New Year Financial Health Check

Firstly, from our team at Ally Wealth Management, we’d like to wish you a happy, healthy, and prosperous new year ahead. We’re optimistic about what 2022 may have in store for us, and we certainly hope that it’s a year that allows more Australian families across the globe to be able to travel and reconnect with their loved ones.

It’s always interesting to see how the new year inspires us all to set goals for all of the amazing things that we’re going to make happen over the next 365 days. We’re particularly pleased to see that making smarter financial decisions has been becoming increasingly popular over the last few years.

On this note, we thought we’d share our top tips to carry out your New Year Financial Health Check and ensure that 2022 will be a great year for you and your family financially. We’ve broken it down into key categories that you can identify what areas you really want to focus on for the coming year.

Saving & Budgeting

1. Ensure you have an emergency fund

Your emergency fund is your ‘rainy day’ money that can be accessed quickly in the event that something unforeseen takes place so that you can cover your living costs, pay to relocate your family, and ensure that you can get through the short-term disruption. This should cover between 3 – 6 months of your monthly expenses and be held in an accessible cash account, such as a savings account or even your offset account if you have a mortgage and this is a sensible option for you.

If you’re living and working abroad as an Australian expat, you may also want to ensure that both your partner and you have access to funds in a bank account in your own name, as complications can arise where this is not the cash, and all funds are held in the name of one partner and not the other.

2. Review your credit card & bank statements and trim the fat

We all tend to get busy and it can be easy to forget a subscription to a particular app, news service, or website that we’re no longer using. A handy tip here is to print out the statement for your credit card/s and bank account/s and go through them line by line to review any unnecessary expenses that you have forgotten about. A few dollars here and there can quickly add up, and that money is far better off in your pocket.

3. Pay yourself first

As the expression goes, pay yourself first. This means that your savings towards your particular set of financial goals should be deducted from your salary or bank account before your other expenses and discretionary spending takes place. This ensures that you can remain on track to achieve your financial goals, and you’ll often find that your discretionary spending will simply fall into line with the amount that’s leftover each month.

Investing

1. Review your asset allocation

It’s important to review your asset allocation, that is the mix between the different asset classes, on a regular basis to ensure that it remains in line with your risk profile. The beginning of a new year can be a sensible time to set aside to review this. Most growth assets such as property and equities saw strong returns throughout 2021, while defensive assets such as bonds and cash saw the opposite, so it’s important to review your mix here, as you may find that your exposure to growth assets now exceeds what is sensible for your own risk profile.

2. Review your savings strategies

Have you had an increase in your salary or bonus recently? Have you come into some extra funds that should be doing more than collecting dust in your bank account? It’s a great time to review whether you could be saving and investing more as we head into the new year.

3. Review your investment goals

Have your investment goals changed recently? Have you had another child that you now need to consider planning for how you will find their education? Do you have a family member that you may need to provide financial support for? If there have been any changes to your existing financial goals, or you need to start considering other areas to plan for, it’s important to review this on a regular basis and ensure that your investment plans remain aligned with your goals.

Your financial planner can work you with to both track your progress toward your goals, as well as ensure that you remain on track.

Retirement Planning & Superannuation

1. Review your superannuation contribution strategies

Are you salary sacrificing extra funds into your superannuation? Are you eligible for Government Co-Contributions or Spouse contribution benefits? Should you be making voluntary concessional contributions as an Australian expat to offset tax on your rental income? There are many considerations when it comes to your superannuation contributions, and this applies to both Australian expats and residents.

The current limits for the two types of super contributions, which are available in most cases to both Australian residents and expats are as follows:

• Non-concessional contributions: $110,000 per annum
• Concessional contributions: $27,500 per annum

2. Is it time to find your lost superannuation?

Do you have lost superannuation that may be sitting with the Australian Tax Office (ATO), or with an old fund that you’ve forgotten the details of. This is your hard-earned money, and as such should be in your superannuation account. Whether you’re an Australian expat or resident, you can still track down and consolidate your lost superannuation by following these simple steps here.

3. Should you consider consolidating your superannuation?

Consolidating superannuation, i.e. rolling multiples super accounts into one, can be a sensible option in many cases as it makes it easier to track, can often reduce duplicate fees, and means that you have one set of investment decisions to make for your superannuation. You may also find that you’re eligible for fee discounts depending on the superannuation balance involved.

However, it’s important to do your homework before you simply roll over your super accounts, as you may be giving up on insurance that you can’t get back, or other benefits attached to your superannuation account. Be sure to speak to a qualified financial planner, experienced with Australian expats if you’re living abroad, before making any decisions here.

4. Review or set your retirement goals

Many people these days think about retirement as financial independence, i.e. the time from which they may decide to continue to work, but no longer have to do so financially. It’s important to set yourself a goal here, including both the age from which you’d like to have this choice and the amount of money that you’d like to have available to spend each year. From here you can start to develop a plan for how much you’ll need to save, and how you’ll invest it on a regular basis to achieve your goals.

It’s important here to think through aspects such as tax treatment of your retirement income, any overseas income sources you may have such as a UK pension, as well as how you may be able to optimise your retirement income for tax purposes going forward.

