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.

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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.

 

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FPA 2020 Survey Insights – COVID Edition &Top Tips For a Financially Secured Future

FPA 2020 Survey Insights – COVID Edition &Top Tips For a Financially Secured Future

According to a recent FPA 2020 Survey, the global pandemic has caused an inexplicable disruption to our professional and social lives, one of the biggest setbacks humankind has witnessed in the last decade. Observations concede, four in ten Australians have lost income because of COVID-19 and are either struggling to make ends meet (11 percent) or dipping into savings to get by (31 percent). So, it is no wonder a quarter of Australians (23 percent) are experiencing acute stress about their financial position, with roughly a third (30 percent) ‘feeling okay’.

The figures also depict a contrasting story for people making the most of their changed circumstances. A small number (one in 10) said they are in a better position financially as they have managed to build some savings due to working from home and canceled holidays. And the majority, (46 percent) are still feeling in control of their finances, at least for the time being. It will be interesting to see if these financial comfort levels change in 2021, as JobKeeper comes to an end and the long-term effects of this pandemic may still linger on our economy and household incomes.

‘No Worries’ – Not Quite Yet

Despite the JobKeeper payments supporting businesses to keep employees on the payroll, ‘job insecurity’ is still the number one concern for Australians right now. Women are far more likely to be worried about losing their job (40 percent compared to 29 percent for men). Whereas, the vast majority in the 18-24 year-old cohort (81 percent) are worried about becoming unemployed.

Having ‘less in savings’ and ‘loss of super’ was next in line as the most common financial worries, except for the 35-44-year-old age group. This age group is most worried about paying off their mortgage, a concern, that is also linked to their work prospects and ability to earn an income.

What COVID Events Of 2020 Has Taught Us?

For vast Australians, the recent events of 2020 have been a wake-up call for their financial habits and behaviors. With 70 percent of Australians surveyed saying, they could have done better to improve their financial position. It seems we all have learned an important lesson about being financially prepared for the unexpected.

One in five said they could have put money in reserve for a rainy day, 17 percent think they could have controlled impulse buying and 11 percent believe they could have focused more on paying down their debt.

The good news is that these ‘key learnings’ are helping us re-think our financial priorities. When asked about positive behaviors that could be propelled post-COVID, the survey respondents ranked “be more frugal about my lifestyle choices” first, followed by “pay down debts” and “create a budget to understand what I’m spending and saving.”

Top Tips For a Financially Secured Future

To help you experience greater peace of mind and financial well-being, please read and share these simple steps to commit to a long-term plan for better financial outcomes:

  • Prepare for ‘The Unknown’ – Take this as an opportunity to harness the positive financial habits you have imbibed during COVID. Prepare a list of expenses you don’t need anymore and another list of how you could use this money to meet your current needs or look after your future – by saving, investing, or paying down debts for example. By keeping a COVID mindset even after COVID is over, you can make a lot more progress towards your financial and life goals.
  • Plan Ahead  Peacefully think over where you want to be financially in the future – think five years, ten years, or retirement. Then, work backwards for how to get there, along with a timeline of the important milestones you want to achieve along the way.
  •  Book an Appointment with a Qualified Financial Planner – Understanding your current financial situation and short and long-term financial goals – having a financial plan – means you can better manage your finances. Planning your immediate expenses, without compromising on saving for the future allows you to live your best today while making sure your future is on track. Contact Prime Advisory to speak with a Senior Financial Advisor, today.

 

 

 

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Covid-19 Implications On Deferred Loan Repayments and What It Means For You. The Big Question?

Covid-19 Implications On Deferred Loan Repayments and What It Means For You. The Big Question?

With the initial sixth-month deferral period ceasing soon, lenders are commencing to contact customers who deferred their home and business loans due to the direct impact of Covid-19.

These borrowers make up for at least 260,000 mortgage deferrals and 105,000 business loan deferrals. More than 900,000 loans have been deferred in total since the beginning of this global pandemic.

But what does it mean for you? If you have deferred your repayment and are yet to resume paying it then, please read the following options:

 

  • If you are in a position to resume your repayments, by way of currently being employed or running a business that is coping well, you will need to start making these repayments which, possibly is a good thing. This is because lenders can capitalise unpaid interest from your deferred payments into the balance of your loan. So, the longer you defer your payments, the more unpaid interest will accrue. You could end up with a higher loan balance – and higher repayments – than when you started the deferral. Speak to one of our professional financial advisors to discuss this in greater detail.
  • If repaying the loan amount in full, is not a feasible option available, financially, fret not, there still might be a way around restructuring the loan, resorting to interest-only payments for a set time, or extending the loan term. Please bear in mind, these options are specially curated to decrease the impact of your repayments in the short-term, which might be the greatest relief you need, to get through this pandemic. However, greater care should be exercised as there may be long term ramifications. Always practice your due diligence and ask your lender what you will end up paying over the life of the loan. And if you are in any doubt, please contact us for a piece of professional financial advice before making any major decision.
  • Some mortgage holders who are still caught in a deep financial rut may be eligible for a further four-month extension to repay their home loans. However, it should be noted that this may be assessed on a case-by-case basis only. It is worthwhile discussing your current situation with your lender and unravel how a few months buffer may enhance your repayment plan. But once again, don’t forget to find out how much more you will repay over the life of the loan and what it would look like.
  • If you are facing a severe financial crunch and repaying your home loan looks like a distant dream, speak to our experienced and highly accomplished financial team, here at Prime Advisory, to understand your best options and map out a recovery plan for the future.

 

 

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Personal income tax cuts

Personal income tax cuts

As widely predicted, the Government has brought forward stage 2 of its planned income tax cuts by two years. Originally intended to apply from 1 July 2022, the tax cuts will come into effect from 1 July 2020 (subject to the passage of the legislation). The Treasurer the Hon Josh Frydenberg anticipates more than 11 million taxpayers will get a tax cut backdated to 1 July this year.

At a cost of $17.8 billion over the forward estimates, bringing forward the tax cuts is a controversial move. The Government argues that the measure will “boost GDP by around $3.5 billion in 2020-21 and $9 billion in 2021-22 and will create an additional 50,000 jobs by the end of 2021-22.” Others in Parliament believe the measure rewards higher income earners and the money could be better spent elsewhere. The Senate will decide whether the Government’s plan comes to fruition.

Stage 3 of the Personal Income Tax Plan that simplifies and flattens the personal income system remains scheduled for 2024-25.

  Tax thresholds
Tax rate Current From 1 July 2020 From 1 July 2024
0% $0 – $18,200 $0 – $18,200 $0 – $18,200
19% $18,201 – $37,000 $18,201 $45,000 $18,201 – $45,000
30%   $45,001 – $200,000
32.5% $37,001 – $90,000 $45,001$120,000
37% $90,001 – $180,000 $120,001 – $180,000
45% >$180,000 >$180,000 >$200,000
LITO Up to $445 Up to $700 Up to $700

Bringing forward the personal income tax plan will:

  • Increase the top threshold of the 19% tax bracket to $45,000 (from $37,000)
  • Increase the top threshold of the 32.5% tax bracket to $120,000 (from $90,000)
  • Increase the low income tax offset from $445 to $700

In addition, the LMITO (low and middle income tax offset), which provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000, will be retained for 2020-21. This measure was to be removed at the commencement of stage 2 of the reforms from 2022-23.

If you need any assistance please contact your PrimeAccountant on 02 9415 1511 or email reception@primeadvisory.com.au.

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