Money and Life
(Financial Planning Association of Australia)

Is more knowledge enough to help people do better with their money? New research shows seeking face-to-face advice from a professional can support better financial decisions.

When it comes to doing the 'right' thing, money decisions can be right up there with healthy eating and exercise. We might know that sticking to a budget, spending less and saving are things we need to be doing to keep our finances on track for future goals such as a family holiday, new car or home deposit.  But like skipping the gym to get an extra hour in bed on the weekend, sometimes we make choices about money that aren't based only on what we know.

Knowing too much can be confusing

This is an insight behaviour change agency Karrikins Group share in their recent report How to really build financial capability. In the course of her research and analysis for the report, award-winning neuroscientist Dr. Emily Heath has explored what works and what doesn't for financial education programs. Her findings highlight the fact that many of these initiatives are based on an assumption that boosting financial knowledge will result in better choices and outcomes for the people involved.

Thanks to the digital age we live in, easy access to knowledge about our money options isn't hard to come by. But as this report highlights, the more information we have, the harder it can be to take in and assess the pros and cons of so many different options. "There is increasing choice among financial products, so that consumers have to comprehend, analyse and compare a snowballing number of options when making decisions," writes Dr. Heath.

This is an experience with financial decision-making that Australians have put words to in a recent report by ASIC. In group discussions and interviews more than 60 people were asked to share their views on financial advice. One participant said "I can research all I want but really, we need a professional. I am not sure [our] reading will land us anywhere." Dr. Heath is in agreement that your average person can't be expected to make sense of the huge range of financial options available, not to mention all the complicated jargon that comes with them. "Expecting a consumer to acquire all of the knowledge, insight and comprehension required to manage and maintain their financial decisions is like expecting a patient to perform surgery on themselves," she writes.

What does drive better money choices?

After debunking this myth about the direct link between more knowledge and better financial outcomes, Dr Heath sets out to pinpoint the factors that do help people improve their financial choices and outcomes. In the report she lays out 10 principles for designing effective financial support programs, from focusing on willpower to getting the timing right for an intervention.

At number five on this list is building personal human connections. Dr Heath emphasises the important role other people play in influencing our financial choices and behaviours. In reviewing a number of financial education programs, she discovered that having advice or support delivered face-to-face made a big difference to the impact on people's actual behaviour. "Efforts to change financial behaviour are the most effective when the influencer (or educator) is able to form a personal, human connection with the person they are trying to influence," she writes.

A personal approach makes a difference

The report goes on to say that tailoring advice to meet individual needs is an important part of this face-to-face approach to setting people up for financial success. This idea that there is value in getting professional financial advice that matches our unique situation is backed up by survey findings in the ASIC report. One of the biggest benefits people saw in seeing a financial planner was "that financial advice could help them to make the most of their financial circumstances by improving their financial decision making and setting up the right behaviours (e.g. saving) for future success. "

Another key area where survey participants felt professional advice could make a difference was in helping them feel less stressed and anxious about their finances. This is another issue that Dr. Heath says can cloud decisions about money and lead to poor financial outcomes. "Put simply, stress changes our brain and makes us more prone to mistakes of thinking, feeling and execution," she writes. "This is likely to have large effects on financial decision making."

Whether you're looking to remove the stress from a major financial decision like taking out a home loan or just want to feel that you're making money choices in your best interests, a CERTIFIED FINANCIAL PLANNER® professional can help. They can work in partnership with you to understand your goals and recommend a plan to give you the confidence that your financial future is secure.

MoneySmart
(ASIC)

As an employer, you have to select a default super fund to make super guarantee payments for your employees who have not chosen their own fund.

Here we explain how to choose a super fund for your employees.

What the super fund you choose must offer

The fund you choose needs to be a fund that is authorised to offer a MySuper product these are known as 'employer-nominated' or 'default funds'.

For more detail on your super obligations as an employer see the Australian Taxation Office's article on setting up super.

Comparing super funds for your employees

Industrial awards

When selecting a super fund start by checking the industrial awards applicable to your employees. There may be particular funds listed as default funds for your industry under an award.

Fees

Check the fees your employees will be charged by the fund. Low fees are generally good, but you should look at what your employees will get for their money.

