You are never too smart to get advice.

“In life, you need many more things besides talent. Things like good advice and common sense.” Hack Wilson

In the financial world what constitutes good financial advice may not be seen straight away.
Recent news from the banking royal commissions and our increased access to information it is not hard to understand why people rely on family and friends or simply go it alone.
Usually, when we read about a financial guru we seem to isolate themselves as an oracle and the original source of that advice and therefore their success is purely self derived.
When we seek out answers, we look for definitive answers in which we don’t consider the moving parts of our lives. Where possible we try to abbreviate and spend as little time possible to achieve the best possible outcome with the least amount of money spent.
This may work in many other professions where there may be natural constraints or other concepts which can be relied upon, in the world of finance it is usually much more complicated.
In a recent mybusiness.com.au post in which Andrew Aravanis a Bankruptcy Trustee shared the top 10 professions that are more likely to go bankrupt according to his data. These are:
  1. Managers (sales, marketing, PR, business administration, ICT)
  2. Machine and stationary plant operators
  3. Road and rail drivers
  4. Business, human resource and marketing professionals
  5. Health professionals (nurses and midwives)
  6. Design, engineering, science and transport professionals
  7. Construction trade workers
  8. Other labourers
  9. ICT professionals
  10. Electrotechnology and telecommunications trade workers
Although, this may not be definitive it does reveal that regardless of your education, status or income you are not immune to poor financial outcomes. In fact, in many of the professions listed above their income would be well above the average Australian and the educational requires extensive.
What gets unsaid about financial advice, is the separation between the information gathered and the decision making process.
Information is king, and it shapes how we investment. More importantly, we trust that the information is correct and verifiable and for the most part it is …. from a certain point of view.
Many of those at the top of the financial game, have vast infrastructures in place to ensure they get accurate and verifiable information in a timely manner. Additionally, those that present opinions and ideas are vetted.
They wont just be analysts either, it would be a diverse group of individuals experts including law, tax, accounting and subject matter experts.
All of this enables them to be the best decision makers possible by exploring all of the alternatives on the table, and selecting the right decision for them. They extrapolating their own point of view. Yet, this does not immune them from loss, sometimes loss affects everyone and they lose less than the rest of us.
For now, we can ask ourselves the following questions:
  • If I just read the financial section of the news what is the difference between that and the racing form guide? What about advice from Uncle Bob or my friend Suzy?
  • If I don’t ask critical questions of those offering advice, how good is that advice?
  • Do I have an infrastructure in place to help me make decisions?
  • What could go wrong with my investments? What are the consequences?
  • If I have outsourced my financial decision making, have I really gained control of my life?

Its always easier to be proactive and take the time to ensure you are on the right path. Call our office on 03 9846 6542 or email: info@townshendassociates.com

General Advice Warning

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on the author’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

 

 

 

 

 

 

Home attached to your business? Better read this

Cross-posted from mybusiness.com.au

An insolvency specialist is warning business owners to be alert to the risks associated with falling property prices, given the family home is often used as security for business finance.

Trent Devine, a partner at Jirsch Sutherland, suggested that the huge boom in values – particularly on Australia’s east coast – has helped many businesses stay afloat by dipping into equity. But this strategy may now come back to bite them, amid a backdrop of falling property prices and banks hiking interest rates.

“Any business that has used personal finances for business borrowings is at risk,” said Mr Devine.

“In the past, when times were tough, struggling businesses have been able to lean on the equity of their home. Now, with falling house prices and other factors, this can have a disastrous knock-on effect for businesses.

“As property prices continue to fall, there is reduced levels of equity with which to finance or prop up a business.”

According to Mr Devine, a key risk for business insolvency is an “ill-advised link” between personal and business finances. Yet this is often unavoidable for new businesses.

“SMBs often use the same bank for the business that they use for personal banking, therefore they’re likely cross-collateralised,” he said.

“They may have their mortgage and business loan with the same bank. They don’t separate one from the other.”

This situation makes it much easier for the bank to assess the health of the business owner’s finances and make much earlier decisions on whether to push for insolvency.

“Rises in interest rates and resulting mortgage stress can certainly flow onto businesses as we’ve witnessed over the past 12 months. If a business is struggling, banks might now note that there’s now no property to support that business because the mortgage is under stress. Clearly, this means that business insolvency becomes a strong possibility,” said Mr Devine.

He urged business leaders to protect themselves by separating business and personal finances.

