Because Financial institutions (FIs) operate by borrowing money from some people to lend to others; The average rate at which a FI lends must be higher than the rate at which it borrows (i.e. a positive interest margin) in order to cover its operating costs and deliver a return to its owners (i.e. a profit). FIs borrow money from individuals (retail deposits), professional investors (e.g. superannuation funds) and other FIs (interbank loans) both in their home country and, often, overseas. The rate it pays on all this funding is driven by the type of borrowing (and the credit risk and other commercial terms applicable), the country the money is borrowed from and the term (expectations of future rates). It is the weighted average cost of all these sources of funding that constitutes the FIs cost of funds, upon which it must base its lending rates to derive a positive interest margin.

If you have any questions about the RBA or about interest rates feel free to leave a comment on this post and I’ll get back to you.

Wayne – Chief Financial Officer

The legislation gives effect to 2009 Federal Budget announcements concerning the private health insurance rebate and Medicare Levy Surcharge changes. The proposed changes mean than an income test to the 30% private health insurance rebate will apply for individuals whose income for Medicare levy surcharge purposes is more than $803,000pa and for families where that income is more than $166,000pa.

What does this mean?
It means individuals and families may not be eligible for the full 30% rebate for their private health insurance premiums. In conjunction with this, also from July 1, 2012, the rate of Medicare levy surcharge for individuals and families without private patient hospital cover may increase depending on their level of income.

The effect of these new tiers would be no rebate where individual income is over $1249,000pa and families over $2548,000pa.
For the purpose of calculating your income threshold, it is based on the definition of income used to calculate Medicarelevy surcharge for individuals or families.

If you are unsure on how you may be affected, contact the team at Eastwoods Accountants & Taxation to see how you may be impacted.

John- Executive for Profesional Services

Eastwoods Tax & Accounting

Things you should know>

But what does this really mean for you the consumer? This post covers one of the most common questions we’re asked about the RBA. We’ll be covering off a few more questions in other posts too.

Does the RBA set interest rates for financial institutions?
The RBA does not set interest rates for Australian financial institutions, despite common misconceptions. The RBA sets a target for the interest rate on overnight loans between financial institutions in the wholesale money market. The wholesale money market is the market where financial institutions borrow and lend to each other.

The RBA then borrows and lends overnight money on the wholesale markets (i.e. influencing the supply of, and demand for, overnight money) to ensure the actual overnight interest rate remains as close as possible to its target rate. Other interest rates (e.g. on home loans, personal loans, term deposits etc) in the economy are influenced by this interest rate (and many other factors) to varying degrees, so that the behaviour of borrowers and lenders in the financial markets is affected by the RBA’s monetary policy.

Two other key influences on other interest rates are credit risk and tenor (term). Most interest rates have two key components, a risk free base rate plus a margin to compensate the lender for the credit risk they’re assuming (i.e. the risk that the money won’t be repaid). Overnight money, and particularly Reserve Bank funding, has low credit risk and therefore tends to form the base rate for short term interest rates.

The second key influencer on interest rates is term. For example, it is expected that a 30 year loan will have a different rate than a 1 year loan because of expectations/uncertainty about how interest rates might change over the longer term and the longer period over which the lender is exposed to credit risk. Government Bonds tend to form the risk-free base rate for longer term interest rates. These two factors will mean that the interest rate on, say, a 25 year home loan will be higher than the RBA’s official interest rate.

If you have any questions about the RBA or about interest rates feel free to leave a comment on this post and I’ll get back to you.

Wayne – Chief Financial Officer

The Education Tax Refund (ETR) is the Australian Governments way of helping with the cost of educating primary and secondary school children. Eligible parents, carers, legal guardians and independent students are able to get money back on education expenses like computers, educational software, textbooks and stationery.

Many types of education expenses are claimable under the Education Tax Refund as long as you have a receipt for your expense of course. Find out more about what you can claim on the government education refund website.

Who is eligible?

To claim the ETR, a person must have had eligible education expenses during the financial year for a child, who meets the schooling requirement, and:

•  they received Family Tax Benefit (FTB) Part A for the child, or
• a payment was made for the child which prevented them from receiving FTB Part A, or
• their child stopped full-time school during the year and received income over the cut-out amount which prevented the claimant from receiving FTB Part A for the child.

If you are not entitled to receive FTB Part A, you may still be entitled to claim the ETR if you receive any of the following payments:

• Youth Allowance
• Disability Support Pension
• ABSTUDY Living Allowance
• the Veterans’ Children Education Scheme
• Student Financial Supplement Scheme, and
• the scheme to provide education and training under s258 of the Military Rehabilitation and Compensation Act 2004.

For more information on eligibility for the ETR visit the government education tax refund website.

Expenses

Eligible expenses

Many types of education expenses are eligible for the ETR and include the cost of buying, establishing, repairing and maintaining any of the following items:

• home computers and laptops
• computer-related equipment such as printers, USB flash drives, and disability aids to assist in the use of computer equipment for students with special needs
• computer repairs
• home internet connections
•  computer software for educational use
• school textbooks and other printed learning material, including prescribed textbooks, associated learning materials, study guides and stationery
• prescribed trade tools for secondary school trade courses, and
• school uniform expenses (uniforms purchased after 1 July 2011 are claimable in the 2011/12 financial year).

Find out more about eligible expense from the education tax refund website.

Expenses which cannot be claimed

• school fees
• student attendance at school-based extra-curricular activities such as excursions and camps
• tutoring costs
• sporting equipment
• musical instruments
• school subject levies – for example, payment for consumables for particular subjects such as woodwork, art or home science
•  building levies
• library book fees
• school photos
• donations
• tuck shop expenses
• waiting list fees
• transport
• membership fees, and
• computer games and consoles.

Find out more about what you cannot claim from the education tax refund website.

Sharing eligible expenses

Where eligible education expenses are incurred for more than one eligible child, you can share the expense between their children. But all the children must use the purchased items and the you must buy the item on a day when they satisfied the eligibility requirements for the ETR for each child. This is called pooling.

Claiming the Education Tax Refund

If you are eligible for the Education Tax Refund (ETR) because you receive FTB Part A, only you can claim the refund. For example, your spouse cannot claim the Education Tax Refund in their tax return if you receive FTB Part A.

