It's always an interesting time during election campaigns, when the country waits with bated breath to see what changes are going to be made (or not made) by the successful candidates, and how this will affect their day to day lives. Right now its nice to have a reprieve from the relentless advertising.
In the lead up to our most recent polls, there were many people (including lots of accountants) sweating on changes to tax law that didn't eventuate. It's a good reminder that when it comes to your finances, the best protection you can give yourself is to invest in some solid professional planning, so that you're prepared for circumstances where you don't know the outcome, and over which you have little control.
Similar to investment decision making, effective tax planning means playing the long game - putting in place long-term strategies that are based on more than knee-jerk reactions to political movements or personal whims. Making sudden changes to your affairs will have immediate effects - some you expect and some longer-term effects you don't.
It's important to remember that while media hype around party policy and commentary on the possible impacts of these changes is unavoidable, it's important to absorb all the information with a healthy layer of reason.
Political ideologies aside, contentious topics such as changes to negative gearing and capital gains discounts, for example, are inevitable the rules in Australia are quite different to other countries - so it's important to ensure your tax strategies have you covered for fluctuations in these areas.
Similarly, self-managed super funds have always been a moving target, and will continue to be so. The popular strategy for doctors to buy their medical premises within an SMSF will continue, and the lack of appetite for the banks to lend is driven more by the general property cycle than by tax law considerations.
So to ensure you're on the front foot when it comes to your tax planning, make sure you're getting advice from a tax professional you trust and dealing with knowledgeable lenders who understand the medical industry and are equipped to assist doctors with their business planning.
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For a long time, the ATO has been using data-matching practices to ensure individuals and businesses correctly declare their income and claim offsets and other benefits in line with the law.
Recently, the ATO have expanded their reach into your information, so it's important to be across what is now being assessed, to ensure that you're compliant.Previously, data matching was largely focused on data from Centrelink, as well as interest and dividends, but these parameters are now being expanded to include other areas, such as property sales data, collected from land title offices.
For medical professionals, the ATO now receive summary reports from various providers, which include data related to research grants, WorkCover payments etc. This also includes rural and educational grants, and other untaxed payments received by doctors, that occasionally get forgotten about at tax time.
These changes mean that it's more important than ever before to ensure that your record keeping is up to date and that you're declaring all income earned. We recommend having a designated bank account that all practice income, including grants, is banked in, so that there's no confusion about what you need to report. Also be aware that you may need to request additional information on some payments, to ensure accuracy.
If you're unsure about what needs to be included, or you suspect you've missed something, you should check with your accountant. It's much better to be proactive and make sure that everything's as it should be, than have the question asked by the ATO. Your accountant can check what income information the ATO have collected on you in previous years, as well as advise on your current income streams to ensure you're covered across the board.
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The fields of insurance and superannuation are complex and filled with both options, and opinions. One of the latest (and loudest) opinions involves the recommendation from industry "experts" to take up personal insurance within your super fund.
The case for this stems largely from the default levels of cover that are provided through this process, with no underwriting required, making it simple for the member and cheap to administer for the super fund. Sometimes volume discounts mean premiums are also cheaper, but this isn't always the case. The more likely appeal is the fact that the premiums are debited from your super account so there's no out-of-pocket expense.
While this might sound good in theory, as is so often the case with financial planning, there is no one-size-fits all solution - the best option for you depends entirely on your personal situation as well as consideration of the facts at hand. It's dangerous for members not to seek advice outside of their product provider (super fund) it means they aren't getting the full picture, including the positives and negatives associated with their different options.
So what are the obvious problems in relying on the default insurance provided by your super fund?
Well, insurance is a basic concept dating back centuries, involving a group of people having each other's backs. Everyone pays in, hoping that they won't need to claim, but, if an unforeseen event happens, they receive a benefit to help support their family. It's a simple business that collects premiums, pays claims, makes a small surplus for reserves to cover future claims, and ideally makes a small profit for those making the market or taking the risk. Setting the premium is absolutely key for sustainability and needs to reflect the likelihood of claim each individual brings to the pool.
With guaranteed acceptance, which typically occurs when you purchase insurance through your super fund, this process doesn't occur. As a result, this risk is typically managed in the following ways:
Insurance through super has its place, just like Centrelink as a safety net has its place. And there are situations where an adviser might recommend this is retained or even extended, but to think it's a simple like-for-like comparison is naive at best. Additionally, if using your super to pay your premium is important for you (and of course there are a whole range of long-term implications of doing this as well) there are ways in which you can pay premiums for external insurance via rollover from your fund. So, contrary to popular belief, you aren't restricted to accepting your particular super fund's insurance product even if cashflow is tight.
If ever there was an area that requires the personal advice of a skilled practitioner who can really compare the pair, this is surely it. Just ask anyone who has had the need to claim.
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There are times in life when you're better off not putting your head above the parapet, for fear of losing it. And so, with this in mind, it's perhaps no surprise that financial advisers have been largely silent in the wake of the Royal Commission.
While we feel some of the proposals in the final report may have unintended consequences if fully implemented, we feel that in other areas they may not have gone far enough. It's against this backdrop that Scott Pape's book, The Barefoot Investor, has stayed on the best sellers' list - not surprising given the absence of the FP industry having a voice. This has got us to thinking:
We should show our hands here and disclose that not only have we read the book, but much of what he says closely aligns with our practice's advice philosophy. But we do think it's worth posing another question:
We have everything from how to lower my blood pressure and chi running, to building your own home and we probably don't need to tell you it remains a work in progress.