“Use different banks for business and personal uses so that cross-collateralisation is not an issue. If you are utilising personal funds, perhaps a secured loan to the business rather than opting for a capital injection might also be an option,” he advised.

“Also, business owners who are looking to refinance to help fund their business’ cash flow might find this difficult because of falling house prices.

“When first setting up a business, money can be incredibly tight, but it’s important for business owners to take the time and speak to their accountant or adviser to get the most appropriate advice. Options do exist and it’s important to explore them or risk losing everything.”

Mr Devine’s comments come after property data firm CoreLogic suggested banks are only exacerbating the housing downturn by raiding home loan rates, meaning the current lull in most mainland capital cities will linger for longer.

Latest figures from the firm show that prices have fallen by 5.9 per cent in Sydney over the last 12 months, and by 2.5 per cent in both Melbourne and Perth. Melbourne has also overtaken Sydney as the city with the fastest falling home values, down by 3.8 per cent so far in 2018, compared with Sydney’s 2.7 per cent slump.

Hobart is currently the nation’s star performing market, posting double-digit price growth over the past year.

We believe that Accountants are central in advising people in making sound business decisions, if you would like to discuss this matter or any other matter please contact us on 03 9846 6542 or email info@townshendassociates.com

Is optimism bias ruining your investments?

An insightful article by Candice Chung from In the black. We often forget that scientific theory is applied and is the basis of over decision making, enjoy.

Anyone who has ever signed a gym contract, attempted an alcohol-free month or jumped headlong into an elaborate new hobby has felt the rush of adrenalin the moment they take the plunge. At the precipice of each decision, we have a tendency to picture the outcome with unwavering optimism, despite what previous mistakes should have taught us.

This is what makes us underestimate the likelihood of experiencing negative events such as falling ill, divorce, or misjudging the risk of losing money on an investment.

“Optimism bias is the human tendency to believe that things will turn out better than they will,” says Andrew Macken, chief investment officer at Montgomery Investment Management. “It’s entirely common – even among those who are aware of it.”

Recent research by Dr Tali Sharot, a neurosecientist at University College London, found that up to 80 per cent of people are afflicted with the bias. What makes it uniquely dangerous – especially when it comes to key financial decisions – is that we often look through rose-tinted glasses.

“We’re optimistic about ourselves, we’re optimistic about our kids, we’re optimistic about our families, but we’re not so optimistic about the guy sitting next to us,” Sharot says in a TED Talk.

While we’re quite capable of appraising other people’s situations with objectivity, or even cynicism, Sharot found that optimism about our personal prospects tend to remain curiously persistent.

“It doesn’t mean that we think things will magically turn out okay, but rather that we have the unique ability to make it so.”

The downside of optimism

As humans, we are poor predictors of our future. While our ability to imagine a brighter version of today is what drives us to seek change, the same habit also exposes us to unexamined risks, sometimes with disastrous results.

“On a day-to-day basis, optimism bias affects our risk profile,” says Clare Goodman, neuro leadership specialist and director of insights at consulting firm The Why.

“Overestimating the upside of financial or business decisions can encourage us to leap to decisions that may not be thought through,” she says.

“Underestimating the negative possibilities can lead to a Pollyanna approach to financial decision-making, or the tendency to remember pleasant events more accurately than unpleasant ones, leading to reckless behaviour. Critical thinking and the ability to see possible issues is valuable. It enables a manager to adapt and adjust strategies throughout [a] project.”

Essentially, a blindly optimistic view can be as problematic as a consistently underinformed one.

Goodman cites the 2008 global financial crisis (GFC) as a classic example of how optimism about the inevitability of financial growth on a mass scale can lead to disaster.

The same applies to companies where executives are disproportionately optimistic about their company’s future, compared to the views held by employees.

“This gap between a leader’s expectations and vision and the workers’ experience causes significant problems,” Goodman says. “Organisational cynicism can grow, which often impacts discretionary effort, motivation and willingness to change.”

How to avoid optimism bias

To avoid the trap of optimism bias, here are some questions we can all ask ourselves to sense-check decisions, according to The Why’s Clare Goodman:

  1. What are you trying to achieve with a particular financial decision?

  2. What can you afford to lose?

  3. What key things need to happen for it to succeed, and what will be the consequences if they do not occur?

  4. What would be an early warning signal that a decision is on or off track?

  5. What are your plans B and C?

Finance drives everything — including your insecurity at work

An excellent article by Professor David Peetz and puts in focus the need to find your financial journey in this world.

