WHAT’S NEW

High Income = Higher Wealth Creation? #TheCEOEdition

High Income = Higher Wealth Creation? #TheCEOEdition

Does high income always translate into higher wealth creation? Let’s learn together!

Research shows that the top 5% of high-income earners often express feelings of discontentment with their current level of wealth creation. There is, however, a strong desire to do something about it. The absence of a formal wealth-building strategy and heavy reliance on a company share plan to accumulate personal wealth can be partially responsible for causing this feeling.

A positive lateral shift in the mindset is needed to treat bonuses and company shares  as the cherry on top and a robust financial plan as a strategic priority to accomplish one’s personal lifestyle, financial big-rocks, and retirement goals.

Realistically speaking, it’s never too late to start working on a bullet-proof game plan to fully materialising your dreams #YouOnlyLiveOnce.

At PrimeAdvisory, our Senior Advisors can help you with a complete professional suite of services, such as Cash Flow Management, Savings Plan, Asset Protection, Superannuation, Tax Optimisation, Home Loan Repayments, Debt Management and Reduction, Insurance, Investments, and Retirement Planning.

Lets look at the bigger picture!

Directors and Executives of companies are appointed to increase returns for the shareholders of the company they work for. They are well remunerated and rarely work less than the 40 hours a week they are obligated to work. In fact, a Harvard study tracking CEOs found that most work 62 hours on average a week.

In discharging their duties they selflessly put the company before themselves and their own finances and work on the assumption that “the more I earn, the wealthier my family will be”. This can be the case in the long run, but with strategic assistance, the wealth could be a lot bigger, arrive a lot sooner and have a transformative experience along the way.

Let’s take the example of an executive, Mrs. X, who earns $250k a year and a $50k bonus as part of her long-term incentive plan. Mrs. X has a partner who has not gone back to work in the last five years since they had kids together, and both their children are at school.

The Salary looks great on paper, so how is the money actually spent?

Time poor = high rate of spending

With limited available time, we tend to spend more money to ensure we enjoy the most of it. We may eat out more often and may book more fancy restaurants that offers the finest steak along with an exotic bottle of red. “Of course we do that, because all the people we socialise with do that too.” The entertainment often runs at $1k a week which equates to a family meal out, a few nicer lunches during the week, a nice meal out once a week, and the innumerable coffees and breakfasts along the way. It adds up real quick.

Being time poor also equates the number of jobs we outsource; cleaning the house, cleaning the cars, gardening, the personal training sessions, the pool guy. We know it’s true.

Luxury becomes the way of life

Holidaying becomes syonymous with business class tickets and luxurious high-end resorts. A $20k holiday a year and a few $5k local getaways during the year are an ordinary affair. When travelling for work is done in style, your personal travel tends to elevate to that level too. And once it goes up, it rarely goes back.

Lifestyle Boost

When we work hard, so the attitude towards spending is often ‘you deserve it’. Most people let their spending and lifestyle be defined by their income and once the lifestyle is inflated, it’s almost impossible to go back.

What’s your location

When it comes to the family home, the more you earn, the more debt you can afford. It is hard to resist the temptation to be in the ‘right’ location, with a nice big house with all the amentities and peripherals. Setting aside $5k a month for mortgage repayments is commonplace. A nice car in the garage is also a must, with generally one car leased at $1k per month. With the location, comes schooling. Having the kids at private school can cost $20k per child per annum depending on the school.

So, to answer the question earlier, does high income translate  into building wealth?

In this example we have just spent the whole of Mrs. X’s annual salary excluding her bonus prior to the basic living expenses. We have not yet paid for the household running costs, food, car running costs, health bills and any other of the fixed expenditure that comes with a family.

Mrs. X is in the top 5% of income earners in Australia. But with a geared-up lifestyle, there is only small, if any, increases in ‘wealth’ each year – usually only super payments, the long-term incentive plan when received and any principal component of the monthly mortgage when not redrawn to pay school fees.

Building wealth isn’t easy. Especially when your focus is your work and you are working 62 hours a week. Add the time you are thinking about work and that doesn’t leave you with a lot of ‘free’ time. Then you need to prioritise the family, your physical health, mental health, other household chores – it is astounding to note that prioritising wealth building doesn’t rank number one on this list. It probably doesn’t even rank in the top ten.

