Navigating love and money

Money makes the world go around. But when it comes to relationships, it can sometimes stop them in their tracks. 

Navigating love and money can be tricky, but it’s simpler when you learn to communicate about finances in an open and transparent manner. Sometimes easier said than done, we know, but with a few simple tools you could end up reaching your mutual goals sooner and finding more fulfilment in your relationship.

Honesty – the best policy

We’re conditioned as children not to talk about money. It’s rude to ask someone’s salary, and unbecoming to whinge about finances. There’s often good reason for keeping mum around friends and acquaintances, but in intimate relationships, things are a little different. Being transparent about finances with your partner in general leads to better outcomes. Shaking habits we’ve learned as kids can be difficult, but getting used to communicating about money is well worth it in the long term.

So, with that said, let’s look at some ground rules: 

1. Don’t keep financial secrets.
2. Consult on big purchases
3. Talk about how you were raised and what informs your attitudes towards money. Chances are your relationship to money either mirrors your parents or is a rebellion against either their perceived thrift or carelessness.

Shared dreams/mutual enemies

Budgets, like new exercise regimes, work best when you have someone to hold you accountable. That said, when it all just becomes about numbers on a spreadsheet and saving every last penny, things can start to look a bit bleak.

Try instead to reframe the conversation. Chances are you and your partner are together because you share the same tastes and values. Logically then you might have similar dreams. Talk about your goals together and use them as your focus in money talks. It’s much more attractive than scrimping for scrimping’s sake.

Similarly, if you both have debt, you can make it a team effort to pay it down. There’s nothing so unifying as a mutual nemesis.

It’s never too early or too late

Money is an ever-present force in our lives and the sooner you have ‘the chat’ the better. Okay… so maybe not your first date. But in any relationship, there are a series of milestones which present an opportunity for the talk.

If it’s early days, the first joint holiday, moving in together, or opening a shared account are all good times to start the dialogue. Or, if you’re already well into your partnership, buying a house, saving for your children’s education and preparing for retirement might prompt a chat.

And it’s not a conversation you only have once and then forget. Endeavour to make time to touch base on a regular basis—once a month is a good starting point. This will allow you to check in regularly rather than only dealing with differences in approach at times of financial emergency.

Remember too that just because a particular savings method works for you doesn’t mean it will necessarily work for your partner. Empathise with what informs their approach towards money and use this knowledge to shape budget plans.

And don’t fret if you’re in a long-term relationship and you still haven’t quite got the money talk down pat. It’s a conversation that changes over a lifetime as your goals, expectations and circumstances change. However, if money is becoming a source of resentment in your relationship, remember it’s never too late to open up the dialogue.

At the end of the day, we will all experience conflict over money at some point in our life, but by making financial communication a regular and comfortable thing, you’ll likely deescalate these situations before they blow out of control.

Who among us hasn’t daydreamed about receiving a windfall? In reality, people receive large sums of money in the form of inheritances, redundancy payouts and lottery wins all the time. Yet many soon find themselves back in their pre-windfall financial position.

To take a recent example, 28-year-old Victorian Brodie Bond burned through a $220,000 inheritance in 12 months by splurging on drugs, alcohol, clothes and a car (which she crashed).ⁱ

The wisest use of a windfall will depend on its size and its recipient’s circumstances. But here are some broad guidelines for avoiding Brodie’s fate.

Splurge (a little bit)

You’re going to want to live it up a little. That’s fine, but make a deal with yourself to spend, say, at most 10 per cent of the windfall on a new car or family holiday. Then devote the other 90 per cent to investments that will facilitate long-term financial security.

Pay down debts

Before you start looking at investments, it makes sense to clear non-productive debts beginning with the one with the highest interest rate, such as a credit card. Then look at non-tax-deductible debt such as your home loan.

Paying off the mortgage has emotional as well as financial benefits – the sense of security that comes with owning a home is priceless. Yes, while mortgage interest rates are low you might get a better return investing elsewhere, but you’ll have money to plough into other investments after slashing your housing costs. Plus, those who receive a windfall while they still have a substantial mortgage can save hundreds of thousands in interest by paying back the bank early.