Investment options

MySuper products must have a diversified investment strategy. Risks, returns and fees can vary. For example, a MySuper product that has high fees and high performance might offer a very aggressive asset allocation and take risks to get those returns.

Consider the types of employees you have in the business. For example, if the average age of your employees is under 30 you might look for a more aggressive fund.

A fund that offers a MySuper product may also offer a range of other different investment options, such as cash or shares. Your employees may find it helpful to have access to these options if they want to change their investment mix at a later stage. Some MySuper products provide a lifecycle approach to super where the investment mix changes as members get older.

See our MySuper webpage to understand the difference between a single diversified investment strategy and a lifecycle approach.

Performance

Pick a fund that has performed well over (at least) the last 5 years. Do not chase last year's best performer. The fund may have higher fees but strong performance might justify the expense.

Insurance

MySuper products must offer insurance on an 'opt -out' basis. Consider the cost and what your employees get for their money. Cheap insurance cover may have significant exclusions. For example, casual or part-time workers may not be adequately covered. Conversely, paying more for insurance can affect super balances. You need to weigh up the pros and cons.

Extra benefits

What else does the fund offer? Some super funds offer educational seminars and advice. Does the super fund have a good website that helps you find information easily?

Beware super funds offering incentives

Superannuation laws mean incentives generally can't be offered to employers that could influence their choice of a default super fund. Incentives could take any form, and include corporate hospitality, holidays, or discounted rates on products or services.

For example, a super fund cannot offer you tickets to a sporting event or discounted rates on loans. This could reasonably be expected to influence your choice of fund.

Case study: Jane's super fund offers tickets to events

Jane has just started a small business and is considering what default fund is appropriate for her staff. Jane makes some enquiries with an industry fund about what they offer. The fund tells Jane they will send her complimentary tickets to a major sporting event.

Jane is worried that she shouldn't be accepting these gifts and selects another fund for her sales team. Jane decides to report this to ASIC.

Case study: Michael's super fund offers discounts

Michael runs a small manufacturing business. He is considering selecting a new default super fund for his staff. Michael is a long term customer of ABC Bank that also offers a super fund. In conversations with the bank, they tell Michael that they would like to offer him a special discounted interest rate on his business loan and a new overdraft facility.

This raises alarm bells for Michael because even though he has a good relationship with the bank, he knows the bank is not allowed to offer him this type of incentive. Michael decides not to go with ABC Bank's super fund.

If you think you've been offered unlawful incentives by a super fund you can report it to ASIC.

Make sure any incentives do not distract you from making an informed decision. Focus on what's best for your employees.

You may also be contacted by funds telling you about their MySuper product. Some advertising from super funds say that one fund is better with insurance, returns or fees than another. Be wary about these comparisons as they may not be comparing like with like.

Always take time to carefully consider information from super funds and seek a professional opinion if you need to.

Picking a super fund for your staff is an important decision. Take the time to do your research and seek help if you need it. 

MoneySmart
(ASIC)

Tax and retirement income streams

The amount of tax you will pay on your retirement income stream depends on the type of income stream, when you started it and what it was purchased with.

Here we explain how different retirement income streams are taxed and why it depends on whether they were bought with superannuation money.

• How super income streams are taxed
• How transition to retirement income streams are taxed
• How income streams from defined benefit super funds are taxed
• Different tax rules for non-super income streams and annuities

How super income streams are taxed

Super income streams are also known as pensions and annuities. They can be account-based pensions with no set time period or annuities that are fixed for a specific period of time.

Superannuation benefits are made up of two components, taxable and tax-free.

The taxable component is made up of:

• Employer contributions
• Salary sacrificed contributions
• Personal contributions where a tax deduction was claimed

The tax-free component is made up of:

• After tax contributions
• Government co-contributions

For people aged 60 and over

Benefits from a taxed super fund (i.e. most super funds) are tax-free.

For people aged 55 to 59

No tax is payable on the tax-free component of your income payment. The taxable component of your income payment will be added to your taxable income. It will be taxed at your marginal tax rate, less a tax offset equal to 15% of the taxable portion of the payment.

Work out your marginal tax rate.

Benefits paid to people aged under 55

It is rare for people under age 55 to be able to access their super. Usually your super can only be accessed if you become permanently disabled. In this case, you will be taxed as if you are aged 55-59.

