Some Golden Rules To Follow
Sun Herald
Sunday January 4, 2004
BOOMING property market, shares on the rise, strong economy and employment and you're still finding it tough financially.
Stop complaining about how hard it is to make ends meet and to balance the family budget. Start doing something about it and make this year a whole lot easier financially. It will need discipline and commitment, so here are my financial resolutions to kick you off on the right track.
I WILL save all my loose change. This is a painless way to maintain a modest savings plan. A couple of dollars a day will become $20 a week and $1000 a year. We have a mate in Brisbane who at the end of the day puts any $1 coin in a jar when he clears out his pockets. He started when his daughter was born and now, eight years later, his savings program has grown to $13,000.
I WILL set a savings goal. Paying off the mortgage as soon as possible, or making contributions to superannuation, are two of the best savings goals you can set. Concentrate on the mortgage first and when that has gone, make super the priority. Savings devoted to mortgage repayments are equivalent to investing to earn a 10 per cent after-tax return.
I WILL plan ahead for this year's tax return. Tax is a major cost for investors and employees up to 48.4 per cent. Don't let your tax bill come as a surprise. Planning can be more effective if it starts in January, not June.
I WILL NOT be tempted by tax shelters. In June, many taxpayers rush around looking for investments that allow them to make tax losses and reduce their overall tax bill. They are not worth it. The result is the tax man loses 48.4 per cent and you lose the rest..
I WILL plan my tax affairs to maximise my wealth. Tax planning is not just for the rich and it can be simple:
* Split income by putting surplus money into an interest-bearing account in joint names, or the name of a non-working spouse.
* When investing in term deposits, make sure they mature in July, not June. You will then have a year after earning interest before any tax is due.
* Purchase shares in the name of someone who can best make use of the imputation credits that come with franked dividends. Remember, low or no income taxpayers get a rebate from their credits. I WILL make sure all my life insurance needs are covered. Make sure you have adequate term life cover and income protection so that you and your dependents won't suffer in the event of the unthinkable happening. Ensure the amount of coverage is realistic and get rid of any unnecessary policies. Old endowment policies or others with investment components aren't generally worthwhile investors can get better returns elsewhere. I WILL keep my nerve with the sharemarket. The sharemarket took a beating early last year and investors' share portfolios or managed funds were looking pretty shabby. But hang in there. If the companies are generally sound, don't sell out and crystallise your losses. The market will bounce back and the share prices of good companies will recover. Look to invest with a medium- to long-term view, and not worry about short-term fluctuations. I WILL consider security before return. The prospect of higher returns always comes with higher risk. You can't afford to lose all your capital, so invest in proven performers. Consider risk first and return second and earn a little less. I WILL NOT base my investment decisions on last year's results. Investment cycles fluctuate year to year. Those who invested heavily in shares in 1994 on the strength of the great returns of the year before lost badly. I WILL spread my risk. By diversifying your investments across a range of assets property, shares, fixed-interest you will cover yourself against any volatility associated with any one class of assets. For example, if you have just paid off the mortgage, don't go out and buy an investment property. Spread the risk.
© 2004 Sun Herald