Find out more about how to claim on the education tax refund website or by talking to a Tax & Accounting expert.

Michael – Eastwoods Practice Development Manager

Things you should know>

This information and advice is general in nature only and has been prepared without taking into account your individual objectives, financial situation or needs. Before implementing any recommendations that you may make based on the information contained here we recommend that you see a registered tax agent or legal adviser. The information in this article has been sourced from the Australian Government’s Education Tax Refund website http://www.educationtaxrefund.gov.au/index.html

Licensee Select is a division of Westpac and provides various financial planning support services to independent financial planning firms across Australia.

Eastwoods Wealth Management has previously won five SA/NT state based awards and has won the “Licensee Select National Practice of the Year” award 2012.

By winning the State award Eastwoods is now eligible for the national title which is announced in April.

The award represents an outstanding team effort dedicated to the provision of quality financial planning advice across Australia. I’m very proud of my team and the service we provide our clients.

John – General Manager Professional Services

The legislation gives effect to 2009 Federal Budget announcements concerning the private health insurance rebate and Medicare Levy Surcharge changes. The proposed changes mean than an income test to the 30% private health insurance rebate will apply for individuals whose income for Medicare levy surcharge purposes is more than $83,000pa and for families where that income is more than $166,000pa.

What does this mean?

It means individuals and families may not be eligible for the full 30% rebate for their private health insurance premiums. In conjunction with this, also from July 1, 2012, the rate of Medicare levy surcharge for individuals and families without private patient hospital cover may increase depending on their level of income.

The effect of these new tiers would be no rebate where individual income is over $129,000pa and families over $258,000pa.

For the purpose of calculating your income threshold, it is based on the definition of income used to calculate Medicarelevy surcharge for individuals or families.

Information and Table sourced from the Department of Health and Aging website

http://health.gov.au/internet/main/publishing.nsf/Content/currentissue-P11000027

If you are unsure on how you may be affected, contact the team at Eastwoods Accountants & Taxation on 08 8132 9222 to speak to us to see how you may be impacted.

Sam – Taxation Accountant Eastwoods Tax & Accounting

Things you should know>

Strength in diversity: How to spread your wealth effectively

Diversifying your investments is an important aspect of growing your wealth over time and minimising the risk of volatile markets without forgoing returns. Basically, it means not putting all your eggs in one basket, but spreading your investments across a diverse range of assets, such as property, cash, shares and fixed interest.

People often focus on only one type of investment, mostly cash or property, which is not an ideal long-term approach as all markets are subject to volatility at some stage – and if you are forced to sell your assets when the market is down, you will most likely incur a loss.

The main benefit of diversifying your investments is that the low correlation of the asset classes – meaning the performance of one class is not affected by the performance of the other – helps reduce volatility in your portfolio because they respond to different market trends at different rates. Therefore, having a portfolio diversified among different classes creates more consistency and can improve overall portfolio performance.

Another possibility of diversifying is within the same asset class, such as buying shares from different companies and industry sectors. The less these companies and industries are correlated to each other, the less risk you take. In other words if you buy shares in three different oil companies, the risk is almost the same as investing in just one of those companies, as the industry factors that affect one oil company are most likely to equally impact all companies within the oil industry.

Many people find planning their financial future daunting and don’t quite know where to start, so here are some tips to keep in mind when developing your investment strategy:

Seek professional advice

Speak to a professional financial planner about your investment goals and objectives and the level of risk you are willing to take. The adviser will then develop a long-term investment strategy that supports your goals, and take you through the risk assessment of each investment class. In most cases a diversified investment portfolio is spread across property, cash, fixed interest, managed funds and shares.

Plan for the long-term

There are many schemes out there that promise quick returns, but the 20 per cent return within 12 months is simply unrealistic. By spreading your investments you can ride out the storm in some markets without incurring losses. With a long-term, diversified strategy you can afford to wait for market conditions to recover again – which is the normal cycle of every market – and therefore protect the value of your assets.

Don’t be emotional

Fight the temptation to spontaneously invest in a scheme you read or heard about. Stick to your strategy and avoid knee-jerk reactions to chop and change your investments to follow potential trends. Sustainable growth can only happen over time.

Review your portfolio regularly

Review your portfolio with your financial planner every 12 months to potentially adjust risk levels. In volatile market conditions a 6-monthly review is recommended.

In summary, diversifying your investments helps you spread your risk, so that a loss on one investment may be balanced out by a gain in another, creating sustainable growth over time.

John – General Manager Professional Services Eastwoods

Things you should know>

The key is getting started. The first step should be creating a budget so you know exactly where your money goes.

Create a budget

Gather your bills and make a list of all debts, including the name of the creditor, your total balance, minimum monthly payment and interest rates. You should also list other necessary expenses, such as groceries, fuel and other transport costs, insurances, rent and school fees.

Add up all the minimum debt repayments and in a separate column document essential expenditure – the total of both columns will be the minimum you need to cover for the month.

This exercise may reveal your income is not enough to meet all your expenses. If that’s the case, you may need to reduce some costs, such as pay TV or your mobile phone.

Prioritise

The next step is to focus on repaying the debt with the highest interest rate first. Put as much towards these repayments as possible – the sooner the debt is cleared, the less interest you will pay over the life of the loan.

It’s important to continue repaying other debts and if possible, repay slightly more than the minimum so the balances can be reduced.

Consider debt consolidation

Depending on the size of the debts and the interest rates charged, it may be worth taking out a Debt Consolidation Loan. Instead of paying multiple creditors a variety of interest rates, you take out one loan to pay off all those accounts and make one single, monthly repayment.

However, be sure that the costs of the new, bundled loan are less than the total of current interest costs, otherwise there will be little to gain.

Assess your credit card debt

For those with a growing credit card debt, it may be beneficial to transfer the balance to a card with a zero per cent interest rate for a fixed period. For this strategy to work, it is vital that the balance is paid off before the no interest period ends.

There is one other important ingredient in a successful debt reduction strategy – discipline. By staying focused on the end goal, you’ll be well on the road to better money management.