Top up your super

If you are close to retirement or already have substantial equity in your home, you might top up your super.

If you received a large windfall, you could make an after-tax (non-concessional) super contribution of up to $300,000 in any three-year period, for those aged under 65 depending on your superannuation balance.

You can also make tax-deductible (concessional) contributions of up to $25,000 a year, including contributions made by your employer. You may also have the option of combining five years concessional contributions and depositing up to $125,000 in any one year.

The pro of super is that it is a tax-effective home for your retirement savings. The con is that you can’t access your money until you reach retirement age.

Start (or grow) an investment portfolio

Over the long term, it’s hard to get a better return on your money than buying growth assets such as shares and property.

While past performance is no guarantee of future returns, during the 20 years to December 2017, Australian shares returned (before tax) 8.8 per cent a year and residential investment property returned 10.2 per cent.ⁱⁱ

In recent years, technology has made it much simpler and cheaper to trade shares. The advantage of investing directly in the sharemarket (rather than indirectly through your super fund) is that you can sell your shares and access your money whenever you want. The disadvantage (which also applies to investment property) is that you’ll have to pay capital gains tax on your profits at your marginal rate, less a 50 per cent discount if you hold the investment for more than 12 months.

Historically, Australians with spare capital have been inclined to purchase an investment property. Around two million Australians own one or more.ⁱⁱⁱ Australia’s major property markets are currently deflating, but this may offer good buying opportunities down the track.

Final tip – don’t get carried away

Humans seem prone to blowing windfalls. Academic studies suggest people take bigger risks with money that arrives out of the blue than with money they’ve had to work for.^iv

Post windfall, after you’ve celebrated your good fortune, discuss your changed circumstances with your spouse and, where appropriate, other family members. Avoid the temptation to do anything rash, such as quit your job. Your investment strategy will vary depending on your circumstances but, whatever it is, keep in mind Warren Buffett’s two investment rules.

Rule One: Never lose money.

Rule Two: Never forget Rule One.

US Interest rates have been making headlines in recent months, but do they really matter to Australian investors? The short answer is they do, a lot. 

Changes in US interest rate settings have made a big impact on investment returns from bonds and shares over the past year, while uncertainty about the future direction of interest rates is also weighing heavily on markets.

Where are rates headed?

The US Federal Reserve has increased its federal funds rate (which controls short-term interest rates) nine times from zero in 2015 to 2.5 per cent, as the US economic recovery gathered steam.

As late as last December the Fed was forecasting two more hikes in 2019. Then in early January it announced a ‘patient’ approach. Respected market observer and former Pimco chief, Mohamed El-Erian now expects the next move will be a cut, but not until 2020.ⁱ

Over the same period, the Reserve Bank of Australia cut the official cash rate from 2 per cent to a record low of 1.5 per cent. Until recently, the consensus was that the next move would be up, but many economists now expect a rate cut.ⁱⁱ

This turnaround in sentiment in the US and Australia is due to weaker economic figures, the escalating trade war between China and the US and fears of a China slowdown. Australia also faces slow wages growth and falling property prices.

Late last year nerves got the better of investors and global shares fell sharply. Shares bounced back in January after the US Fed’s about-turn on interest rate policy. But bond markets had been predicting an economic slowdown for some time, due to something called the yield curve.

What is the yield curve?

The yield curve is a graph that plots the yields currently offered on bonds of different maturities, ranging from a few months to 30 years. The yield on a bond is the annual interest paid as a percentage of the bond price.

The ‘typical’, or positive, yield curve is a gently rising line as maturities increase because investors expect a higher return for the added risk of holding an investment for lengthy periods. A flat yield curve occurs when yields on short and long securities are similar.

The relatively rare inverted yield curve, where short-term yields are higher than long-term yields, looks like a downhill slide.