If you are accessing your super for reasons such as hardship, the rules are slightly different. The tax-free component of your income payment will be tax free. The taxable component of your income payment will be added to your taxable income and taxed at your marginal tax rate.

Members of government super funds

Some government super funds don't pay regular tax, and are known as 'untaxed funds'. If you are a member of an untaxed fund, you may be taxed when you take out your benefit. Ask your super fund for details.

How transition to retirement income streams are taxed

A transition to retirement income stream is a pension bought with super money while you are still working. You must have reached your preservation age.

Find out your preservation age.

You are restricted to withdrawing a maximum of 10% of the balance each financial year and you are not allowed to withdraw lump sums.

These restrictions do not affect the tax treatment of the money you take out. The tax is the same as ordinary retirement income streams purchased with super money, based on your age.

Tax on transition to retirement pensions

Investment returns on TTR pensions are taxed at up to 15%, just as they are in a super accumulation account. More information about changes to super contribution limits, tax concessions and the amount that can be held in a retirement phase account can be found on the Australian Tax Office (ATO) website.

How income streams from defined benefit super funds are taxed

Defined benefit income streams usually come from an employer super fund or a government employee super scheme.

Calculating the tax-free portion of a defined benefit income stream is very complex. However, before you are eligible for your benefit, your fund will send you a statement which will set out exactly how much is taxable and how much is tax free.

Different tax rules for non-super income streams and annuities

An annuity is an income stream purchased with money outside the super system. It will pay you a fixed income for a defined period of time, regardless of how the markets are performing.

Income from annuities, less a deductible amount, will be taxed at your marginal tax rate. The deductible amount represents the amount of your original capital that is being returned to you with each pension payment.

Tax on retirement income streams can be a complex area and we recommend you seek help from a tax professional or financial adviser. For most people, income streams bought with super money will be tax free from age 60.

MoneySmart
(ASIC)

Save yourself this Christmas

If the festive season usually leaves you out of pocket and feeling like you spent more time and money battling the crowds than relaxing with friends and loved ones, why not simplify things this year?

Here are some quick and easy tips to help you enjoy the holiday season without breaking the bank.

1. Have a pre-Christmas cleanup

There's still time to bag some extra cash to boost your festive finances. Spend a few hours clearing out anything you no longer need around the house, like clothes, books, jewellery, furniture, music, or sporting equipment. You could sell these items online, hold a garage sale, or find a local buy-swap-sell.

They say that one person's trash is another's treasure so, as well as pocketing a few extra dollars, you might just end up making someone else's Christmas extra special.

2. Make a list and check it twice

Make lists of the things you need to buy and the food you need to prepare for the festive season. Having lists will help you plan your spending and keep you on track.

• Presents - Make a list of who you're buying for, what you want to get them, and how much money you're prepared to spend on each person.
• Entertainment supplies - List the food and drinks you'll need, and how much you can spend. Buy in advance where possible to take advantage of specials, especially if items can be frozen or have a long shelf life.
• Travel plans - Whether you're flying or driving, there are ways to save on holiday travel costs. List all your costs like flights, accommodation, travel insurance, airport transfers and petrol. Shop around for deals as early as you can, to avoid paying a premium for last-minute bookings or peak season increases. If you're going on a driving holiday, work out which day is cheapest to fill up on petrol, and do it the week before Christmas.

3. Track your spending

Keeping track of your festive spending is the best way to avoid going over your budget this Christmas.

Use an app, write it down, or keep track through your online banking.

4. Be cluey about Christmas credit

If you don't have the cash to pay for your Christmas goodies up-front, you might be tempted to use your credit card, or use a buy now pay later service. Although these are convenient ways to get the things you need now, that convenience can cost you dearly if you find yourself still saddled with Christmas debt well into 2020.

Before you sign up to a buy now pay later service, make sure you understand what the terms and conditions are, how much your repayments will be, and when they are due.

5. Personalise your cards and wrapping

Most people throw away their Christmas cards once the festivities are over, which is just like throwing money in the bin.

