and child care services can cost a lot of money.
To protect your household (and avoid putting a big dent in the budget) it’s important to include the homemaker when developing suitable insurance strategies for your family.
Keep your business running
While income protection insurance should still be considered, it’s also important to protect the very thing that generates your income – your business.
By taking out business expenses insurance, you can cover certain ongoing expenses and keep your business running while you recover.
If you are self-employed or in a small partnership, business expenses insurance can help you meet 100% of your share of eligible business overheads, should you be unable to work due to illness or injury.
This can help keep your business afloat and ensure that, in the worst case scenario, there is still a business to sell should the need arise.
Expenses that can be covered with this type of insurance typically include, amongst other things, office rent and mortgage payments, equipment or vehicle leasing costs and utility bills such as electricity, heating and water.
Cover the key person in your business
The most valuable business asset is the one that produces the most profit – your staff. Material assets can be easily replaced, staff can not.
The loss of a key staff member can have a substantial impact on profitability, operational management and the goodwill of your business. Many businesses also find there are no suitable candidates readily available within the organization and it can take substantial time and money to recruit and train an external replacement.
By covering your key person, you can help fund the loss of a valuable employee by providing an injection of cash for a revenue or capital purpose.
Establish a Will for your Business
Establish a Will for your business by creating what is known as a Buy / Sell Agreement.
A Buy / Sell Agreement is a legal contract which can facilitate the orderly transfer of a person’s share in a business to the remaining owners when certain trigger events occur (such as death or serious disability).
The contents of this blog are of a general nature only and have not been prepared to take into account any particular investor’s objectives, financial situation or particular needs. Where this publication refers to a particular financial product then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website. While the sources for the material are considered reliable, responsibility is not accepted for any inaccuracies, errors or omissions.
Tarnia Gurney (ASIC No. 292206) trading as Gurney Financial Services (ABN 85 296 598 954) an Authorised Representative of AFG Financial Planning, Australian Financial Services Licensee Number 247105, ABN 74 099 029 526.
To help fund the transfer, the agreement normally uses life insurance so that sufficient capital becomes available to buy out the departing owner’s share in the business.
Estate Planning
Estate Planning is about making sure your family is provided for and that your assets go where you want them to after you die. If you pass away without a Will your assets will be allocated as per the current legislation, this may not be in line with your wishes.
A good estate plan will:
Ensure that the ownership and control of your assets pass to your intended beneficiaries in the correct proportions;
Minimize tax being imposed on the income and capital gains earned on those assets;
Protect those assets should a beneficiary be involved in any legal difficulties, for example, bankruptcy or divorce.
Essentially, a good estate plan can provide you with peace of mind and minimize potential complications for your beneficiaries.
Firstly, have you accumulated sufficient assets to provide for your family and pay off any debts in the event of your death? If you determine there is a short fall, your financial planner will be able to suggest some ways for you to make up the shortfall.
Consider your estate planning needs, have you thought about who will inherit your assets, which assets they’ll inherit and in what proportions?
If you are injured and unable to control your investments, have you chosen someone to manage your affairs for you whilst you are recuperating? This is known as an Enduring Power of Attorney. It gives another person the legal power to act on someone’s behalf in relation to their financial affairs.
You should review your estate planning needs on a regular basis, and particularly when an important event occurs, such as:
Retirement
Marriage
Divorce
The birth of a child
Death of a relative you have provided for
Commencement of change of employment
Each of these events can be a life changing experience for you and your family and should trigger a consideration of your estate planning needs and objectives. At any stage of your life, estate planning is important and it should be considered and reviewed regularly. Estate planning is an important part of your overall financial plan and it shouldn’t be left until it is too late.
The contents of this blog are of a general nature only and have not been prepared to take into account any particular investor’s objectives, financial situation or particular needs. Where this publication refers to a particular financial product then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website. While the sources for the material are considered reliable, responsibility is not accepted for any inaccuracies, errors or omissions.
Tarnia Gurney (ASIC No. 292206) trading as Gurney Financial Services (ABN 85 296 598 954) an Authorised Representative of AFG Financial Planning, Australian Financial Services Licensee Number 247105, ABN 74 099 029 526.
A good estate plan will:
Ensure that the ownership and control of your assets pass to your intended beneficiaries in the correct proportions;
Minimize tax being imposed on the income and capital gains earned on those assets;
Protect those assets should a beneficiary be involved in any legal difficulties, for example, bankruptcy or divorce.
Essentially, a good estate plan can provide you with peace of mind and minimize potential complications for your beneficiaries.
Firstly, have you accumulated sufficient assets to provide for your family and pay off any debts in the event of your death? If you determine there is a short fall, your financial planner will be able to suggest some ways for you to make up the shortfall.
Consider your estate planning needs, have you thought about who will inherit your assets, which assets they’ll inherit and in what proportions?
If you are injured and unable to control your investments, have you chosen someone to manage your affairs for you whilst you are recuperating? This is known as an Enduring Power of Attorney. It gives another person the legal power to act on someone’s behalf in relation to their financial affairs.
You should review your estate planning needs on a regular basis, and particularly when an important event occurs, such as:
Retirement
Marriage
Divorce
The birth of a child
Death of a relative you have provided for
Commencement of change of employment
Each of these events can be a life changing experience for you and your family and should trigger a consideration of your estate planning needs and objectives. At any stage of your life, estate planning is important and it should be considered and reviewed regularly. Estate planning is an important part of your overall financial plan and it shouldn’t be left until it is too late.
The contents of this blog are of a general nature only and have not been prepared to take into account any particular investor’s objectives, financial situation or particular needs. Where this publication refers to a particular financial product then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website. While the sources for the material are considered reliable, responsibility is not accepted for any inaccuracies, errors or omissions.
Tarnia Gurney (ASIC No. 292206) trading as Gurney Financial Services (ABN 85 296 598 954) an Authorised Representative of AFG Financial Planning, Australian Financial Services Licensee Number 247105, ABN 74 099 029 526.
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