Like many I have been saddened to hear the Royal Commission have, again, uncovered a number of systemic "cloudy" advice practices where an advisers "best interests duty" requires something a little purer.
This simple truth reminds me of why we chose to engage with clients the way we do 10 years ago, with annual opt in and flat dollar fees invoiced directly to clients.
As I set about writing a blog on a subject that many advisers find difficult, a valued client reminded me of why we do what we do. I think these words are more insightful than anything I can write and, I hope, demonstrates what a pure advice relationship should look like.
"I'm confirming I'd like to continue with your ongoing services. In the current context of the Royal Commission into banking highlighting the dangers of hidden percentage based fees for investments and self-managed super, your open, fixed fee service shines as an example of how it should be done!" Ben - Cardiologist
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And just like taxes, deep down we know that administration is essential for keeping things running properly. Having said that, there are lots of good reasons for driving down admin costs as much as possible. And with the modern boom in apps and add-ons, there are plenty of tools to help you achieve that.
Many accounting software companies are having their annual roadshows at the moment, showing off the features of the new versions of their software, and add-ons that connect to existing programs.These events can be a bit like religious gatherings, and the mantra is that using their product will increase productivity and efficiency, and therefore make everyone's life better.
But despite all the new functionality this software offers, one thing has remained the same: if you input junk information, you'll get back junk insights.One way to improve the accuracy of the information going into your accounting software is to automate as many of the inputs as possible.
Often what we would find is people would only enter the most basic data into the system the date and amount of each transaction for example. This meant when you tried to analyse the data for tax reporting and business decision making, you had no idea who was paid or whether GST was processed correctly or a host of other important facts. Junk in junk out.This all changed with the introduction of bank data feeds into accounting software. Not only would all your bank data magically appear in your accounting ledger, you could program the software to automatically categorise recurring transactions. This new technology was as ground-breaking as the mobile phone (for accountants at least)
In our next blog we'll dive into the detail of just how powerful automating your financial records can be.
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There are only really three factors that contribute to achievement of your financial goals: what you earn, what you spend and what you do with the rest.
If you've completed your training your income should be reasonably stable and if you're getting professional financial advice what happens to "the rest" will be determined by a plan that may focus on investment, debt reduction or a combination of both.
That leaves what you spend.
Having helped doctors with their finances for nearly 15 years, what I too often see is a habit of overspending that starts as incomes increase. This combined with not knowing where all the extra income is going has far reaching consequences.
Firstly, the sooner you start investing, the sooner you get what Albert Einstein called "the most powerful force in the universe" compounding returns on investments. And secondly, if you create a lifestyle that uses all of your income it will be impossible to reach financial independence.
Understanding what your fixed expenses are along with what you are spending on discretionary items is a good place to start. Importantly, this also provides a clear view of how much money will be left over each month that can be put to work through investment.
Exporting online bank statements into a spreadsheet provides a starting point for checking where your money goes. The problem with this method is that it's time intensive and doesn't easily track activity moving forward.
Once you have an idea of what you have spent by category, the next step is to have a plan of what you intend to spend going forward.
Most practices use accounting platforms like Xero to track income, expenditure, assets and liabilities. If you have a good practice manager and the right tools they can easily tell you your practice's financial position in heartbeat. It's the only way to know your practice is running the way it should.
There's no reason why you can't run your personal finances the same way. Very soon Medical Financial will begin offering access to a platform that provides the same kind of insights as Xero, but for personal finances.
It will allow you to track your expenditure, understand where it's going and produce regular personal profit and loss statements. It can even track your change in net wealth via a personal balance sheet. And you will be pleased to know, that once set up, the time taken to keep on top of things will be around an hour a month. Armed with timely, relevant information about your finances you can start taking greater control.
|Posted in: Wealth Creation Financial planning Planning Investment Financial independence||0 Comments|
By now many people will be aware the Federal Government brought in some significant changes to the rules around superannuation. If you missed it you can read about them in some of our recent blog posts.
But for Queensland Government employees - including anyone who works for Queensland Health - there was one more big change at the beginning of the financial year. For the first time it is no longer compulsory for Queensland Health employees to use QSuper as their superannuation fund. Queensland Health staff are now free to use any fund on the market or even a self-managed fund.
The big question of course, is should you switch?
It's an understandable reaction when given a choice for the first time to want to exercise that choice. Many may assume that QSuper's performance might not stack up given they had a completely captive market.
But the reality is that despite tens of thousands of people having no choice but use QSuper, their performance as a super fund has been quite consistent.
In 2017 and 2016 they were named Super Fund of the Year by Choice Magazine. They have had consistently low fees and strong investment performance. For younger medical professionals, they have a good choice of funds that are well suited to the accumulation phase. It's a solid record.
Having said all that, there are some good reasons you might want to move away from QSuper:
The simple - if slightly unromantic - answer for the majority of Queensland Health employees is that there may be good reason to stay with QSuper. That certainly doesn't mean you shouldn't explore your options - especially if you fit into one of the categories mentioned above.
But the absolute worst reason to make a financial change is simply because you can.
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Once upon a time, the rules governing superannuation didn't change all that often. Year after year they would stay more or less the same, with maybe a little tinkering at the edges. It made sense. After all, superannuation is the longest held investment most of us will ever have. It's hard to plan for forty years down the track when you're not sure what the rules will be forty weeks from now.
Sadly successive governments have become addicted to pulling and prodding at the superannuation rules and the 2017/18 financial year is no different.
A flat and lower concessional cap
Under the previous structure people over the age of 50 had a concessional contributions cap of $35,000 and those under 50 had a cap of $30,000. Now the cap for everyone is $25,000 regardless of age.
That doesn't mean that it might not still be a smart financial strategy to put more than $25,000 extra into super, but you need to be aware of the extra tax you'll be exposed to.
Div 293 is a tax applied to the concessional contributions of people on high incomes. In simple terms, it levies an additional 15% on concessional contributions up to the cap (which is now $25,000 for everyone).
This threshold used to be triggered once an individual earned $300,000 in any financial year, but now kicks in at $250,000. Again, this isn't to say that making those extra contributions isn't worthwhile, but the additional tax liability needs to be factored in.
The other thing to consider is that it's not just income that contributes to the threshold - investment losses like a negatively geared rental, and salary packaged fringe benefits and super are also included.
The reason it's so important to know how these changes will affect you, is that any contributions in excess of the cap will attract 46.5% tax - the highest marginal rate.
Of course, if you're earning over $250,000 that's already the tax rate for a fair percentage of your income, but if you've been planning with the expectation of a different tax environment, it could significantly impact on the end result.
The other thing to watch out for is salary packaging. Many Queensland Health employees can salary package up to 2% additional super, with the government matching that contribution. If you're already close to your cap that might push you over the edge.
As with any change in financial circumstances whether they're personal or regulatory it's important to sit down with your advisor and find out how they will specifically affect you.
The good news is that these changes will affect the returns that will be lodged next year, so it's the perfect time to seek advice.
And if you happen to find yourself sitting next to the Federal Treasurer at dinner, you might want to politely ask if he can please leave super alone in next year's budget.
|Posted in: News Tax superannuation Planning||0 Comments|
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