Ross – General Manager – Operations

Here are a few tips to help you spot some of the credit card myths:

• Low rate credit cards have a low rate – it’s all relative and still best to shop around. The so-called low rate card from one organisation might still have a higher rate than those from other institutions. Also don’t forget the annual fee in this equation and make sure the low rate is not just an introductory offer.

• Low interest balance transfers are a good deal – they can be but you might find that you’ve switched to an expensive card once the honeymoon is over. Make sure you check how long the low (or no) interest balance period is and which interest rate applies after that period.

• Reward schemes are worth a slightly higher interest rate – reward schemes are great if you pay your card off each month to avoid interest but, if you don’t, the rewards are often negligible relative to the extra interest you have to pay. Also, be careful of the monthly card fee!

• Interest free days apply to all purchases – not true! Generally interest free periods only extend to the next repayment date. This could be up to 55 days for purchases made just after a statement cut-off date but can be as little as 10 days for purchases made just before a cut-off date. Make sure you are aware of the cut-off dates for your cards so you can manage your card activity.

• The higher interest rate on a credit card is not significant because the debt amount is usually small – be careful, it all adds up! Even if you’re carrying forward and paying interest on as little as $1,000 each month you’d be better off drawing down on your home loan, or taking out a personal loan to pay this off, as interest rates on those loans are much lower. Avoid paying interest on your credit card and focus on paying back the higher loan as quickly as possible.

• It’s just too tempting to spend on the credit card – the repayment pain comes later! This is not a myth and is exactly how credit card providers make money. The key is spending discipline. Credit cards are a convenient way to buy but the golden rule is to not spend what you can’t afford to pay in full when the credit card bill arrives.

^Wayne - Chief Financial Officer

Credit cards, ATMs and EFTPOS have made our lives easier in one respect, but spare a thought for the challenge our cashless culture poses to parents. Teaching children the value of money today requires care, persistence and setting a good example.

It all starts from when a child first begins to count. Teach them about the different currency denominations and explain how everything has a price, from the gingerbread man in the bakery to the latest toy.

Teach them how to count their money to see if they have enough to make the purchase. It’s also important to talk to them about ‘needs’ and ‘wants’. Use shopping trips as an opportunity to teach them that everything in a shop costs money and so we must decide what is really needed and what isn’t.

To show that money is a reward for effort, pay pocket money in exchange for children helping around the house.

On ‘pay day’, provide pocket money in denominations that encourage children to save a portion. For example, if a child has earned $5, give them five $1 coins so they can save $1.

Start the saving habit early by opening a savings account for your child and encourage them to make deposits and watch the balance grow and earn interest.

If children are keen on a big ticket item, such as an iPod touch or Nintendo DS, encourage them to save up for it. Show them that by saving a fixed amount of pocket money each week for a certain period, they will have enough to fund their purchase. Once they reach the goal, make a special outing of going to the shop to buy the item.

It’s also important to give them some autonomy to make their own spending decisions so they learn through experience.

If they want to spend all their pocket money at once, explain that this means they won’t have any money until the next pay day to buy anything else they might like.

By educating our children and encouraging them to learn through action, they can grow up with the necessary skills to manage their money.

^CS

Now there is an easier way to fundraise for your local not-for-profit club, group or charity- the Community Reward Account.

This account takes the average annual balance of all Community Reward Accounts nominating your club, group or charity as the beneficiary, and donates up to 1.5% of this balance directly to your registered organisation!

How to benefit:

1. Find out about becoming a recipient for the Community Reward Account*.
2. Register your club, group or charity as a recipient.
3. Encourage all of your members and supporters to open an account to support your club, group or charity.
4. At the end of each financial year the amount raised is deposited straight to your registered organisation.

What your supporters need to do:

1. Open a Community Reward Account.
2. Select your club, group or charity to receive the benefits.
3. Start saving!
4. Be happy knowing they are supporting their favourite club, group or charity.

We know it works:

Over the past few years many clubs, groups and charities have been recipients of this account with great success.  In 2011 approx. $150,000 was donated to registered organisations.

This could easily be your not-for-profit club, group or charity!

Luke – Product & Segment Analyst

Now is the time to take some precautionary steps to protect your home and loved ones before a bushfire threat develops and ensure your Home Building and Contents Insurance is up to date and that it provides enough cover to replace your home and all its contents should the unthinkable happen.

Here are a few simple measures you can take:

• Regularly clean leaves from gutters and downpipes;
• Keep woodpiles and other flammable materials well away from the house;
• Trim any long grass or dense scrub near your property;
• If possible, have a 20 metre safety buffer around your home free of rubbish;
• Take time with your family to sit down and develop a plan, ensuring all family members know what to do in the event of a fire;
• Consider purchasing a portable pump to use from your swimming pool or water tank;
• Have a first aid kit and protective clothing ready should fire approach. 

These simple steps can make all the difference in protecting your home, business and family from a fire. And, if you are unsure whether your insurance is up to date or if it provides enough cover, talk to us or use our Home Building Replacement Cost Calculator or Home Contents Replacement Cost Calculator which can help you estimate the full replacement value of your home and contents.

Stay safe. ^Derek, Insurance Manager

The Scheme is becoming increasingly popular, particularly with first homebuyers and young families. Because buyers only need to borrow the money for the house and not the land, it reduces the deposit required substantially. Without the Scheme the dream of owning a home would remain elusive for many.

As a mutually owned organisation housing affordability is an issue very close to our hearts, and we are pleased that, together with the ACT Government, we can help more people to break out of the rent-cycle and get into their own home sooner.

So far we have approved land rent loans to the value of $40 million, with loans advanced approaching $10million.

Wayne – Chief Financial Officer

It’s that moment in the New Year that so many Australians dread – the credit card statement that clearly spells out how much you’ve spent at Christmas.

Many consumers get caught up in the Christmas spirit and arrive in the New Year with credit card balances they simply can’t pay off.

If you’ve woken up to the holiday debt hangover, you should focus on avoiding high interest charges, which are often much higher on credit cards, by clearing the debt as quickly as possible. If you can, clear the balance completely when due, but if you don’t have savings or the cash flow to do this, then investigate alternatives such as refinancing the debt at a lower interest rate.