At PrimeAdvisory, we are passionate about understanding where you are on your journey, being clear on your goals, partnering with you to create the right strategy and keeping you on track with regular catchups along the way.

We understand we might be only helping you in a small capacity at the moment, be it via helping you file your annual ITRs or overseeing your Self-Managed Super Fund (SMSF). However, it is always our intention, and even more so our mission in 2021 to be invested in understanding your overall strategic goals for life and implementing proactive strategies today so we can help you materialise all your dreams in 5 or 10 years from now, i.e., own a home; be debt-free, make the most of your tax benefits, structure a geared property, start an investment portfolio, consider a family trust and manage employee shares, etc.

With Prime 2.0, we hope to take our relationship to another level, make it seem less transactional, more transformational. Contact your senior advisor today. Let’s make this journey exciting and memorable for you.

Read More
7 Ways To Turn The Tables On Your Mortgage! #Savings

7 Ways To Turn The Tables On Your Mortgage! #Savings

Why is now a great time to refinance your mortgage?

Because:

  • Australia has the third most expensive housing market in the world.
  • As many as 83% of people are paying too much on their mortgages.
  • Even though interest rates have fallen to record lows, a whopping 94% of mortgage holders have not refinanced their loan in the past 12 months – potentially missing out on saving thousands of dollars.
  • Research shows that 38.8% of all mortgage holders are experiencing mortgage stress.

Surely there’s some GOOD news?

The short answer is YES. There are some straightforward steps you can take to turn the tables, save thousands and take years off your loan…saving $33,222* in the process.

* Calculation based on $400,000 mortgage over 25 year term at 3.8% interest per annum on a variable rate, P&I. This calculation is not an offer of credit and does not take into account your personal circumstances. It is intended for use as a guide only. It is not intended to be relied on for the purpose of making a decision whether to apply for finance. It provides an estimate of the repayment amount based on the proposed borrowed amount. Other fees and charges may apply.

Negotiate a better interest rate

Studies show that 82% of Australian population don’t know their current interest rate. And yet, with your mortgage likely taking up at least one quarter of your monthly income, even the slightest change in your rate could make a huge difference to your monthly disposable income.

For example, for every $100,000 you borrow, even a 0.1% discount will save you roughly $100 per annum in interest. Maybe that doesn’t sound like much, but let’s take a look at the maths…

Let’s say you have a $400,000 loan with a repayment term of 25 years. And let’s say you can save 0.5% on your interest rate, going from 3.8% to 3.3%… that means you would save $32,273 over the life of your loan. What could you do with $32,273 back in your pocket over the course of your loan? That’s family holidays, a new car, helping the kids out, maybe installing that pool you’ve dreamt of. And it’s definitely enough to take the pressure down.

Shift from monthly to fortnightly payments

Many people pay their mortgage monthly – so that’s 12 payments a year. But if you can shift from 12 monthly payments to 26 fortnightly, you can make BIG savings over the life of your loan.

Here’s why… let’s say your monthly mortgage payment is $2,500. Over 12 months that’s $30,000. Now let’s look at what that looks like if you paid half your monthly payment every 2 weeks instead. That means you would pay $1,250 over 26 fortnights or $32,500. That’s finding a way to get $2,500 more off your loan each year and because you are spreading it out over the year, you don’t notice it as much (equates to an extra $48 a week).

BUT the cool thing this does to your mortgage is that every cent you pay above and beyond your set repayments goes directly to paying off your principal loan amount – and that’s the amount your interest is calculated on. So, the sooner you reduce your principal, the sooner your interest payments come down… and the sooner you get your mortgage paid off!

In fact, simply by shifting from monthly to fortnightly you could take 3 years and 1 month off your mortgage and put a whopping $30,160 back in your pocket in saved interest payments.*

*( Based on a $400,000 loan over 25 years at 3.8% p.a interest rate.)