If, like us, you're a seeker of knowledge, believe you're a successful self-starter and reasonably disciplined, you buy these books with the intention of reading and understanding, but don't get around to the implementation. Usually, it also becomes apparent that it's more complicated than you first thought, that there are many options, or that it will take significant time, so the book becomes an interesting, but ineffective read.
In the meantime, below is our advice philosophy, which outlines what we think a good advice relationship looks like.
The main reason to seek financial advice or invest in a financial plan is not about having more money, but rather about enabling your finances to help you facilitate the life you want, now and into the future.
A good financial plan, therefore, always comes back to how it achieves this ultimate goal, without any surprises along the way.
This is why we spend a lot of time understanding our clients' goals, and how these evolve over time, to ensure our advice is directly in line with what you want out of your life, now and into the future.
When it comes to your money, it's crucial that you're in control. It sounds straightforward, but for a lot of doctors this is not the case.
It doesn't need to be complicated, but you need to be on top of the basics knowing what you have coming in, what's going out, and then what you're left with.
Without this knowledge, it's very hard to make any sort of financial plans with confidence, and it's impossible to create financial independence if you consistently spend everything you earn.
Insurance underwrites the risk of something going wrong while you're building your assets.
You are, and will continue to be, your most valuable financial asset, so we ensure all of our clients have comprehensive cover in place before embarking on creating wealth.
Investing in a comprehensive protection strategy is a positive step, as it ensures there are no surprises, and as your wealth builds and you become more financially secure, you can reduce your cover.
When money starts coming in, it's easy to get carried away living a lifestyle that's financially unsustainable, supported by borrowing.
It's never been easier for doctors to over-spend, as a result of a combination of low interest rates and over-generous lending by banks.
Just because you can borrow money, doesn't mean you should - having lots of debt will cause stress, restrict your choices, and limit your ability to invest and build funds for financial independence.
Having some debt is a part of life, but it's important to understand the opportunity cost of this and make decisions in the context of your overall situation and objectives.
Our strategy is to financially model your position, including all the lifestyle assumptions you wish to make, which means we can therefore predict, with reasonable accuracy, how your financial future will look.
Our advice, combined with all big financial decisions, are entered into the model so the implications of changes and decisions are known before you make them.
This process will allow you to have confidence in your finances so that you can enjoy the money you've worked so hard for.
Restructuring assets can be a costly exercise, so it's important that we focus on buying assets in the correct entity, from the outset, whether that be in your own name rather than a trust, or super, or vice versa.
We help our clients understand the implications of different structures before any asset or investment purchases are made.
The impact of compounding returns on investment is exponential growth, so we're big advocates of getting clients to start investing early.
$50,000 invested with an 8% return after 10 years is worth $108,000, after 20 years $233,000 and 30 years $503,000.
See where the money is made?
Your finances are a part of life that should always be a focus, no matter what stage of your life or career you're in.
This is why we aim to build long-term partnerships with our clients and use a structured ongoing review process to ensure you have the highest probability of achieving your financial goals.
We use our relationships with our clients to offer ongoing advice and financial coaching to enable you to be accountable for the plans we've made together.
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Getting on top of your finances and working to build your personal wealth is an important step required in creating a business and life you love.
Often though, we set our sights too short and don't take the time to create a plan for what we want to achieve in our lives overall, which is a recipe for unfulfillment down the track.
When it comes to achieving financial freedom and contentment, there's an important step that often gets missed but that is crucial to setting yourself up for success and happiness in the long run.
Ready, set, GOAL
So, you're earning some money. You might even be saving some! But, while it's great to feel the accomplishment that comes with taking your finances to the next level, the most important component in planning for the future is setting some personal goals.
Having concrete goals that you're working towards is critical because it allows you to focus not just on the generation of wealth, but also on what that money is going to get you and how it will contribute to making your life better.
What does success look like?
It's important to establish clear goals that you want to achieve so that you can track your progress and celebrate your successes along the way, and the first step in this process is establishing what success actually looks like for you, over the course of your life.
This means taking a step back and thinking about your personal and family values and identifying what's really important to you in life. This might sound a bit philosophical, but unless you truly understand what makes you tick and the type of experiences you want to make your life enjoyable, you're well and truly putting the cart before the horse.
Help is at hand
Often, identifying and articulating these values can be tricky to do on your own, and it can be hard to pin down the specific goals and milestones that are going to make you happy throughout your life.Meeting with an experienced financial adviser can often help in this regard, and should create the space for reflection; helping to steer your discovery of these values through thoughtful, exploratory questions and a lot of listening. It often takes an objective opinion to help weed out the top, big-picture goals that are really going to make a difference in your life, so speaking with an expert who can support you in getting there makes sense.
It's important to take this big-picture view, because it can be easy to get hung up on short-term goals, which, while still important, change often and generally only offer temporary satisfaction - think, a new car, expensive holiday or that big house you're eyeing. These are all worthy short-term goals, but it's important to assess these through a big-picture lense to ensure they're helping you achieve the overall life you're envisioning.
Having these specific long-term goals nailed down, means that you have the building blocks for your life that, when achieved, will go a long way toward making you happy and fulfilled.
It's important to note that goal-setting is not a one and done exercise. No matter how much time we take "getting them right", it's inevitable that our values, and what we view as important, will change over time. This just means regular reviews of your goals are necessary to ensure what we're aiming for is still in line with what's going to make us the most happy.
If you need support getting in control of your money, we're here to help. Like most people need a personal trainer to get fit and stay fit, the same can be said about finance, so it's worth investing in professionals to help you get on track and stay there.
Get in touch today!
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