From the conversation:

There’s a common link between the many things that have promoted insecurity at work: the growth of franchising; labour hire; contracting out; spin-off firms; outsourcing; global supply chains; the gig economy; and so on. It’s money.

At first, that seems too obvious to say. But I’m talking about the way financial concerns have taken control of seemingly every aspect of organisational decision-making.

And behind that lies the rise and rise of finance capital.

Over the past three decades there has been a shift in resources from the rest of the economy to finance. Specifically, to finance capital.

One way to see this is in the chart below. It shows the income shares of labour and capital, and the breakdown for each between the finance and non-finance (“industrial”) sectors, in two four-year periods. They were 1990-91 to 1993-94 (when the ABS started publishing income by industry) and, most recently, 2013-14 to 2016-17. (I use four-year periods to reduce annual fluctuations and show the longer-term trends. Here is more detail and explanation of methods.)

Income shares of labour and capital

Factor shares by industry, 1990-94 and 2013-17. Source: ABS Cat No 5206.0

The key thing to notice in the chart is that finance capital’s share of national income doubled (it’s the dark red boxes in the lower right-hand side of the chart), while everyone else’s went down.

So, over that quarter-century, the share of labour income (wages, salaries and supplements) in national income fell. In the early 1990s it totalled 55.02% — that’s what you get when you add labour income in finance, 3.21%, to labour income in “industrial” sectors, 51.81%. In recent years this fell to 53.58%. There were falls in both finance labour income (from 3.81 to 2.83% of national income) and industrial labour income.

The total share of profits and “mixed income” accordingly rose from 44.99% to 46.42%. The thing is, all of that increase (and a bit more) went to finance capital. Profits in finance went from 3.16% to 6.16% of the economy.

At the same time there has been a large increase in the share of national income going to the very wealthy — the top 0.1% — in Australia and many other countries.

This shift in resources does not reflect more people being needed to do important finance jobs. Nor is it higher rewards for workers in finance. The portion of national income, and for that matter employment, devoted to labour in the financial sector actually fell from 3.21% to 2.83%.

The economy devotes proportionately no more labour time now to financial services than it did a quarter century ago. Yet rewards to finance have increased immensely. The share of national income going to “industrial” sector profits and “mixed income” has declined.

In short, the widely recognised shift in income from labour to capital is really a net shift in income from labour, and from capital (including unincorporated enterprises) in other industries, to finance capital.

Finance matters

You may have heard about “financialisation”. It’s not really about more financial activity. It is about the growth of finance capital and its impact on the behaviour of other actors.

Financialisation has led to finance capital taking the lead shareholdings in most large corporations, not just in Australia but in other major countries (to varying degrees) as well.

This role as main shareholder and, of course, chief lender to industrial capital has driven the corporate restructuring over the past three decades that has led to greater worker insecurity and low wages growth (as I recently discussed here).


Read more: Who owns the world? Tracing half the corporate giants’ shares to 30 owners


When “industrial capital” has been restructured over recent decades — to promote franchising, labour hire, contracting out, spin-off firms, outsourcing, global supply chains, and even the emergence of the gig economy — it has been driven by the demands of finance capital. Casualisation is just one manifestation of this.

Short-term logic

Now there’s no conspiracy here (or, at least, the system doesn’t rely on one). There is actually a lot of competitive mindset in the financial sector. This is just the logic of how the system increasingly has come to work. Financial returns, particularly over the short term, have become the principal (really, the only) fact driving corporate behaviour.

This has come at the expense of human considerations.

That same logic is behind resistance to action on climate change. Continuing carbon emissions are the perfect, and deadly, example of short-term profits overriding longer-term interests.

Yet even finance capital is not monolithic. There are parts of finance capital that have a longer-term perspective (“there’s no business on a dead planet”). So they are effectively in battle with those parts of finance capital for which the short term is everything. The former want governments to intervene in, for example, carbon pricing.


Read more: Class and climate: how financial warfare affects the air


Policy questions

All this leaves some big questions for policymakers about how to redress the new imbalance of power.

In part, it requires changing institutional arrangements (including industrial relations laws) that in recent years have made it much harder for workers to obtain a fair share of increases in national income. It requires rethinking of how we regulate work.

But it also requires rethinking of how we regulate product markets and financial markets.

The almost global reduction in regulation of the financial sector over three decades ago has ultimately led to this imbalance. It is time to rethink all of that.