This year, instead of spending your hard-earned cash on shop-bought cards that will only end up in the recycling bin, why not send your family and friends Christmas greetings they will want to keep? You could:

• use a favourite photo to create a personalised photo card
• if you have kids, give them some paper and get them to draw or paint pictures that you can use to create special cards
• record a video message on your smartphone or iPad and email it to your family and friends
• write a letter to your loved ones instead of sending a card. This is a great way to tell them how much they mean to you, or thank them for something special they might have done for you this year.

Rethink your wrapping by buying brown paper and string, or just use plain coloured paper to wrap your presents. Then you'll avoid pricey Christmas wrapping and can use the excess during the year to wrap other gifts.

6. Be a scrooge online

If you're Christmas shopping online, look for ways to save every cent you can. Before you start, do a web search for discount or coupon codes that you can use at the checkout. Look in the sales sections of retailers' websites to see what's on offer.

If you know what items you are looking for, search for them online instead of just going to one retailer's website. You might find it much cheaper somewhere else.

Search online auction websites where you can 'bid' for items, including supplies you need for Christmas Day. Make sure you include any shipping costs when you are comparing prices. The cost of some items can blow out once you add shipping, meaning it might be better to simply go to a store to get the item. Or look for items or shopping days that have free shipping.

Things are often much cheaper online than in a store, but you do need to take extra precautions when shopping online.

7. Get social with Christmas shopping

If you follow your favourite brands and retailers on social media, you may be able to get exclusive discounts through these social channels. Their newsletters may also alert you to sales and deals.

There are also discount or deal apps that you can use to find bargains that you can use as Christmas gifts.

Before you buy any deal or discount, always check the terms and conditions to make sure you know what you are getting and make sure the website is legitimate. See the ACCC's SCAMwatch website for tips on how to pick an online shopping scam.

8. Master the art of Christmas gift hacking

There's a lot of pressure to spend up big on gifts at this time of year, but pricey presents aren't necessarily the way to go. Here are some ways you can show you care, while keeping a lid on your spending:

• Agree on a spending limit -Suggest to your loved ones that you set a limit on how much you will spend on gifts for each other to keep your budgets under control
• Kids only - Talk to the other adults in your extended family about only buying presents for the kids this year, rather than for the adults
• DIY vouchers - We often remember the things people do for us rather than the presents they give us. Consider giving redeemable vouchers for tasks like babysitting, massages, picnics, homemade dinners or even housework.
• Savvy sales - Take advantage of sales throughout the year to nab some bargains and store them away for Christmas. But, even in December there are bargains to be had. You can also check out any clearance outlets near you, or sign up to their newsletters so that you'll be in the know when they have a sale.
• Compare offers -Some stores match or beat competitors' deals, so compare their offers and take all the details with you when you go into the store. Don't be afraid to ask for a discount you might just get a Christmas miracle!
• Second-hand bargains - Op shops, antique stores and second-hand bookshops can be a treasure trove for the thrifty Christmas shopper. If you're prepared to spend the time looking through their stock, you can often find good quality items at a fraction of the price you'd pay at big name stores.

9. Shop like you're Santa

Santa is always well-prepared and does his shopping on time, so why don't you? If you are going to shop in-store, consider these rules-of-thumb to reduce Christmas shopping stress and limit the temptation to over spend:

• Set a time limit on your shopping - Get in, get it done and get out so you aren't tempted to spend more than you want to.
• Shop at odd hours -Take advantage of extended trading hours and go when it's less crowded so you can choose carefully without having to jostle for space.
• Buy less expensive stuff first - If you buy larger and more costly items first you can lose perspective on what is a good price, so set your budget, buy small first, and then tackle the big stuff so you stick to your gift budget.
• Pre-pay - If you buy online, check if there's an option to pick up in-store. You'll save on freight, skip any lines, and there will be less temptation to buy more.
• Limit your shopping locations - Only go to shops that you need to visit so you don't get distracted and impulse buy.

10. Give to those less fortunate

Spread the Christmas cheer by giving to those who are doing it tough. Consider donating to a charity on someone else's behalf and give this to them as a gift. As well as money, many charities also accept household items, clothes and groceries at Christmas, or you could volunteer your time to help them out.