Some might have the capacity to redraw on their home loan, where the interest rate is much lower than a credit card, or consider taking out a personal loan. For this strategy to succeed it is vital for consumers to increase loan repayments so the credit card portion of the owed amount is cleared as quickly as possible. Make a mini budget that allows you to repay the holiday debt over a few months, otherwise you wind up stretching a $2000 debt over a 20-year home loan, which will cost more in interest and extend the life of the debt.

While you’re clearing the balance, be careful about how you use your credit card and only spend what you can afford to repay at the end of the month.

If you’re facing back-to-school expenses, then take advantage of any interest-free period on your credit card, provided you can pay the outstanding amount at the end of that period. If you don’t think you can do this, consider cheaper sources of credit, such as the home loan, but like the Christmas debt, you need to increase your repayments.

While clearing the 2011 debt, consumers should also focus on preparing for the 2012 festive season. If you have landed in January with a nasty credit card debt, the important thing is to avoid the same thing happening next year.

So if you know that you usually spend, say, $1500 at Christmas, then set up a Christmas savings account where you make a $30 weekly deposit and are discouraged from withdrawing funds early.

By preparing a plan and sticking to it and spreading the cost over the year you can avoid the pain of a large lump sum cost at Christmas.

Wayne – Chief Financial Officer

Things you should know>

The HLKFS have to be presented in the same format and layout regardless of the lender, and are designed to enable consumers to easily compare home loans provided by different lenders.

The HLKFS are prepared based on consumers’ individual requirements for their loan amount, loan term and interest type (fixed or variable) and summarises information about the loan, including:

• The interest rate (nominal and comparison rate i.e. including fees)
• Total amount to be repaid (including loan amount and fees)
• Amount repaid for every $1 borrowed
• Establishment and ongoing fees
• Repayments per month and per year

They also include information about how your monthly repayments will change if interest rates increased by one per cent and how much sooner you could repay the loan if you increased your repayments by $200 per month.

I’m pleased to see initiatives like this implemented that help people find the best product for their personal circumstances. Every lender uses a different language to describe its products and features it can be quite difficult for people to compare them directly to one another.

Buying a home is a big decision for most Australians, and they will spend a good time of their adult life paying it off – so it is very important to pick the right product. We feel the HLKFS are a great tool, empowering consumers in their choice of product without the bells and whistles distracting from the actual basic features of the loan.

If you’re thinking about taking out a home loan, make sure you ask for a HLKFS from several lenders to enable you to shop around for the best deal. Financial institutions are also required to make the HLKFS available on their website if they provide information about home loans or enable home loan applications online. You’ll find ours here:-

http://www.communitycps.com.au/calculators/homeloankeyfactsheet.aspx

 Wayne – Chief Financial Officer

You may have made a certain New Year resolution such as getting out of debt or buying a house, or you simply may want to ensure you are receiving the maximum benefits out of your current situation.  Either way, regular reviews of your bank accounts can provide you with valuable extra savings.

If the New Year has also coincided with a change to your personal and lifestyle circumstances, reviewing your bank accounts is even more important. You may have started a new job, bought or are buying a house, started or plan on starting a family or be retiring from work.  

These, and similar changes, may alter your day to day banking behaviour and needs.  For example, they  may alter the way you transact on your account, the amount and frequency of deposits and direct credits which you receive, or if withdrawals and direct debits coming from your account.  This could change the amount of fees you are charged and the interest you may earn.

Reviewing your accounts will ensure that you:

• have the right account for your banking needs;
• are not paying any unnecessary bank fees; and
• have the best savings options to maximise the interest which you can earn.

To get started, review your bank statements for the past few months.  This can be easily done by reviewing your transaction history or e-statements within Internet Banking.  Check to see what fees you have been charged at the end of each month.  If you have been charged excess fees and/or don’t understand the fees you have been charged, contact us so we can explain how you can minimise your fees each month and check to ensure the account(s) you have best suits your current needs.

Interested in maximising the interest you earn?  Many people hold large, excess balances in everyday access accounts.  The nature of these accounts means they pay very little, if any, interest.  There are many at call deposit products offering a higher rate of interest and better return for your money.

Speak to us today to see if you can get more out of your everyday banking and maximise the interest you can earn.

Luke -  Product & Segment Analyst

Things you should know>

Over the holiday season many of our members will be thinking about their finances and making New Year’s resolutions to improve them.

We have highlighted the top 10 investment tips to help meet your longer term goals.

Top 10 investment tips

1. Clarify your investment goals – having a clear understanding of your goals will help you select the most appropriate investments to achieve them.
2. Pay yourself first – Set aside some of your pay packet for your longer term goals.  List all your expenses then work out how much you can afford to save each month.  With the surplus put this money aside first so that you don’t spend it on other miscellaneous items.  That way you will be able to meet your longer term goals.
3. Set up an automatic payment – to help you organise your contributions to your investment(s) so you save automatically!
4. Invest your savings to grow – make the most of your savings by investing them.  The type of assets you invest in will depend on your financial needs and objectives.
5. Harness the power of compound interest – each dollar you invest earns a return.  If you reinvest that return, it can earn more dollars, allowing your investment the potential to grow much faster.
6. Diversify your wealth – spread your risk across each of the main investment types (for example shares, property, fixed interest and cash) with an aim to achieve more consistent returns.  In other words, ‘don’t put all your eggs into one basket’.
7. Choose tax advantaged investments (not tax driven investments) – consider sound investments that can also offer you tax benefits.
8. Time in, not timing the market – it’s not timing the market that’s key, but rather the amount of time you’re in the market.
9. Get some advice – speak to an expert who can help assess your needs and goals.
10. Do something now – the sooner you get your investment started the sooner you’ll achieve your goals.

Happy Investing!

Michael – Practice Development Manager

Investment Performance:  Past performance is not a reliable guide to future returns as returns may differ from and be more or less volatile than past returns. The ten tips were sourced from Colonial First State www.colonialfirststate.com.au  Eastwoods Wealth Management Pty Ltd,  ABN  17 008 167 002, AFSL  237853. Things you should know>

The pre-Christmas spending season traditionally sees Australians give their credit cards a solid workout. Last year we collectively spent $3 trillion more on our cards in November and December than in any of the previous ten months.*

Rather than undo all the healthy budgeting efforts made during the year, some simple strategies can help you keep credit under control over the festive season.