Income tax rates for Financial Year 2018-2019

Passed Personal Income Tax Rates from ATO

Taxable income Tax on this income
0 – $18,200 Nil
$18,201 – $37,000 19c for each $1 over $18,200
$37,001 – $90,000 $3,572 plus 32.5c for each $1 over $37,000
$90,001 – $180,000 $20,797 plus 37c for each $1 over $90,000
$180,001 and over $54,097 plus 45c for each $1 over $180,000

The above rates do not include the Medicare levy of 2%.

The above rates include changes announced in the 2018-19 Federal Budget.

“to err is human; to forgive, divine”: Protecting your credit file, more important than ever.

What do you know about your credit file? Do you know what credit providers you currently have?

You probably haven’t heard of theNational Consumer Credit Protection Amendment (Mandatory Comprehensive Credit Reporting) Bill 2018″  but from the 1st of July 2018, paying your bills to credit providers on time will be recorded on your consumer credit file.

Equifax The consumer credit information section includes:

  • Details of credit enquiries that have been made on you when you have made an application for consumer credit. Consumer credit relates to loans for household or family purposes as well as for the purchase, renovation or re-financing of a residential investment property. Obvious types of credit include credit cards and loans like mortgages, personal and car loans as well as credit contracts such as telephone, electricity, gas and internet. Other forms of credit include interest free store finance and store cards.
  • Consumer credit liability accounts – this is an account that you currently have open or may have had in the past. It includes the type of account, the open and/or close date as well as the credit limit.
  • Monthly repayment history on credit accounts such as mortgages and credit cards. This reflects whether you have paid the minimum amount required on time each month or not. Please note that not all credit providers supply repayment history information to credit reporting bodies like Equifax
  • Overdue accounts such as defaults and serious credit infringements
  • Public record information like:
    • Court judgements
    • Directorship details
    • Proprietorship details
    • Bankruptcy, debt agreement and personal insolvency

Commercial credit information

  • Details of credit inquiries that have been made on your for commercial credit. Examples of commercial credit include a mobile phone contract or credit card for business use or a business loan.
  • Details of any overdue commercial credit accounts and other debts.”

Currently, it is stated only the timeliness of mortgages credit card repayment information will be recorded, however it appears this is due to the technical capabilities of other credit providers. Additionally, other organisations such as the ATO are keen to use this mechanism as tool to collect on debts.

Why does this matter?

Simply, your ability to access credit and at what interest rate you will pay.

Alexander Pope’s Essay on Criticism states “To err is human, to forgive divine” and the first part of this quote certainly rings true of all of us and in our increasingly automated and digital world the risk of error (late payment, incorrect billing etc) has increased. As for the forgiveness, there is no divinity in debt and naturally a credit provider will raise interest rates when they see increased risk.

So although, on the surface it appears to reward good payment behaviors failing to live up to these behaviors will have serious consequences on your standard of living. Typically, this will happen when you need support the most, for example an extended period of unemployment or illness or injury to you or a loved one.

Here are some suggestions to assist:

  • Don’t let debt (bills) get out of hand.
  • Take action immediately, don’t let it get to credit reporting stage.
  • Create a personal budget and review it every month.
  • Know exactly what your credit terms are, and who provides it.
  • Know exactly when all payments are due and what their terms are.
  • Sign up to a monthly credit reporting agency and check your file. Question any organisation that has accessed your file immediately.
  • Ensure all your private information is safe and secure.
  • Keep a list of all your providers, and have a plan to notify of change of billing when required.
  • Think about a savings plan for emergencies. Like all emergencies, Are you prepared? What do you do? Where do you go?
  • Ensure your income protection is updated so that it is still relevant, timely and will cover what is needed.
  • Do your homework and if necessary seek financial advice before applying for credit.
  • Know your rights, including privacy rights.

If you would like to speak with us further, please contact the office to make an appointment.

General Advice Warning

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on the author’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

 

Minimum pension payments for 2018 FY & 2019 FY

Minimum annual pension payments (account-based pensions) – 2018/2019 year, and 2017/2018 year

Age of pension account-holder Percentage factors
Under 65 4%
65 to 74 5%
75 to 79 6%
80 to 84 7%
85 to 89 9%
90 to 94 11%
Aged 95 or older 14%

Note: Amount calculated on 1 July each year, unless first year of account-based pension, and then pro-rated from commencement day. If commencement day of the super pension is on or after 1 June of the financial year, then no minimum payment is required for that financial year. Minimum amount to be rounded to nearest $10.

