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David Gates

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The past and future: how Australia’s economy has fared

The end of year generally means reflecting back on the year gone and taking stock of important things, like finances, especially as Christmas spending rolls around. So, here’s a round-up of how the economy fared in 2019 and what to look forward to in the future.

Australia comprises just 0.3% of the world’s population, yet in terms of our economy, we’re certainly punching well above our weight, coming in at number 14 globally.

According to the Australian Trade and Investment commission, there are a number of reasons the Australian economy is so resilient. Thanks to robust policy frameworks, a sophisticated financial system and an attractive investment environment, as well as the close proximity to the Asian region and the resulting strong trade ties, Australia has presented with an impressive economic performance.

However, 2019 was not without its economic concerns, especially for the millions of Australians who are living pay to pay, with approximately 46% of Aussies only able to survive a few weeks if they were suddenly without an income. According to research done by the ABC, Australians are also greatly concerned about housing costs and mortgage pressure, the rising cost of living, especially when it comes to the daily commute and the balance between saving for the future and needing to spend today. Many Australians also believe that Generation Z, currently aged between 7 and 21 will be financially worse off than their parents, which is obviously a major concern for the latter. In some further disturbing numbers, 40% of Australians fear they won’t have enough money to retire and almost half of Australians regret not saving more when they could.  

What’s coming
Of course, there are some factors to consider though which may negatively impact our economic future, including escalating tensions between the US and China.

Don’t worry though, Australia remains a strong economy, and the good news is that it’s likely to get better, with our little country tipped to realise annual GDP growth of 2.7% per year between 2020 and 2024. This is the highest among major advanced economies.  

On top of the advantage of being so close to Asia and benefiting positively from the region’s growth, the diversification of Australia’s economy will continue to assist with strong growth. This includes growth of the services sector which has seen the transition of the Australian economy from mining-related sectors to service sectors, growing on average 3.6% per year since 1992. Of course, the benefit here is that Australia’s output has been driven by service industries such as information media and telecommunication, scientific and technical services, and financial and insurance services.

In terms of the future, Australia is a land of dreamers, which is always a good trait to possess, with 82% of Aussies believing they have the ability to create the life they want. Topping the list of aspirations is full financial freedom and independence, showing Aussies want to support themselves, despite any challenges they may face.

To help fulfill any aspirations or financial goals you have, it’s always a good idea to consult the experts, who will look at your financial history and potential future holistically, working out the perfect plan for you. We can help.

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how the federal budget may impact you

They're called sweeteners. And all pre-election federal budgets contain them. Let's delve inside the Coalition's federal budget goodie bag and see how it could impact your financial goals.

Now, it's worth reiterating that the Coalition's pre-election promises aren't set in stone.

That's because many of the budget policies announced on Tuesday night depend on the Coalition government winning re-election in May, or bipartisan support from Labor.

So before we head to the polls, let's take a look how the Coalition's plan could impact your financial goals, depending on your life stage – be it starting out, accumulating wealth, preparing for retirement or enjoying your retirement.

1. Starting out

A cool $1,080 is nothing to sneeze at, particularly if you're just getting started ticking off your financial goals.

That's how much low-to-middle income workers (earning between $48,001 and $90,000) could receive in immediate tax savings by July 1. For a dual income household, the prospective saving is $2,160.

Workers who earn more than $90,000 will also receive a saving, but that will taper out to nothing once you earn $126,000.

Another new consideration in light of the budget is vocational education. After all – one of the biggest investments you can make in your financial future is in your education.

So if you're keen to pursue further vocational education and training you could benefit from the government's $525 million boost to the sector. The Coalition is promising 80,000 new apprenticeships over the next five years, with incentive payments for employers doubling (to $8,000 per apprentice), and a $2,000 payment to apprentices.

2. Accumulating wealth

If you're in the 30s, 40s or 50s age bracket, and starting to accumulate some wealth, you may benefit from the government's proposal to flatten tax brackets in five years’ time.

Effectively, if you're earning anywhere between $45,000 and $200,000 you could be paying 30% by 2024-25. To put that into perspective, if you're at the highest end of that bracket (earning $200,000) you'll be $135 better off under the 2018-19 arrangement and a whopping $11,640 better off by 2024-25. Beware though, Labor is not in favour of this move, and the Coalition would need to be re-elected twice in order for it to come into effect.

Another consideration if you're keen to accumulate wealth your own way – by becoming your own boss – is that the Coalition has plans to see the small-to-medium business tax rate to drop to 26% next year, before falling to 25% in 2021 (down from 27.5% currently).

There is also an increase to the small-to-medium business instant asset write-off threshold – up from $25,000 to $30,000 per asset – which could help you to launch and grow your own business.  