Maintain a sense of perspective

Rather than get swept up in a frenzy of festive season spending, aim to maintain your regular financial regime.

Follow Santa’s lead

To avoid overspending, take a tip from the big man in red himself. Make a list. Then check it twice. Allocate a spending limit for each person you plan to buy a gift for.

Shop smart

Hit the stores early to snare the best deals on gifts. Doing your gift shopping online is an easy way to make cost comparisons.

Cash is king

If you’re buying big ticket items this Christmas aim to pay with cash. And don’t be afraid to ask for a discount.

With your finances in good shape and card debt under control, you’re well placed to celebrate the festive season knowing you can take advantage of investment opportunities in 2012.

Happy Holidays everyone! ^Michael, Practice Development Manager

*This publication has been complied for Licensee Select by Securitor Financial Group ABN 48 009 189 495 AFSL 240687.  Things you should know.

 This trend has occurred for a variety of reasons such as the difficulty in saving up such a large deposit, required to enter the home buyers market.

Parent Equity home loans are designed so parents, parents-in-law or step-parents can help their children purchase their own home by using the equity in their property.

Depending on how much a family member is willing to guarantee, the homebuyer could borrow up to 100 per cent of the purchase price as well as an additional 10 per cent of the price to help with the associated costs of the purchase, such as stamp duty and other fees.

Using theParent Equity home loans home buyers may be able to avoid paying lenders mortgage insurance (LMI), which can amount to thousands of dollars.  When the property increases in value or when the loan is sufficiently reduced, the guarantor (the parent) can be released from the loan.

The Parent Equity home loans is a great product to help enter the home buyers market. Current market conditions are ideal for first home buyers, particularly with low interest rates and a stagnant property market.

The key difference between credit unions and banks is that when people join a credit union they are not a customer, they are a member and owner of the business.

With every customer being a member and owner (and having an equal vote in how the organisation is run), credit unions and mutual building societies offer products and services designed to cater more for their members than the institution’s bottom line.

Credit unions meet the same regulatory standards as the biggest banks, so are just as safe and secure. Credit unions are ‘authorised deposit taking institutions’ and are regulated under the Banking Act by the Australian Prudential Regulatory Authority and Corporations Act by the Australian Securities and Investments Commission.

Because credit unions are not answerable to financial shareholders, they don’t squeeze profits out of their members to provide large share dividends. Once the expenses of a credit union are met, any additional income is returned to members in the form of extra benefits such as:

• Better interest rates on deposits and loans
• Lower fees and charges
• Enhanced member services
• Investment in the communities in which members live and work.

One way of minimising risk is to diversify your investments. Put simply, to diversify means not putting all your eggs in one basket! By spreading your investments across a diverse range of assets, your overall risk may be less compared to investing in a single and possibly volatile investment. Diversified investments can help you to manage risk without forgoing returns.

There are various ways in which this can be achieved.

One way of diversifying could be to spread your investments amongst various asset classes such as shares, property, fixed interest and cash. The low correlation to each other – meaning the performance of one class is not affected by the performance of the other – helps reduce volatility in your portfolio because these different assets respond to different market trends at different rates. Therefore, having a portfolio diversified among different assets creates more consistency and can improve overall portfolio performance.

Another way to diversify is within the asset class, for example, if you are looking to buy some shares you could consider buying them in different companies. To eliminate even more risk, it is also important to consider the industries these companies operate in to determine if they are too closely correlated with each other. In other words if you buy shares in three different oil companies, the risk is almost the same as investing in just one of those companies, as the industry factors that affect one oil company are most likely to equally impact all companies within the oil industry. For example, if the price of oil drops, it is probable this will have a negative impact for most oil companies.

It is not advisable to put all your eggs in one basket when it comes to your investments and the financial markets. Diversifying your investments helps you spread your risk, so that a loss on one investment may be balanced out by a gain in another.

Understanding your tolerance to investment risk is a good first step in taking action to diversify your investments. It is recommended before making any investment decisions that you speak with a financial planner who can help determine your risk profile and see what’s right for you.

WORK-RELATED EXPENSES:

According to the ATO, approximately 7.3 million Australians claimed an average of $2,008 in work related expenses last year, making them one of the most commonly claimed deductions.

Things to remember when claiming work-related expenses:

• You must have incurred the expense in the year you are claiming it.
• The expense must be work-related and not private and if the expense has been reimbursed by your employer it can’t be claimed.
• Receiving an allowance from your employer does not automatically entitle you to a deduction.
• If your claims total more than $300 you need to keep written evidence.

USE THE EDUCATION TAX OFFSET

If you have bought computers, textbooks or stationery for your children’s schoolwork you can take advantage of the 50 per cent education tax offset.

You qualify for the Education Tax Refund if you receive family tax benefit Part A. This financial year you can claim expenses of up to $794 for each child in primary school and up to $1,588 for each child in high school and get half your money back.

CLAIM YOUR CHARITABLE DONATIONS

Don’t forget your donations to charity – everything from the Queensland Flood Appeal to your sponsor child. Any donation over $2 is tax deductible but you’ll need a receipt to claim for the donation.

UNDERSTAND YOUR OFFSETS

There are a lot of offsets available and it’s a good idea to check whether you are eligible for one. These include the dependant spouse tax offset, the private health insurance rebate or medical expenses over $1500.

If you can’t find receipts, but know where you spent the money, see if you can get a copy of the receipt or invoice. Statements from your financial institution showing details of purchases can be used in some cases.

When it comes to testing whether or not something is a scam the old adage “if it’s too good to be true, it probably is” certainly applies. However, whether something is a scam is not always that obvious.

Therefore in order to protect yourself from scams, remember the following 10 ‘golden rules’:

1. If it looks too good to be true – it probably is;
2. Use your common sense: the offer may be a scam;
3. ALWAYS get independent advice if an offer involves significant money, time or commitment;
4. Remember there are no get-rich-quick schemes: the only people who make money are the scammers;
5. Do not agree to offers or deals straight away: tell the person that you are not interested or that you want to get some independent advice before making a decision;
6. You can contact your local office of fair trading, ASIC or the ACCC for assistance;
7. NEVER send money or give your debit card, credit card or online account details to anyone you do not know and trust;
8. Check your account and credit card Statements when you get them. If you see a transaction you cannot explain, report it to us immediately on 13 _5 85;

1. Do not agree to offers or deals straight away: tell the person that you are not interested or that you want to get some independent advice before making a decision;
2. You can contact your local office of fair trading, ASIC or the ACCC for assistance;
3. NEVER send money or give your debit card, credit card or online account details to anyone you do not know and trust;
4. Check your account and credit card Statements when you get them. If you see a transaction you cannot explain, report it to to your financial provider.