5. Consider how you’ll consolidate overseas pensions and superannuation

If you have CPF, a UK pension, or savings in another country’s retirement scheme and you’re looking to retire in Australia, it’s important to consider your options as to how you’ll look to consolidate these, if it’s possible, and when you’ll need to start to plan to action them. In the example of Singapore’s CPF system, in most cases the ATO will allow a certain period of time to contribute these funds to your superannuation before any further gains in your CPF account will be considered taxable in Australia.

For UK pensions, for example, there are limited options to consolidate these with your Australian superannuation, and in many cases will involve multiple steps. When it comes to international pensions and retirement schemes, we’d certainly suggest seeking professional advice here.

Property

1. Review your debt structure

Do you own your primary residence as well as one or multiple investment properties? If this is the case, and you have loans for the properties, it may be an opportune time to review your debt structure with an investment-savvy mortgage broker? Given that in many cases, debt attached to your investment properties will be tax-deductible, and your primary residence mortgage will not be, by adjusting how your debt is structured, when repayments are made, and which loans are attached to the offset account, you may find that you can create some additional savings.

2. Set a goal if you’re looking to buy your own home or pay off a mortgage

For many Australian expats one of their key goals while living and working abroad is to save up enough to provide for a deposit or pay off a mortgage when they return to Australia. Whether you’re an expat looking to save up your deposit, or an Australian resident looking to do the same or clear your existing mortgage, it’s important to set a realistic goal that you can both measure and track on a regular basis. It’s also important to speak with your Financial Planner here to review the risk profile of any savings that you’re investing with the future plan of putting towards a property, as they will allow you to ensure that you’re not taking on more or less risk than is sensible based on your time frame and goals.

3. Review your rental income

If you already have one or more existing investment properties, this may be a great time to review your lease/s and explore whether you can increase the rent for your current or new tenants. Most Australian properties have seen a reasonable increase in rental prices over the past 12 months, and even if it’s only an extra $20 per week, this can certainly quickly add up for you.

4. Review any potential tax deductions

Investment properties in Australia can be an attractive source of potential tax deductions, and as we enter the new year, it’s important to review any options that may be available to you. For example, you may have a tenant moving out which affords you some time to carry out repairs, or you may be missing out on depreciation benefits that you’re entitled to, or you may even look at prepaying interest on your loan. Be sure to speak with your Financial Planner and/or accountant here to review your options.

Protecting Your Wealth

1. Review your estate planning documents

When was the last time you reviewed your Will and other important estate planning documents? If you don’t already have these plans and documents in place, make 2022 the year that you change that, and be sure to seek professional advice, particularly if you have assets in multiple jurisdictions. You may need to consider estate planning items such as the following:

• Wills
• Powers of Attorney
• Temporary and Permanent Guardianship for Children
• Medical Directives
• Beneficiary Nominations
• Testamentary Trusts

2. Ensure your beneficiary nominations are in place and up to date

In the case of both your insurance policies and your superannuation, you can nominate specific beneficiaries to receive the funds in the event of your passing. It’s important to review these on a regular basis, ensure that they are compliant and that they reflect your current wishes.

3. Review your insurance policies

There are five main types of insurance policies that you should be considering when it comes to your wealth protection plan, which are as follows:

• Life insurance
• Total & permanent disablement
• Critical illness / Trauma
• Income protection
• Health insurance

You may have some coverage through your employer or superannuation fund, but it’s important to consider a number of aspects here such as; will it be enough, what will happen if my employment is terminated, what would happen if I move back to Australia, or overseas, will my existing superannuation insurance cover me while I’m overseas. In many cases, a combination of superannuation, employer-provided cover, and personally held insurance can be a sensible option, however, there is certainly no one-size-fits-all approach here.

Debt Management

1. Slash your bad debts

If you’re carrying credit card balances month to month and not clearing them on a regular basis, or you have a store card or personal loan, make 2022 the year that you develop and implement a plan to get rid of these debts where sensible. Credit card interest rates in particular can be very high, with reward card rates often above 20% per annum, which can make it very hard to get ahead financially if you’re being hit with this cost every month.

You may also want to look at your debt consolidation options with a mortgage broker, which may allow you to reduce your interest expense whilst you’re paying down the debts.

2. Review your rates

Interest rates in Australia are at record lows, often with owner-occupier rates starting with a 1, and investor rates starting with a 2, so if your interest rate is above these, it may be sensible to speak with a qualified mortgage broker to review your options here. Whether it be refinancing to a new lender, consolidating your existing debts, or requesting a discount with your current lender, you may find that you have multiple options to save some money on your interest rates.

3. Review your debt reduction plans

Are you looking to slash your mortgage or other debts throughout 2022? It’s important to set a plan for how and by when you’ll achieve this. This may be a matter of setting up a regular contribution plan, or otherwise reducing your mortgage throughout the course of the year, and tracking your progress on a regular basis.

We sincerely hope that you find this checklist helpful in ensuring that you can make 2022 a financial success for you and your family. Wishing you a very Happy New Year!

Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.

Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.

Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.

General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.