Source: Adapted from Schedule 7 of the Superannuation Industry (Supervision) Regulations 1994. via https://www.superguide.com.au/accessing-superannuation/minimum-pension-payments-reduced

 

What it’s worth?

Value as a topic is fascinating and all of us need it, use it and perhaps earning a living measuring, selling or consuming it. So diverse and complication that I could not possibly write a complete nor accurate depiction of value pleasing everyone. It is a concept which helps defines us as a civilisation and has caused the break up of many others.

In the 17th Century, when financial markets as we know them today started to take shape, a French nobleman named Francois de La Rouchefoucauld wrote:-

“The greatest of all gifts is the power to estimate things at their true worth”

I have it written on a pink post-it note and it holds pride of place at my desk, in the world of accounting and financial planning this is not just an inspirational quote summarising my own perceived contribution to the world but is a sage warning.

As most finance people will tell you we tend to over and underestimate things quite regularly and we live in a world where it is increasingly getting harder. This is especially true since the global financial crisis and with advent of quantitative easing.

Typically, we attribute concepts such as usefulness and utility to value. From this we can get to markets of supply and demand and in a simplistic way the markets will determine the price.

Printer cemertary.jpg
The average life span of a average desktop is 3 to 5 years Source: CNET , 2008 ” What is the Average life of an Average Desktop computer?”

Then this happened.

I remember several years ago now, an auctioneer coaxing bidders to bid more with “Come’ on money is cheap!” and from one perspective this is correct and it appears we are now confessing that this “cheap money” was the primary reason for inflated assets. The problem this creates for the individual decision maker is “does the price reflect true supply and demand?”.

grattan-house-prices-Vs-wages

We shall find out in the coming years, however there are a few other ways to judge value which can be useful.

Firstly, value can be assessed by what direct and indirect benefits and costs occur, as our previous blog Thoughts on stopping you from a business failure  suggests, that means figuring out your cash flows and what your plan is.

Secondly, understand the time value of money and what that means to you. A dollar today is always worth more than a dollar tomorrow and by way of implication that may means judging value by what price you would receive if you need to have it sold by the end of the week.

Finally, pay attention to both sides of the argument and be informed when making a decision. Accountants and to a lesser extent financial planners can make a significant contribution in these decisions and assist you in navigating such decisions.

In today’s world being well informed and having a balanced judgement will assist in you in making the right for you.

General Advice Warning

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on the author’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

 

 

 

 

Fresh starts, tax, deductions and audits.

If you think you the end of financial year is all about complying with the taxman you are missing the best time to assess your fiscal health. If you haven’t done this before consider the following:

  1. Review: When you are finding all those receipts and completing your logbooks for your tax return, go through each months banks statements and start categorising your expenses e.g. food, fuel, car repayments etc.
  2. Assess: Did you spend too much? Do you really need those pair of shoes? What do my savings look like? What big ticket items are coming up? What does your financial health look like.
  3. Act: Put in a place a budget, set goals and don’t give up if you fail. If you need to seek a financial adviser take your time and have a clear direction of what you want to achieve more importantly what you want from that relationship.

When it comes to claim deductions it is more important to keep to your record keeping obligations. Ensure that what you are claiming is true and correct and that you have clearly communicated it within your submitted documents. Once you have received your tax return, you must read, check and ensure that the information is true and correct.

Record keeping diagram ATO

Much has been in the media about work related expenses (including car expenses) and the ATO’s ability to data match with other databases e.g. State Revenue Office. We have always believed that there should always be an expectation that you will be audited.

For peace of mind, we are offering Tax Audit Insurance for all client types and is your policy (portable). It extends to some other government agencies and is not just limited to accounting fees. (When making your next appointment ensure that you have discussed whether this is right for you).

It also pays to be proactive and discuss your financial year with us before its over to tax plan and become fiscally fitter.

If you have found this information of interest or wish to discuss your personal situation please contact us to make an appointment.

General Advice Warning

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on the author’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

 

 

 

 

Financial Planning

We believe that wealth that is an abundance of all good things.

Wealth creation through the financial planning process is your ability to obtain more freedom. From purchasing your first home, educating the kids to planning for retirement and beyond, we believe our financial planning advice can make a positive impact on you and your loved ones lives.

Through Townshend Prudential Pty Ltd we offer the following:

  • Financial goal setting and health check.
  • Strategy and implementation of financial plans.
  • Limited financial advice e.g. investment selection.
  • Self Managed Super Fund (SMSF) Establishment and administration.
  • Superannuation advice.
  • Centrelink payment advice.
  • Estate planning