Market watchers use yield curves, especially of US Treasury bonds, to test which way the economic wind is blowing. A positive yield curve is a sign of continuing economic growth, whereas an inverse yield curve implies that investors expect sluggish economic growth, low inflation and hence lower interest rates.

What is it telling us?

At present yield curves are flattening, especially in the US. While the Federal Funds rate has increased to 2.5 per cent over the past year, the yield on 10-year Treasury Bonds has fallen to 2.68 per cent as bond markets priced in an economic slowdown.ⁱⁱⁱ

By suspending further rate hikes, the Fed may have avoided further falls in long term bond yields which would have set off alarm bells in financial markets.

What does this mean for investors?

Interest rates don’t directly affect share prices, but they do affect the cost of borrowing and decisions by businesses and consumers which can flow through to corporate profits and share prices.

As for bonds, as interest rates fall on new bond issues, prices rise for existing bond issues paying higher interest.

This helps explain why Australian fixed interest topped the asset class performance chart in 2018, up 4.5 per cent, while Australian shares fell 2.8 per cent.^iv

Past returns are no guide to future performance; what the past does teach us is the importance of diversification. Returns from bonds and cash may not shoot the lights out but they help cushion the impact of falling share prices.

While the yield curve has proved to be a useful indicator of future economic slowdowns, it is simply a prediction based on current market sentiment and can change direction with the economic breeze.

After one of the hottest summers on record, many Australians will welcome Autumn and the opportunity to be more active outdoors and perhaps get busy in the garden. There will be no let-up in the heat on the political and economic front though, with the Budget and a Federal election looming.

The Australian economy began to show signs of slowing in February, on global concerns about the US-China trade war, Brexit and higher oil prices; and falling property prices locally. The Reserve Bank cut its forecasts for economic growth and inflation in 2019 to 3 per cent and 2 per cent respectively. RBA Governor Philip Lowe said there was no ‘strong case’ for a near term change in the cash rate from its low of 1.5 per cent.

The economic slowdown is reflected in company earnings. As the profit reporting season draws to a close, 94 per cent of companies reported a profit in the December half, but only 50 per cent increased profits on a year ago. Retail spending is also sluggish, up 0.1 per cent in the December quarter and up 3 per cent over the year. The price of unleaded petrol rose in February, from a national average of around 130.8c a litre to 136.9c last week on rising global oil prices. Brent Crude rose 8 per cent in February to more than US$66 a barrel. Consumer sentiment fluctuates; the weekly ANZ-Roy Morgan survey fell four points over the month to 114.1, still above the long-term average.

On a positive note, unemployment was steady at a 7-year low of 5 per cent in January, while the NAB business conditions survey rose from a 4-year low to +6.6 points in January. The Aussie dollar is roughly unchanged at around US71.5c.

If your business assists employees during an emergency, for example floods, bushfires etc., then fringe benefits tax is unlikely to apply to the assistance you provide. While we doubt anyone would be thinking about FBT during a crisis, it’s good to know that the tax system does not disadvantage your generosity.

The exemption applies in a range of scenarios including natural disasters, accidents, serious illness, armed conflict, or civil disturbances.

As an employer you might provide benefits such as meals, temporary accommodation, clothing or transport, etc.

From 1 July 2019, single touch payroll – the direct reporting of salary and wages, PAYG withholding and superannuation contribution information to the ATO – will apply to all employers. What employers need to report will also be extended to include certain salary sacrificed amounts.

Employers with 20 or more employees have been required to use single touch payroll since 1 July 2018. The new rules push all businesses with employees into the single touch payroll system. This includes the situation where payments are made to the owners of the business in the form of salary, wages or directors fees.

The ATO has asked software providers to provide new low cost payroll options for micro employers (1-4 employees).  MYOB and Xero have announced new $10 per month offerings (limited to 4 employees) with other software houses following suit.

The ATO also states that to assist micro employers there will be, “a number of alternate options that are not available to employers with 20 or more employees – such as initially allowing your registered tax or BAS agent to report quarterly, rather than each time you run your payroll.”