Further information on scams and how to protect yourself, including a free email alert service, is available on the Government’s website SCAMWatch

Sources:

ASIC’s MoneySmart

ACCC’s SCAMWatch

To obtain the best deal for you, it is important to shop around and compare interest rates, fees and the minimum loan amount required to be eligible for the offer.

Shopping around can save you tens of thousands of dollars over the term of the loan but it is important that you are comparing ‘apples with apples’ when looking at the different features.

Community CPS member, Elicia Williams of Pooraka SA, has recently refinanced her home loan from Commonwealth Bank and has experienced a saving of almost $90 per fortnight.

“This saving will assist with my everyday living expenses as the cost of living continues to increase,” said Ms Williams.

Make additional repayments

Making additional repayments beyond what’s required in your minimum monthly repayment is one of the best ways to reduce the total interest paid and term of your loan.

Consider either one-off lump sum payments when you have spare cash or commit to increasing your regular repayment amount. Even $5 extra each week can save you thousands of dollars in interest over the life of the loan and reduce your home loan term. However, make sure that your loan allows you to make additional repayments without penalty. Fixed-rate and basic (or ‘no-frills’ loans) often have restrictions on extra repayments or charge a fee for the privilege.

Make your surplus cash work harder

Use cash savings to help pay off your loan quicker.

If you have a home loan at seven per cent, every extra dollar you pay off the principal is another dollar you are not paying seven per cent on each year. If you instead put that extra dollar into a savings account you are only going to earn two or three, perhaps five per cent at the most.

Therefore putting savings into your loan earns you twice as much as a savings account. Redraw facilities available on most standard variable loans allow you to take back those extra payments if needed.

Save interest with offset accounts

Offset accounts not only save you interest paid on your home loan, but are great for tax purposes as well.

Savings held in offset accounts are subtracted from the outstanding loan amount each month so interest is charged only the net amount. Interest paid in cash to your savings account is taxable, but the same interest used to offset home loan interest is not – a tax effective way to reduce your home loan. However, to get the most from an offset account, look for accounts that offer a ‘full offset’, ie. paying interest at the same rate charged on your home loan. Redraw facilities and line-of-credit loans make use of your savings in much the same way.

Consolidate your debts

As interest rates rise on home loans they also rise on personal loans and credit cards. Consider rolling all debts into your home loan. There’s more than one benefit to this strategy.

Firstly you could end up paying less interest because home loan interest rates are often much lower than personal loan, credit card and store account rates.

And by reducing your monthly repayments into just one home loan repayment you could reduce your monthly commitments so that you have extra cash available to make additional repayments off your home loan. This option requires discipline around future use of credit cards and store account, such as reducing limits or closing the account.

Factor further rate rises into repayments

It is a good idea to factor in further rises in interest rates and, if possible, start making contributions at the higher rate. It will ease the stress when repayments do increase and will also put you ahead of the scheduled loan term – as will extra contributions. Alternatively, if rates decrease you should keep your repayments at the higher amount to enable you to pay off your loan sooner.

8 simple tips for better online security

1. 1. Install and renew your security software and set it to scan regularly;
2. 2. Turn on automatic updates on all your software, including your operating system and other applications;
3. 3. Think carefully before you click on links and attachments, particularly in emails and on social networking sites;
4. 4. Regularly adjust your privacy setting on social networking sites;
5. Report of talk to someone about anything online that makes you uncomfortable or threatened;
6. Stop and think before you post any photos or financial or personal information about yourself, your friends or family;
7. Use strong passwords and change them at least twice a year;
8. Talk within your family about good online safety.

Remember your personal details should remain private, never give them out online or over the phone in cold calls.

For more information, visit Stay Smart Online.

1. Review your mortgage – check the interest rate and regular fees on your mortgage and compare it with other providers to determine if now is a good time to refinance to save costs. Keep in mind that refinancing and switching financial institutions can incur fees, so make sure you include this in your calculations.
2. Check your credit card’s interest rate and interest-free period. If you only get 30 days interest-free, look at changing to a card with 55 or 60 days. And if you can’t pay it all off, take advantage of a balance transfer to a lower interest rate credit card.
3. Pay off your debt – know what interest rates you are paying on your loans and work to reduce the balances of those charging the highest rate of interest first.
4. Get insurance quotes from various insurers to see how much you can save on your home and car insurance. Many providers will offer a discount if you take more than one policy with them.
5. Investigate whether bundled services for your home phone, mobile phone and internet might save you money.
6. Switch to compact-fluorescent bulbs, and turn them off when not needed. Turn off TVs, computers and other electrical appliances when not in use.
7. Use shades, blinds and drapes to regulate your home temperature: Keep them open in the winter to let in light and drawn in the summer to block the sun’s rays.  Also, turn up your cooling, or your heating down, a degree or two.
8. Wash only full loads of dishes or clothes.
9. Bring lunches and snacks to work.
10. Organise a car pool to travel to and from work, and try to avoid expensive car parking.

In the event something was to happen to your son or daughter which left their family without any means of support, it would most likely be you who the family turns to for support.

Circumstances such as this could place serious financial pressure on your retirement funds and in turn your overall retirement plans, as it did for David and Susan.

David was 15 when he started an apprenticeship at his local steel works. Forty years later, he was still working at the same factory.

His wife Susan had kept the family ticking along, having raised four children to become independent adults with their own families.

After a company restructure was announced, David took the opportunity to ask for a redundancy and succeeded in getting a healthy redundancy package. This, together with his superannuation and accumulated benefits, meant David and Susan were sitting pretty for an early retirement.

Both David and Susan viewed this as a great opportunity to enjoy time with their grandchildren and to travel around Australia.