11. Lighten your load on Christmas Day

The costs of entertaining can skyrocket at this time of year. But, with some simple planning, both you and your wallet can enjoy the fruits of your labour. Here are some ways to lighten the Christmas load:

• Share the catering - Even if you're hosting Christmas Day lunch or dinner, there's no need to shoulder all the work yourself. Ask others to bring nibblies, drinks, salads or desserts.
• Buy only what you need - It can be easy to overestimate how much food you'll need at Christmas, only to end up throwing some away or eating leftovers for days.
• Switch supermarkets - Make a list of the groceries you need for Christmas, then take advantage of the competition between supermarkets by checking out the advertised specials and stocking up. Don't buy everything at the same shop if you can get it cheaper elsewhere. You might even get better deals at your local butcher or fruit shop.
• Use loyalty credits - If you belong to a supermarket loyalty scheme that builds up credit after you've spent a certain amount, check if you can use the credit to get a discount on your Christmas grocery shop.

Read our article on simple ways to save money for more tips on cutting costs at the supermarket.

12. Plan for next Christmas

Once this Christmas is done and dusted, start planning ahead for next year! Here are some ideas to make sure you are set up for next Christmas:

• Start saving now - Open a high interest savings account in January and contribute a small amount to it every payday. Saving $20 per week will add up to over $1,000 in a year's time. Use ASIC's MoneySmart's savings goals calculator to see how much you'll need to save each pay to reach your Christmas savings goal.
• Shop the sales - Shop for presents throughout the year, especially during sales. This will spread your costs and make them more manageable.
• Layby - Pre-plan larger gifts and layby them a few months ahead so you can pay them off over time.

MoneySmart
(ASIC)

Good record-keeping is essential for any business. It helps you manage your cash flow, keeps you organised, helps you meet your tax responsibilities and most of all, it lets you know how your business is going.

The four requirements from the ATO are that record-keeping must:

• explain all transactions
• be in writing
• be in English
• be kept for five years (although some records need to be kept longer)

If you're unsure about the records you need to keep, the ATO has a Record keeping evaluation tool that can help you.

The ATO's website has extensive information on what you can and can not claim, and when you can claim it. Talk to your accountant about what deductions you can claim from your business, as they will be best placed to provide you with specific advice for your situation.

A few tax tips to remember is that you:

• can not claim deductions for private or domestic expenses, or any costs relating to entertainment or fines.  There are specific options available for sole traders and how you can claim business expenses.
• can claim operational expenses, such as wages, advertising, and stationery supplies, in the financial year that you incur them. The ATO has an extensive list of these items, including information specific to small businesses.
• can claim on the depreciation of assets, including motor vehicles, machinery and equipment, furniture and capital assets such as buildings over a longer period of time.  Check out the Simplified depreciation rules from the ATO for more information.
• must keep copies of your bank and credit statements. If your bank provides these electronically, you can save them as a PDF for future reference.
• can only claim a percentage of costs for an asset you use for both personal and business purposes, for example, an electronic device that you use for managing business email and banking, but also use it for personal social media or to read books in the evening.

Case study: Alex

Alex is a 22-year-old fully qualified hairdresser and beautician who has been running a salon from the front room of her home for the past eight months. She's been struggling to make ends meet as she's had to spend quite a lot of money on equipment and supplies to set up her salon, as well as advertising to get the word out there.

There hasn't been much time for Alex to organise any of her paperwork in between answering the phone, fulfilling appointments, cleaning the salon and replenishing supplies. She only takes cash for the work she does and has been paying cash for her equipment and supplies, she has no electronic record of her transactions.

Alex struggles with paperwork but she does have an ABN. She hasn't registered for GST as she doesn't expect her income to be very high. When the ATO contacts her about lodging her first Instalment Activity Statement, she doesn't know where to start. A friend puts her onto a local accountant for help.

Alex finds out that she should have been keeping a record of all her business income and keeping receipts for all her purchases so she can deduct them against her income. Otherwise, she has no way to show what her taxable income is so the ATO can work out how much tax she needs to pay.

Alex's accountant shows her how to fill in a simple Excel spreadsheet at the end of every day, detailing her income and any business expenses. Alex also now knows she needs to get a receipt for all business purchases and keep them as proof that they are business expenses. She can use the spreadsheet to help her to complete her Instalment Activity Statement each quarter, and it tells her how profitable her business is.