While the start date for small employers will technically start on 1 July 2019, the Commissioner of Taxation released a statement indicating that small employers can actually start reporting through single touch payroll any time from 1 July 2019 until 30 September 2019. No penalties will be applied to mistakes, missed or late reports for the first year.

Plus, if your business is in an area with no viable internet connection, such as some rural and remote regions, then exemptions may apply.

Under 20 employees? What you need to do.

1 July 2019 is not that far away. If your business does not already use STP compliant software, you may need to upgrade your systems or implement new ones.

STP requires PAYG withholding and superannuation contribution details to be reported to the ATO as payments are made to employees or superannuation funds.

When it comes to PAYG withholding, employers will report details of salary and wages paid to employees as well as the PAYG withholding amount at the time the payment is made to the employee. Employers have the option of paying the PAYG withholding liability at the same time, although this is not compulsory.

What needs to be reported:

• Salary & wages
• Director remuneration
• Return to work payments to individuals
• Employment termination payments (ETPs) – not compulsory if the employee has died
• Unused leave payments
• Parental leave pay
• Payments to office holders
• Payments to religious practitioners
• Superannuation contributions (at the time the payment is made to the fund)
• Salary sacrificed amounts (from 1 July 2019).

Employers with poor super guarantee payment history outed

Underpayment or non-payment of superannuation guarantee (SG) is a big issue. New laws will enable the ATO to advise employees (or former employees) of their employer’s poor SG payment and reporting history.

If an employer makes a complaint to the ATO, then a taxation officer is able to make a record or advise the employee about a failure or suspected failure by their employer or former employer to comply with their SG obligations. They can also share the Tax Commissioner’s response to the complaint. So, if the Commissioner finds there is a problem with SG payments, they can disclose this information to the complainant.

A budget, an election and the legislation that hasn’t made it through.

The February 2019 Parliamentary sitting days were the last opportunity before the Federal Budget for the Government to introduce or push through new legislation. Next month, on 2 April, Parliament reconvenes for the Federal Budget and it’s likely that an election will be called very soon after that (18 May 2019 is the last possible date for the election of the House of Representatives). Any legislation that has not passed when the election is called basically goes back to the drawing board and may never be enacted.

With the focus of politicians firmly on the impending election and the asylum seeker debate, and the Government now in an untenable position following the loss of its majority in the lower house, tidying up outstanding business legislation was not the priority in February, and as a result, several key pieces of legislation are in limbo.

Extension of the $20k instant asset write-off

Originally introduced in the 2015-16 Budget, the popular $20k instant asset write-off has been extended across consecutive years. At present, small businesses are able to immediately deduct purchases of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2019.

In a pre-election sweetener, the Government announced that the threshold for the small business instant asset write-off will increase to $25,000 and the timeframe to claim the increased write-off extended from 29 January 2019 until 30 June 2020.

The Bill enabling the changes was rushed into Parliament in February. While the upcoming Budget will provision for the measure, the outcome of the next election may determine whether the change comes to fruition.

Removing the CGT main residence exemption for non-residents

Currently, individuals are generally not subject to capital gains tax (CGT) on the sale of the home they treat as their main residence. If the home was your main residence for only part of the ownership period or if the home is used to produce income (for example, you use part of the home as business premises or rent out part of the property), then a partial exemption may be available. In addition, if you move out of your home and you don’t claim any other residence as your main residence, then you can continue to treat the home as your main residence for up to six years if you rent it out or indefinitely if you don’t rent it out (the ‘absence rule’).

The main residence exemption is currently available to individuals who are residents, non-residents, and temporary residents for tax purposes.

In the 2017-18 Federal Budget, the Government announced that non-residents and temporary residents would no longer have access to the main residence exemption under the CGT rules. The Government later confirmed that the exemption would still be available to temporary residents as long as they were residents of Australia under the normal residency tests.