On Boxing Day of that year, David’s eldest son Rodney had a massive brain haemorrhage and passed away.

And because he was young and didn’t see the need for any life insurance, Rodney left his wife Erin and their three children without any means of support.

As any parent or grandparent would, David and Susan took in Erin and the kids into the family home.

The unplanned financial impact on David, Susan and their retirement plans was devastating and they were unable to do most of the things that they had hoped 40 years of work would allow them to do.

Whether you are already retired or about to retire, talk to your son or daughter about their financial obligations, and make sure they have a plan in place to protect their family’s financial future.

Establish a plan – how much will you need?

Do some calculations and figure out how long it will take to save your ideal amount.

Break down your goal into monthly or weekly amounts, so you can track your progress. To ensure saving doesn’t seem like a never-ending ordeal, set yourself a time limit to save for a deposit.

Seek as much advice as possible from experts such as financial planners, accountants and your financial institution. Rather than simply saving, you may be able to negatively gear into investments such as managed funds, thereby using the tax advantages to help your savings grow.

First things first – clear those credit cards!

Credit cards can be an expensive means of borrowing, and you should eliminate credit card debt if you are serious about your savings plan.

Cut down those expenses

Set yourself a budget and keep records so you can track exactly where your money is going.

Small sacrifices along the way certainly help. For instance, using public transport, taking your lunch into work and controlling the use of your mobile phone.

Establish a good savings history

Start a separate savings account to the one you use on a daily basis, so you are not tempted to use it for everyday living and transactions. Think of it as a deposit account and choose one that rewards your savings with a high interest rate return, such as a term deposit. Make sure there are no account keeping fees that will eat into your savings.

Getting to know your financial institution

Establish a relationship with your financial institution so that they are aware of your disciplines, repayment capability and employment history.

Borrow within your means

Make sure you borrow within your means. Speak to your financial institution and work out what you can really afford to pay as a monthly repayment. You need to be able to still enjoy your life – purchasing a property is a great achievement, but it is not worth sacrificing your happiness. 

Understand the financial matters within home ownership

The first home owners grant of $7,000 provides a great start for first time borrowers. However, you also need to allow for associated costs such as borrowing fees, conveyancer costs and other adjustments. A good financier should willingly provide you with guidance and advice in planning for these and other ongoing costs of first home ownership.

Here are our top 10 tips:

1. Once you’ve decided on your dream car, consider getting a pre-approved car loan so that you know exactly how much you have to spend. That way you have bargaining power when negotiating the final sale price.
2. It is important to consider all of the features of the different car loans as well as the interest rate when comparing them, such as whether you can repay extra and if you can redraw those extra repayments and what loan fees you have to pay.
3. You can research different car models, features, and prices on the Internet. The Red Book website www.redbook.com.au is useful for finding out the market value of used and new cars, especially if you have a trade-in to offer. Other useful websites include: howsafeisyourcar.com.au and greenvehicleguide.gov.au, which provides star ratings on environmenally friendly cars.
4. If you are buying a car through a dealer, make sure you negotiate a ‘drive away price’ rather than a weekly payment plan. You may think that you’re getting a great deal by bundling finance and paying a low weekly rate, but beware – the repayment period may be longer than you think and in the end the total cost of the car could be far more than what you expected.
5. If you want help finding a car, consider using Car Search Brokers Australia. They will do a national search for the car you want, help you get the best price without the run around and even arrange transport and registration.
6. If you’re looking at a used car, ensure that it is not still under finance as it could end up being repossessed by the financier leaving you out of pocket. Visit REVS in NSW and ACT, EZY REG in SA and Bizline WA to conduct a search – they may even be able to tell you if the car has been stolen, written off or defected.
7. Another smart option for used cars is to have the car inspected to ensure the car is mechanically sound through your local mechanic or automobile association.
8. Use a checklist when looking at a car to help you focus on the important features so you don’t miss anything. Your local automobile association has handy checklists you can download from their website.
9. Don’t forget other expenses, like stamp duty and insurance. It’s a good idea to get a quote for vehicle insurance before you buy the car so that you know your ongoing expense. Then once you’ve bought the car your insurer can start your policy immediately, giving you peace of mind.
10. Keep in mind that it takes much more money to keep a car running than simply paying off the loan. On average, the total cost of car ownership is around 1.5 times higher than the cost of paying off the loan. Remember to budget for insurance, petrol and regular maintenance such as servicing, new tyres and registration.

- Credit unions have the Government guarantee on deposits – so your money is backed by the Australian Government.
- Our customers are our owners, so we focus on what’s best for our members – not share price movements. As mutuals, we are not under pressure to take risks to maximise record returns for shareholders. We put your interests first.
- Mutuals deliver through competitive rates, fairer fees, and responsible lending. Mutuals regularly top the independent surveys on best rates on deposits and loans. Independent analysis by InfoChoice commissioned by Abacus showed that you could save over $30,000 over the life of a loan if you choose a credit union or building society rather than a major bank.

To find out how you can Share the Difference visit our website. You can also check out the Credit Union and Building Society Group and Abacus to see how we stack up against the banks.

1. Changes to Company Taxation

The company tax rate will reduce form its current level of 30% down to 28%, implemented sooner for ‘eligible small business companies’:

2. Changes to Small Business Write-Offs

From 1 July 2012, small business will be able to:
• Write off immediately assets valued at under $5,000 (currently the limit is up to $1,000)
• Write off other assets (i.e. those valued at over $5,000) in one deprecation pool at the rate of 30% (currently they may be allocated to 2 different depreciation pools). This will not apply to buildings.

3. Resource Super Profits Tax

The government’s progress on other elements of its tax reform agenda will be largely dependent on the revenue derived from the RSPT.

The RSPT will be introduced on 1st July 2012 at a rate of 40% on profits made from exploitation of non-renewable resources. It will replace the crude oil excise, and operate in parallel with State and Territory royalty regimes. Under the RSPT a refundable credit for royalties paid to State and Territory governments will be available. The refundable credit will eliminate investment distortions associated with the state royalty systems and ensure there is no ‘double taxation’ of resource profits.

The Government will consult extensively with stakeholders on the design of the RSPT.

