Financial Planning FAQs

1. What can a Financial Planner do that I can’t? Reaching financial goals mean that a number of pretty important decisions need to be made. Often this can be confronting if you’ve been procrastinating for years. There’s also a lot of questions that are raised. How much should be invested in shares and property? How much in Cash? Are managed funds better than direct stocks? The questions can be endless and they aren’t always easy to answer. Which is pretty much the reason an adviser can help! By sitting down with you and using your input and their expertise, they can answer the tough questions and make the decision making process a whole lot easier.
2. How does the investing process work? The first step is usually the hardest – it’s to define your dreams. Most of us have a fairly accurate picture of where we are now, and can dream about where we want to be. But goal setting helps bring it all back into bite sized chunks. We help you work out where the money should be invested; how to cut through all the complex stuff in super and tax to accelerate your wealth, spend time researching investments so you don’t have to; take a look at all the factors that affect your personal situation and stay in touch to regularly review, encourage and cheer you on. Changes happen every year, and Advisers have to stay up to date with these and how they can affect YOUR plan.
3. How do I find a good Financial Planner? ASIC have printed a Top Seven Tips for finding good advice:
   1. Deal only with a licensed Advisory Business
   2. Pick the Adviser with the strongest qualifications. Experience and integrity
   3. Ask questions until you really understand
   4. Walk away if you feel uneasy
   5. Make sure your financial plan suits your needs and personality
   6. When you get a good plan, stick with it!
   7. Keep all your paperwork
4. What is the process when I see an Adviser? Firstly, it’s important for the Adviser to provide you with their Financial Services Guide and then have a chat about your current situation. Usually a Fact Finding Document is used to get a good idea of where you’re at, where you want to be and your tolerance to investing. Any fees should be advised before you sign up for a Plan. If you’re happy, the Adviser will then develop a strategy that’s tailored to your personal situation. This can be a comprehensive document covering every area – or broken down into separate areas such as Insurance, Superannuation or Investing. If you’re happy with the Plan, and have done the fine tuning, it’s time to implement the plan and authorize any paperwork needed. At least on an annual basis, your adviser should be in touch to make sure your situation hasn’t changed too dramatically and that you’re still on track with your Plan. Any ongoing monitoring or commission costs should be disclosed at the Plan stage.
5. What are some effective strategies to reduce debt? The first step is usually to identify the two types of debt you have – Good and Bad or Inefficient and Efficient Debt. Basically, efficient debt is used to acquire assets that generate assessable income and will grow in value, the interest is tax deductible and income generated by the asset is used to offset the debt. Consolidating debts is usually the best way to reduce the interest payable, or pay off your inefficient debt sooner. Keeping it simple is the key! Set yourself a budget, stick to it and harness your cashflow to reduce your ‘bad’ debt as soon as possible.
6. What is Margin Lending or Gearing all about? Once your inefficient debt is under control, you can consider borrowing money to invest. This is the wealth creation strategy known as ‘gearing.’ You have the potential to magnify your investment value as you have more money invested than you would otherwise, and you can reduce taxable income by claiming the interest on the loan. Some traps to note are Margin Calls. These occur if your investment falls in value and your loan ratio exceeds the value of the investment. Try and stick to a conservative Loan to Value Ratio like 50% to reduce the chances of this happening. i.e. If you invest $20 000 and borrow $20 000. Total value of the investment is then $40 000.
7. What’s the big deal with Insurance? Most of us don’t hesitate to insurance our depreciating assets (like our cars) but don’t cover the most important money making machine in our homes – ourselves!! Who will pay the bills and provide for our families if we can’t? Some insurance can be structured tax effectively and is relatively cheap for the benefits offered. Ensure you have life cover and income protection in place when considering any Gearing strategies. Other types of insurance to consider are lump sum payouts for Trauma or Total & Permanent Disability and Business Expenses insurance.
8. I’ve heard of Debt Recycling – but how does it work? Basically, there are three steps involved in the strategy. Use the equity in your home to borrow to invest – use the income and tax savings from the investment plus any surplus cash flow to reduce your outstanding home loan and at the end of each year, borrow an amount equivalent to what you’ve paid off the home loan for new investments! This way, you are increasing your efficient debt and reducing your inefficient debt fairly quickly.
9. What are the benefits of Agricultural Investments? Sometimes called tax effective investments, these are really tax deferral schemes. Monies into schemes to purchase trees, olives, vines, cattle or other agricultural products, may be between 80% and 100% deductible in the year of investment and then paid off over the following years. i.e. You earn $90 000, invest $30 000 into a tax effect investment – your taxable income may reduce to $60 000. With the tax refund, reduce the outstanding balance of your Mortgage! Income from the investments is assessable down the track. Only ever go into a tax effective agricultural investments that has an ATO Product Ruling issued.
How much Life Insurance do I really need? Most people know that covering debt is the starting place. Add up your credit cards, loans and Mortgage to get a round figure. Most don’t want our families left in a terrible financial situation when we’re gone. Another thing to consider is the future income that won’t be earned by the breadwinner. If you’re 45 and earning $30k per annum, that’s 20 years your partner will be without an income to meet expenses. That’s $600k extra! Add it all together and see what you come up with – it’s probably a whole lot more than you expected! Of course, it’s then back to “Is it all affordable?” It might be worth having some cover in your super fund, and some outside. Talk to your adviser how best to structure for your own circumstances