Small sacrifices now = big wins later

When you first get your mortgage, those payments can look quite intimidating. But then, after a couple of years, maybe you’ve had a pay rise or two, or your business has grown. Perhaps you got that promotion you were after, or you landed your dream job with the nice bonus package you always wanted. While it’s great to enjoy those perks and the extra cash they put in your pocket, making even a small increase to your mortgage payments at those milestone moments can have a HUGE impact and really turn the tables on your mortgage.

As mentioned earlier, every cent you pay above and beyond your scheduled mortgage payment goes towards knocking down that principal amount. So, if you could find even another $100 a fortnight (that’s $50 a week) you could take another 3 years and 7 months off your mortgage AND save another $36,036*.

*(Based on a $400,000 loan over 25 years at 3.8% p.a interest rate.)

Get a mortgage offset account

When you get a standard variable loan (meaning the interest rate isn’t fixed), you usually have the option of putting your income and savings into what’s known as an offset account. That’s simply a separate savings account attached to your loan account.

As the name suggests, your offset account works in tandem with your home loan, with its balance being subtracted from the outstanding home loan principal when your daily interest charges are calculated. By adding your savings into that account and getting any income paid into that account as well, you can take a healthy bite out of the principal, simply by getting the money you already had working smarter for you.

For example, if you have a $400,000 mortgage and $20,000 in your offset savings account, you will only be charged interest on $380,000, even though your loan balance is $400,000.

Be Smart with your equity

Check if your loan offers a redraw facility that enables you to access and withdraw additional repayments you have made. If you were worried about putting extra money into your mortgage, you don’t need to be, if you have a redraw facility.

This means you can put as much money as possible into your mortgage, keeping your interest down and paying your mortgage off faster, however still redraw the money if you need it.

It’s also possible to use those funds to consolidate debts with higher interest rates such as credit cards and personal loans. Often your home loan interest rate is a fraction of other interest rates and consolidating your loans can lower your interest, freeing up income. Having this kind of flexibility can give you peace of mind and help you out when you really need to access those additional funds.

Watch out for hidden fees & negotiate

It’s always nice to be aware of all the fees included in your loan (some hidden fees can end up being costly!) and you may also want to negotiate on those fees – hard. Many lenders will reduce or remove fees such as:

  • Loan application fees
  • Loan establishment fees
  • Service fees
  • Valuation fees
  • Legal fees related to your mortgage
  • Account transaction fees
  • Exit fees

And this can equate to thousands of dollars in savings, in some cases.

Getting the data you need , when you need it

Information is power. And that means you need to be able to access clear, accurate information on your home loan wherever and whenever you want (and in a format that you want). That includes your current interest rate (if variable) and your current loan balance. Plus, you want the flexibility to be able to make changes online at any time via a mobile app or your home or office computer.

For most people, the ideal way to get this information is online. But not all online banking experiences are created equal. You need to be able to access your home loan information easily, via a simple online interface that is available for both mobile and desktop use.

And, if you are one of the 5.7 million Australians who don’t use internet banking, you need to make sure you are getting the information you need in a way that is timely and transparent.

If you have any questions, let one of our senior advisors put you in direct contact with our Lending Partner, Loan Market North Shore, experts in turning the tables on your mortgage. This could be the best time you have invested all year!

Read More
Get Out Of Your Own Way!

Get Out Of Your Own Way!

Do you spend a lot of your day focusing on the negative? Glass half empty?  When something negative happens to you, what do you tell yourself? Take a minute to think about what you said to yourself recently when something didn’t work out the way you wanted it to. Was it kind and helpful? Or did you turn on yourself? PRIME WELLNESS – Click here to read more!

Read More
Identifying Your Goals and Simplifying Your Finances at Each Stage of Life

Identifying Your Goals and Simplifying Your Finances at Each Stage of Life

People often turn to a Financial Planner to simplify their finances and set achievable financial goals, providing greater confidence to plan for their future.

At PrimeWealth, our Senior Advisors can help you with areas such as Cash Flow Management, Savings Plan, Asset Protection, Superannuation, Tax Optimisation, Home Loan Repayments, Debt Management and Reduction, Insurance, Investments, and Retirement Planning.