Further information on the above changes and the Henry Tax Review can be found under the ‘Strong, Fairer, Simpler’ link contained on the Treasury website, www.treasury.gov.au or follow this link: http://www.futuretax.gov.au/pages/default.aspx

There will be four main changes to superannuation:

1. Superannuation increased to 12%
The Superannuation Guarantee Charge will increase from the current 9% up to a maximum of 12% by the 2019/20 financial year. This will happen in increments as shown below:
2.Superannuation cut-out extended to age 75
The entitlement age for the SGC will be lifted from age 70 to age 75 for workers. This change will commence for the 2013/14 financial year.

3. New concessional contribution cap for over 50’s with low super balance
Eligible workers who are 50 years of age and older who have super balances of under $500,000, will be able to make contributions of $50,000 per year (indexed annually according to Treasury).

This low balance cap applies from 1 July 2012 and effectively replaces the current transitional cap for workers aged 50 and older which expires on 30 June 2011.

4. Low income workers government contribution
From the 1st July, 2012, the Government will provide a contribution equal to 15% of concessional contributions made, up to $3,333, for low income earners with an adjusted taxable income (ATI) of up to $37,000. The maximum Government contribution paid will be $500 (not indexed).

This will mean that a person with an ATI of up to $37,000 will effectively not pay contributions tax on their SG contributions. The measure makes super contributions tax neutral for those on a 0% and a 15% marginal tax rate, as shown in the following table:

Once you’ve decided on your dream car, you should consider getting a pre-approved car loan so that you know exactly how much you have to spend. That way you have bargaining power when negotiating the final sale price.

There are many different types of car finance available, and it is important to consider all of the features when comparing loans.

To save time, you can research different car models, features, and prices on the internet. The Red Book website www.redbook.com.au is useful for finding out the value of used and new cars, especially if you have a trade-in to offer. If you are buying a car through a dealer, make sure that you are negotiating a ‘drive away price’ rather than how much it will cost per week. You may think that you are getting a great deal by bundling finance and paying a low weekly rate, but beware! The repayment period may be longer than anticipated and in the end be far more than you expected to pay.

Finally, when buying a car there are a few other expenses to consider, such as stamp duty and insurance. It’s a good idea to get a quote for vehicle insurance before you buy the car so that you know your ongoing expense. Then once you’ve bought the car your insurer can start your policy immediately, giving you peace of mind.

I took it for a test drive in our neighbourhood so I could work out the gears. I took off from the roadside and sailed down the road towards the corner and went to turn the steering wheel…and nearly drove off the other side of the road! My dad didn’t tell me it didn’t have power steering, I didn’t even know cars came without power steering and I had never driven without it before! My arm muscles got very strong driving that little car!

My first lesson in buying a used car was; make sure you ask all the questions before purchasing!

I’ve created a checklist for you to look at before you make that big purchase;

- REVS check (to make sure there aren’t any fines or money owing on the car)
- Redbook (you can check the car’s estimated value to ensure you are paying the right amount)
- Mechanic check- get your local mechanic to check it out so you don’t get any unexpected bills or worse stranded somewhere
- Tread on tyres- make sure they still have some life left in them
- Radio/CD player- does it work? And does it come with the car?
- Seat reclines- does this work? (yep had that happen to me too)
- Check for rust/panel damage
- Registration- how long is left on the rego?
- How much will insurance cost you? Can you afford it?
- Check under car seat covers and mats as this could be hiding something.
- Why are they selling it?
- Test the air conditioning
- Check the lights, blinkers, brake lights
- Test drive the car

What else can be added to the checklist?

Travel insurance covers you for things like medical bills in case of an accident while travelling, loss/theft, cancellation or disruption to flights and more.

A friend of mine recently returned from a holiday in Japan and dislocated his knee/ligament damage, without travel insurance he would have been responsible for large medical bills. I also recently returned from holidays where my return flight was cancelled and rescheduled for the following day, I had organised travel insurance through Companion Credit Union before I left so luckily I could claim my hotel for the night I was delayed, and transport to/from the airport due to the delay. Which I was very happy about!

Have you ever had to use your travel insurance? Tell me about it,

Cas

So the next few blog postings will revolve around one of my favourite topics- travel!!

So I thought I would start on a few travel basics, first of all you will need to be able to access your money while you are travelling.

There are a few ways you can access money when you are travelling overseas which may depends on what country you are visiting, so some research may be involved (personally I have always found Lonely Planet a good starting point!). Each of the following ways of accessing your money has their pros and cons:

- Travellers Cheques: Can be organised at your local financial institution (like ours!). Travellers cheques are safe, as long as you record the serial codes on the cheques and keep them separate from the cheques (in case they are lost or stolen). In most countries it’s easy to find somewhere to cash them.
- Cash Passport: acts similar to an ATM card, its PIN protected and you can use them anywhere. For added security you also receive 2 cards, which you keep separately incase one is lost or stolen then you will still be able to access your funds via your second card.
- Credit Card: can be used worldwide, you must use your credit card wisely though and protect your details from unscrupulous persons. You will be charged a withdrawal fee and also a higher interest rate for cash withdrawals. Having a credit card while travelling is handy for booking accommodation or flights through reputable agencies. But you will need to ensure you notify your financial institution you are travelling overseas. If you do lose your credit card and need it replaced while still overseas this can be costly.
- Debit Card: can be used like a credit card but instead you are accessing your own money, make sure you tell your financial institution you are travelling overseas. You will be charged an ATM fee in most countries. If you do lose your debit card and need it replaced while still overseas this can be costly.
- Foreign Currency: Foreign currency can be ordered through most financial institutions (like ours!). It’s handy to have a small amount of foreign currency for when you arrive at your destination so you can purchase drinks, hire a taxi etc.

I highly recommend selecting a couple of these options for when you go travelling, and try not to keep them all in the one spot. Just recently I met a girl overseas who had her purse pick pocketed out of her handbag. This meant she had no way of accessing any of her funds, luckily her friends all gave her money so she could get home ok.

Keep security in mind when you are travelling, its wise to keep your funds in different locations i.e. cash in your purse, credit card and debit card in the hotel safe etc.

Please keep in mind this is my personal opinion and not that of Companion Credit Union, you will need to research your destination and decide what suits your financial situation best.