3. Pre-retirement

If you're nearing retirement there are some proposed superannuation changes that you might want to take advantage of in order to achieve your financial goals in your golden years.

Starting July 2020, if you're aged 65 and 66 you will be able to boost your voluntary super contributions without having to meet the work-test requirement of working at least 40 hours over a 30 day period.

If you are aged 65 and 66 you will be able to (subject to your total superannuation balance) make up to three years of non-concessional contributions under the bring-forward rule. Thus, increasing your after tax contributions to $300,000 per year.

Finally, the government also plans on lifting the age limit for spouse contributions from 69 years up to 74 years. This could give you an extra five years to top up your partner's super balance and claim a tax offset for those contributions.

4. Post-retirement

After the initial burst of retirement activities – perhaps caravanning your way around the country or reducing your golf handicap – the reality is that your later years may involve drawing on aged care services at some stage.

These services have been in the spotlight in recent times, with the federal government currently conducting a royal commission into aged care quality and safety, but the recent budget has promised some changes.

The Coalition's budget has committed to providing 10,000 new home care packages (at a cost of $282.4 million over five years), as well as allocating $84 million for carer respite services.

Some household budget relief may also come in the form of a one-off energy assistance payment of $75 per single pensioner and $125 for couples before July. This will also be available to people on the Disability Support Pension, veterans, carers, single parents and those on Newstart.

Show me the money

Now, as we mentioned earlier, whether all of the budget policies announced on Tuesday night ultimately have an impact on your financial goals all depends on the Coalition government winning re-election in May, or a new Labor government backing the measures.

Ultimately, however, achieving your financial goals is largely a matter for you and your financial planner – not a matter for government policy.

That's why, regardless of incremental changes announced from one federal budget to the next, it's important we work together to develop your own unique financial plan.

This plan can help you achieve your goals, plan for the things you can control, and mitigate the risks associated with the things you can't.

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WHAT TIGHTENED LENDING MEANS FOR PROPERTY BUYERS

Since the Banking Royal Commission the lending and property landscape has changed. Don't be discouraged. Sure, tightened lending means home loans are becoming harder for some to get, but it's not all bad news.

That's because there's also reduced competition from investors, housing prices are falling, and clearance rates are too, making it much more of a buyer's market than in years gone by.


So let's take a look at a few simple steps you can take to improve your chances of obtaining finance in the tighter lending environment. Armed with these tips you could be better equipped to take advantage of the weakened housing market. 


Tightened lending requirements


The lending practices of Australia's biggest banks have been tightening in recent years, firstly with the Australian Prudential Regulation Authority (APRA) moving in March 2017 to reduce the proportion of new interest-only residential mortgage lending.


Although APRA lifted that supervisory benchmark in December last year, the glaring spotlight of the Royal Commission into banking has ensured that lending conditions have remained tight.


Improve your chances of approval


- Review your credit report


First things first: find out if a less than glowing credit rating is hindering your mortgage application.


You can request a free credit report from one of three national credit reporting bodies, which are listed on this Australian government website.


If you find errors in your report, the Australian Retail Credit Association (ARCA) has this guide to getting them corrected. ARCA has also developed these tips for improving your credit score.


- Proof of genuine savings


Lenders consider “genuine savings” to be funds that you've accumulated over a period of time, including:


- term deposits, shares or managed funds that you've held for three months;

- savings that you've held or accumulated over three months;

- rental history for the past six months;

- salary sacrificing through the First Home Super Saver scheme; and 

- additional repayments into a car loan or personal loan.


Funds that lenders won't consider as genuine savings include cash gifts, inheritance, tax refunds, funds from selling your car or other assets, the First Home Owner Grant and borrowed funds.

If you would like to see how making changes to your existing savings please contact us direct


- Set a budget


In the tightened lending environment, banks are paying closer attention to your spending habits.


It's therefore more important than ever to set a realistic budget and stick to it.


This can not only help you provide proof of genuine savings, but it can also demonstrate to lenders that you'll be able to make ongoing repayments. 


The GRM Wealth Portal is an excellent tool to assist you with budgeting. If interested please contact us.


- Reduce your other debts


Lenders will be wary of extending more credit if you've got a bunch of credit card debts, personal loans, or car loans kicking around. Even evidence of an AfterPay purchase can be detrimental to your chances.


So take steps now to reduce any other debts. That may mean paying off the debt with the highest interest rate first, giving yourself a sense of achievement by paying off the smallest debt first, refinancing or consolidating your debt. 


For a better understanding of how tightened lending will impact your financial goals, we’re here to help.

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David Gates

Principal Adviser

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Thanks for contacting David!

We’ll be in touch soon to confirm all the details

Request a Meeting

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+61430592438