Understandably, your financial goals will change over your lifespan. It would be best if you had a financial plan to suit the stage of life you are in. Here are some of the common needs of each life stage:

  • Young to Mid-Life
  • Mid-Life
  • Pre-Retirement
  • Retirement

1. Young to Mid-Life

In this life stage people are often motivated in establishing and building their careers and perhaps starting a family. You may be interested in:

  • Buying your first home
  • Travelling
  • Paying off your HECS
  • Getting Married
  • Family Planning
  • Organising Family Healthcare
  • Starting a Business

2. Mid-Life

This is known as the Consolidation Stage, achieving a comfortable lifestyle and working towards a long term future are usually the key priorities. You are likely to focus on:

  • Healthcare
  • Investments
  • Financing Home Renovations
  • Tax Optimisation
  • Debt Management
  • Inheritance
  • Retirement Planning
  • Long Term Care Planning
  • Income Protection

3. Pre-Retirement

With 20 or more years of retirement ahead of you, your priorities will depend on how well you have planned for your future. Your main concerns may be:

  • Asset Protection
  • Debt Elimination
  • Family Healthcare
  • Planning For Your Children’s Future
  • Retirement Planning
  • Wills and Trusts
  • Business Exit Strategy

4. Retirement

This is the time to indulge in hobbies or travel, enjoy your family, and make preparations to transfer your wealth. You may be thinking of:

  • Asset Protection
  • Healthcare
  • Aged Care Planning
  • Travelling
  • Buying a Boat
  • Inheritance Tax Mitigation
  • Preserving Your Capital
  • Gifting To Family
  • Estate Planning

At PrimeWealth, we are passionate about understanding where you are on your journey, being clear on your goals, partnering with you to create the right strategy, and keeping you on track with regular catchups along the way.

 

Read More
Small Business Trends 2021 – How Advisors Make a Positive Impact on SMEs

Small Business Trends 2021 – How Advisors Make a Positive Impact on SMEs

Throughout 2020, Accounting Practitioners reported intense work-activity due to heightened communication with clients struggling with tough circumstances caused by Covid-19. Recent research shows their efforts have not gone unrecognised.

A survey of more than 1500 small-to-medium enterprises (SMEs) conducted on behalf of non-bank lender Scottish Pacific Business Finance (ScottPac) reveals that more than half (54 percent) turned to advisors such as Accountants on average 13.3 times each quarter last year.

The Growth Index indicates that eight in 10 respondents (81 percent) reported that the advice they received had a positive impact on their businesses.

The Top 5 Positive Impacts were:

  • A boost to the bottom line through cost reduction (63 percent)
  • Helping access government support and stimulus measures (37 percent)
  • Providing confidence in the direction the business was taking (28 percent)
  • Enhancing customer relations (18.5 percent)
  • Assistance with funding access (18 percent)

Advisors also played a key role in assisting negotiations with the Australian Taxation Office, helping one in 10 clients. Further, one in 12 survey respondents noted advisors also helped with the sale of assets.

Key Trends for 2021:

Last year was crucial for all of us and has taught many businesses world-wide to be mentally resilient and financially vigilant. Some businesses buffeted due to Covid-19, and others buoyed.

The data collected from XERO’s 2.3 million users shows some key trends identified in 2020 and vital forecasts for SMEs in 2021.

  • Cashflow – Seventy percent of business owners reported they experienced cash flow difficulties last year. Therefore, it is no surprise that cash flow forecasting shot to prominence in 2020 and will remain critical this year.
  • Contingency Planning – In 2020, the year’s events prove that a cash cushion is a necessary survival tactic. Some advisors have advocated a reserve of four months’ business running costs.
  • Goodwill Worth It’s Weight In Gold– Business relationships assumed even more importance in 2020, with SMEs relying on customers, employees, and advisors. 2021 will be all about paying it forward.
  • Technology As An Asset – A positive impact of the pandemic has been upgrading digital knowledge and capacity. PrimeAdvisory upgraded all technology in it’s boardroom and is running more online meetings with it’s clients. While there is no substitute for a conversation over coffee, there is no excuse for not having one due to Covid restrictions.
Read More

SIGN UP

For our free e-newsletter

TAKE A HEALTH CHECK

For our free e-newsletter

Personal