The proposed rules would prevent non-residents from claiming the main residence exemption even if they were a resident for some (or even most) of the ownership period. The proposed rules do not allow for partial exemptions. If, however, you are an Australian resident at the time you sell, then the normal main residence exemption rules apply, even if you were a non-resident for some or most of the ownership period.

The draft laws become even more complex when dealing with deceased estates.

Under the proposed new laws, the transitional period for non-residents to make arrangements to either sell their property or restructure their affairs, ends on 30 June 2019. The transitional period applies if the property was held at 9 May 2017 and is sold under a contract entered into on or before 30 June 2019. If there is no contract of sale in place by 30 June 2019, then the main residence exemption will not apply if the individual is a non-resident when the sale takes place.

With the legislation stalled in the Senate, non-residents are in a precarious scenario. If the legislation is enacted with the current deadlines, it will now be difficult to sell any property in time to meet the transitional period requirements.

We expect that the timing of the main residence exemption amendments will be addressed in the upcoming Federal budget. We will keep you posted!

Employer Superannuation Guarantee amnesty

Back in May 2018, the Government announced an amnesty for employers who had fallen behind with their superannuation guarantee (SG) obligations. Under the amnesty, employers could catch up or “self correct” outstanding SG payments for any period from 1 July 1992 up to 31 March 2018. The intent was to reduce the estimated $2.85 billion owed by employers in late or missing SG payments.

Running from 24 May 2018 for 12 months, the amnesty was to provide relief from some of the punitive penalties that normally apply to late SG payments. To take advantage of the amnesty, employers were to make voluntary disclosures to the ATO about outstanding payments.

But, the legislation enabling the amnesty has stalled in the Senate. Up until recently, the ATO was encouraging employers to make voluntary disclosures with the view that when the legislation passed Parliament, the amnesty would be applied. However, any employer who made a voluntary disclosure to the ATO will not benefit from the reduced punitive penalties unless the legislation passes, which at this stage, is highly unlikely in its current form. Further, the Tax Commissioner has no discretion under the law to reduce the penalties applied to employers in this scenario, so if the legislation doesn’t pass, then there isn’t much the ATO can do to soften the blow.

SMSF membership limit changes

Rushed into Parliament before the break was a bill enacting the Government’s 2018-19 Budget measure increasing the maximum number of allowable members in a Self Managed Superannuation Fund from four to six.  The measure is before the Parliament but unlikely to be addressed before the election.

Superannuation guarantee and salary sacrifice

The Bill amending how superannuation guarantee is calculated, to ensure that an individual’s salary sacrifice contributions cannot be used to reduce an employer’s minimum superannuation guarantee (SG) contributions, appears to have stalled. The Bill has not progressed since November 2017. At present, the minimum amount of SG an employer is required to pay is based on an employee’s ordinary time earnings. As entering into a salary sacrifice arrangement reduces the employee’s ordinary time earnings, it reduces the amount of SG that an employer is required to pay.

Craft beer excise changes

Australia’s growing craft beer industry were promised changes to the way excise applies to their product. The amendments extend the concessional excise duty rates that currently applying to draught beer in kegs and other containers exceeding 48 litres to smaller containers of 8 litres or more if these containers are designed for dispensing from commercial premises. Once again, this measure made it into Parliament but is unlikely to be addressed before the next election.

Future Drought Fund

The Future Drought Fund is a dedicated investment vehicle to secure a revenue stream for “drought resilience, preparedness and response”. The fund uses $3.9 billion in uncommitted funds from the Building Australia Fund. The Bill to create the fund made it into Parliament in November 2018 and passed the lower house on the last sitting day in February. The future of the fund is in the hands of whoever wins the next election.

Curbing payday loans and rent-to-buy schemes

The Bill curbing payday lending is unusual because it was introduced in the last sitting period by the Labor Party who have in effect, introduced the Government’s own exposure draft reforms from 2017. The reforms amend the consumer credit code to impose caps on total payments made under a consumer lease, require small amount credit contracts to have equal repayments and interval periods, remove the ability for small loan providers to charge monthly fees if the loan is fully paid out before the term of the loan expires,  prevent door to door selling, and strengthen compliance. In the wake of the Royal Commission and the recent Senate enquiry into payday lending, there will be reform, it’s just a question of when.

