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New Year, a New You!

This article was first published on 5 July 2021, in The West Australian, Your Money and written by Empire Financial Group Managing Director Raymond Pecotic.

And just like that, we have rung in another new year — but not the type with boozy parties and the hangovers we nurse on the first day of January.

No, the new financial year is ushered in with far less fanfare, except maybe for the financial advisers and accountants for whom July 1 means the start of a new year, new beginnings and new opportunities.

Like the regular new year, now is a good time to reflect on the past 12 months, set new goals and take action to ensure the year ahead is even better than the one just past. If you’re looking for inspiration for some new financial year resolutions, these below should give your plan a good kickstart.

RESOLUTION 1: I will create a spending plan

These are sometimes called a budget, but who likes to stick to a budget? Reposition this into a positive and create yourself a spending plan instead, because it’s much more fun to plan how to spend it rather than save it.

Think about those big chunky bills that arrive such as insurances, council rates or Christmas presents and break them down to weekly or fortnightly amounts that you can immediately divert into a separate, bill-paying account. Not only will it ensure you’re not caught short when that bill lands, if you put it in an offset account linked to your mortgage it will save you interest along the way.

RESOLUTION 2: I will ‘pay myself first’
Many people say they have no money left over to pay extra off debts or invest for the future. Here’s the key though, when creating your spending plan, factor in your debts and future savings requirements immediately after your fixed expenses. What is left over you can then allocate to discretionary spending — the fun bits.

This is known as “paying yourself first”, meaning you’ve taken care of your family and personal goals before you allocate the leftover to line someone else’s pocket. Consider this an essential expense, just like your mortgage or groceries, then spend the rest however you please.

RESOLUTION 3: I will master my mortgage

Make a resolution to check your mortgage statement. If your interest rate isn’t starting with a 2, it’s time to review it. Moving banks may seem a hassle but your procrastination or misplaced loyalty could be costing you thousands of dollars every year. If shopping around is too difficult for you, contact a mortgage broker to do the comparisons for you. Reducing your interest rate doesn’t necessarily mean you should reduce your repayments. With such low rates, now is the time to really consider smashing your mortgage by incorporating extra repayments into your spending plan, and setting a time frame for eradicating the mortgage altogether.

Interest rates are at record lows, so the boost to your repayments will make a real dent in your principal.

RESOLUTION 4: I will get super savvy

For most of us, superannuation is the most powerful tax-planning vehicle they have access to, so it deserves attention. This new financial year presents many new opportunities and things to consider. From July 1, your nest egg gets a boost as the super guarantee — what your employer pays — increases to 10 per cent. This
coincides with the annual concessional contribution cap increasing from $25,000 to $27,500. With these changes, you will need to revisit existing salary-sacrifice arrangements to ensure you stay within your caps, or take advantage of the maximum tax deductions available to you. You should also check to see how much you have made in concessional contributions since the 2018-19 financial year. If your super balance is under $500,000, you may have the opportunity to use the unused cap in this or subsequent financial years and claim the tax benefits.

Non-concessional contribution caps — after-tax money — have increased by $10,000 to $110,000 a year, and the transfer balance cap — how much you can have in pension phase tax free — is increasing by $100,000 to $1.7m. Therefore, this new financial year presents lots of changes and opportunities, and with the rate of tax in super usually set at 15 per cent, or nil in pension phase, the tax benefits compared with paying up to 47 per cent in your personal name are compelling.

RESOLUTION 5: I will review my insurance
The right life insurance strategy will protect you or your family if you are sick, injured or die, to protect the assets you’ve accumulated and pay the bills. Relying on the default life and total and permanent disability insurance in your super fund is rarely a suitable approach, so now is the time to get expert advice and get the right package, or review the policies you already have. Just make sure that you don’t cancel any current insurances before new ones are in force.

RESOLUTION 6: I will get my estate planning in order

This is a frequently overlooked part of people’s financial affairs, and attending to wills, enduring powers of attorney and other estate-planning tools is put off by many people year after year. Dying without a will has a far greater impact in today’s society than it did in the past, with blended families, significant family money
being passed through generations, increasing amounts of wealth in super and individuals accumulating assets in personal names before they marry or enter de facto relationships. Many people are shocked to learn that parents, brothers and sisters may legally stand in line to benefit from their assets before their long-term de
facto partner if there is no will in place. This is not an area to leave to chance.

RESOLUTION 7: I will speak to a financial adviser

Like most things in life, we can attempt to do them ourselves but we will rarely get the same outcome as when we hire a professional. A good financial adviser will help with cash flow, tax planning, debt repayment strategies, super, investments, savings goals, insurance, estate planning, and really importantly, keep you accountable to your plan and help you avoid the noise and hype surrounding the latest speculative fad. Good outcomes require an investment in good advice. If you think hiring a professional is expensive, just wait and see what an amateur costs you.

Raymond Pecotic is managing director of Empire Financial Group