New Year’s Wealth Resolutions
Review asset position
For many people this may be difficult, but for anyone with a financial planner it should be an essential and routine part of the ongoing service. The review should encompass the performance of investments held and the effect of regulatory changes introduced during the May 2006 Budget, especially the tax-free superannuation for those over 60 from July 1, 2007. This review should determine if your goals and objectives are on track, and whether any adjustments in strategy are required. It is also equally important to measure whether your assets have grown through your own contribution to savings or purely through investment performance. In other words, how much have you saved this year? An easy way to build long term wealth is to automatically allocate part of every salary increase to superannuation contributions or in extra mortgage repayments.
A simple monthly budget can be a great discipline and a good way of making sure something is set aside for savings. Areas of non-essential items can be reviewed and, if possible, cut back. We all waste money, for example going to a gym, instead of running or walking, and all spending should be assessed realistically. Their level of financial waste surprises most people when it is pointed out to them. A slight change of lifestyle can make significant savings, both in the short and long term without giving up everything you enjoy doing.
Interest rates are still more likely to go up than down. As part of developing a 2007 budget, look at personal debt levels and plan to reduce debt. Ideally, all lifestyle debt like credit cards should be eliminated, leaving only a home mortgage. This doesn’t necessarily mean transferring all other debt to the mortgage as this can cost much more in interest over the life of the mortgage. The best way to get rid of credit card debt is to pay it off out of income as soon as possible. If possible, all other debt should be structured to be tax deductible with the purpose of asset accumulation.
The consequences of your death on family, and the impact of a serious illness or disability on your income, should also be considered. Is your income protected (and therefore any assets you have accumulated also protected) as well as your family’s lifestyle? Life, income and trauma insurance should be considered as family responsibilities increase. Have you thought about who will carry out your wishes when you die or become incapacitated through accident or illness? This could be an important decision that affects your family’s well-being and security. Do you have a will and if you do, does it reflects your wishes? Have you a power of attorney? Can you pay for life insurance through your super fund, making it more tax effective?
Finally, Enjoy Yourself
Although financial security is important, make sure you spend sufficient time with your loved ones and in the little things you enjoy. An objective of financial security should be to allow you to better enjoy life. Avoiding excess, saving part of any increases in income and avoiding and reducing any debt that is not for investment purposes, should be everyone’s aim. So have a happy New Year – and may it be safe and fulfilling.
* Edward Chan is a manager with accountants and business and financial advisers HLB Mann Judd Melbourne.
Pic; Edward Chan.jpg