Feb 26 2019

Major Announcement

We are involved in the amazing Global Business Camps concept each year over the last 17 years. We have had a number of clients go through the business camp with fantastic results. It has changed many people’s lives so here is some news regarding the next event.

For all of you that have been before, you should seriously look at attending again with your key team. It is great reinforcement and there are many new strategies that we will work through. For those of you that have not been, this is a must attend event that will help drive your business and your life forward.

Global Business Camps next event will be held from 23 – 25 March 2020. Yes, that is correct we are taking 2019 off and putting on a massive event for 2020.

Pencil in the dates now so you do not miss out.

With 13 months to go start planning and pencil in the days so you can be there. It may also be a great idea to lock in a few days after the event just to work through all the notes and re-inforce the principles.

Apart from our lead presenter we have also (see below) already locked in:

John Tsoulos is the Lead Presenter for Global Business Camps. Having worked closely with businesses from different parts of the world, he has vast experience in applying business development programs producing excellent results.

John is involved in a number of businesses and knows what needs to be put in place and followed through on to ensure that business is a success.

John has presented at conferences, business building events, business camps and team building camps in Australia, New Zealand and the USA.

In 2001, John developed the 6 Secrets ™ to any business, whilst creating the original business camp program. The event was first run in 2002 for 47 people and after 4 events held in South Australia, the events went to the National scale.

Since then there have been many National events and thousands of people have worked through the 6 Secrets ™ program. The content of the program has since evolved and developed, bringing in many new strategies, ideas and thought processes, but the core 6 Secrets ™ methodology remains.  This methodology has been used and mastered by thousands of businesses and the results have been fantastic.

What John has said about Paul Dunn: “He is an inspiration and a great motivator. He changed the way I looked at the accounting profession and what we could do for our valued clients all the way back from  1997, when I attended my first accountants boot camp. His knowledge of business and businesses is amazing. He is a must see speaker and we are so excited and happy that he has agreed to be involved with our event in 2020”.

Key Note Speaker – Paul Dunn:

Paul is a 4-time TEDx speaker.

He is a Senior Fellow in one of the World’s Leading Think Tanks and consults to and mentors leading-edge businesses around the world.

He was honoured as a Social Innovation Fellow in his new home of Singapore; something he shares with film-star and philanthropist Jet Li and Walmart Chairman, Rob Walton.

He was one of the first 10 people in Hewlett Packard in Australia. He then created one of Australia’s first computer companies and then The Results Corporation where he helped develop and grow 23,000 small and medium scale business enterprises.

His training programs are used by an estimated 226,000 companies around the world and he continues to push the boundaries. He recently featured in Forbes Magazine alongside Sir Richard Branson in a global piece on ‘disrupters’ in business.

He is Chairman of the B1G1: Business for Good, the Global Giving Initiative that’s already enabled businesses to create over 170 Million giving impacts globally.

He travels close to 800,000 miles each year speaking around the world  ……. and he tells us his baggage goes twice as far.

 So just to summarise:

Next event – 23 to 25 March, 2020.

Location – Gold Coast, Resort/Hotel to be confirmed.

Look out for more keynote speakers that will be joining us at the business camp.

Who should attend –

• Everyone that has been before and looking for a refresher or motivation,
• Anyone that hasn’t been before and are keen to develop and grow their business,
• Any key team members,
• Anyone in business that is finding it difficult to find talented staff to join the business,
• Businesses that have stagnated and are not changing with the times,
• Really, everyone in business that is an owner, leader or key person.

Look out for more news to come. We will be locking in more amazing key note speakers shortly.

Find out more about the GBC event at www.globalbusinesscamps.com.au.

E-mail John Tsoulos at jtsoulos@indigofinancial.com.au or Nathan Kentish at nkentish@indigofinancial.com.au  or call  08 8221 5262.