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Going from DINK (Double Income No Kids) to SICK (Single Income Cute Kids) – planning your maternity leave or paternity leave.

If you are planning to have a child in the near future, there are several changes you need to be prepared for. This may include where you live, how you live and what needs to be prioritised in terms of the family budget. For many couples, this means the transition from the DINK lifestyle of Double Income No Kids to what we call the SICK lifestyle of Single Income Cute Kids.

The DINK lifestyle presents many opportunities for financial wellbeing. If managed wisely, DINKs can reach financial independence earlier, wipe out debts and build assets. Regardless of the reason why DINKs may not have children, it is a unique position to be able to build and utilise their dual income to improve their financial future.

At this stage of life, it is tempting to spend more than you save. Without the responsibilities of kids, DINKs tend to enjoy their lives and splurge their earnings on luxury items, entertainment and holidays. While this immediate gratification can be tempting, it is important for DINKs to plan for the future and make some responsible financial decisions that will provide long term financial wellbeing.

Here are some of the considerations DINKS can take into account regardless of whether children come along in the future or not:

1. Spending now vs Saving/Investing for the future

Striking the right balance between what you spend now and what you save or invest in for the future is important for DINKS. The money you spend now will go a long way to helping you enjoy your life in the immediate term however saving and investing for the future is definitely a wise option and the money you invest now has the potential to increase your standard of living down the track.

2. Invest in the right mix of insurance

DINKS should consider their insurance carefully. Having the right mix of insurance against death, disability and/or income protection is important. Look at both parties and get the right cover for a range of different scenarios so as to help protect your family financially in case of any unforeseen accidents or sickness.

3. Tax time implications

DINKs need to manage their income across the family in order to minimise taxes. DINKs may find that one member of the family is in a higher income tax bracket than another, and therefore it is important to consider how other assets and incomes are split within the family structure.

Going from DINK to SICK

When and if the time comes to add children to the family mix, DINKs need to ensure they are ready for the sudden change of going from dual income to one income, not to mention the added costs associated with children.

If planning for children, there is a lot to consider including whether your existing lifestyle is viable on one income and if so for how long? Many soon to be parents can now consider maternity leave or paternity leave options providing reassurance that your income will be available on your return. Some parents will choose to sacrifice one of their incomes to focus on raising the children and in turn avoiding the costs associated with childcare.

So where to begin when planning the transition to a single income household?

1. Budget

Managing money coming in and going out is essential. Budgeting allows you to plan in advance for bills and essentials and gives you visibility on what is left over that can be enjoyed by the whole family.

2. Evaluate and consolidate your debts

Consolidating debts is a great place to start, you may be able to reduce interest owing by consolidating the debt into lower interest accounts such as your mortgage.

3. Ensure you have the right insurances to protect your whole family

As with DINKs, the right mix of insurance is a major factor for families to consider. This includes health insurance, life insurance, income protection and other personal property insurances. Look at both parents’ cover, which policies include the children’s best interests and ensure that you are not left short if something unexpected comes up.

4. Investigate government support packages and what you are entitled to receive

There are numerous government support packages available to families, such as childcare rebates, active kids and creative kids payments, family tax benefits and many other school related rebate schemes. It is worth investigating this and applying for everything you are eligible for. It may seem time consuming and painful when you are filling out all the various forms, however it is well worth the investment in time.

5. Save for the future if you can, every bit counts

Consider setting up accounts for your children and putting a little money aside each week. This will add up and might be a nice surprise for the kids when they reach the age of moving out of home or wanting to purchase a car to gain independence. When doing this look for high interest savings accounts or term deposit accounts.

No matter what stage of life you are at, there will always be unexpected ups and downs. Being prepared with a budget and financial plan will help you maintain your financial wellbeing. It is especially important when other people are counting on you, such as your partner or your children.

Tribel’s team of financial advisers can help you plan for each stage of your life, whether it be budgeting for the now or planning for the future.

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Sea change or tree change? A cost-benefit analysis to making your lifestyle choice.

2020 has certainly changed the way we live and work. In the past, a sea change or tree change was something to consider when you are ready to retire and are not so reliant on living in close proximity to your work. With working from home the new norm, people are reconsidering where they live, their cost of living and thinking about ways to improve their home living environment which now doubles as their work environment.

Sea change or tree change? Which would you choose?

In Australia, a sea-change has traditionally been a more popular choice, with coastal regions on the outskirts of the major cities the ideal locale. For Sydneysiders, areas such as the Central Coast (Avoca, McMasters Beach and Terrigal), mid-north coast (Coffs Harbour, Port Macquarie and Port Stephens) and South Coast (Wollongong, Kiama and Gerroa) are in high demand. For Melbournian’s, areas such as Geelong, Mornington Peninsula and Great Ocean Road (Apollo Bay, Lorne, Warrnambool) are very desirable.

Many are also considering more dramatic and distant moves further afield to coastal areas such as Queensland’s Sunshine Coast, Western Australia’s Margaret River region, South Australia’s Fleurieu Peninsula and Tasmania’s east coast.

A tree-change is often a more affordable, family friendly option with larger land and accommodation options available as well as the attraction of living in a close-knit community. The Australian recently published an article outlining the top Australian locations hitting the spot when it comes to a financially viable lifestyle choice. Areas that came out on top included; New Norfolk in Tasmania, Clare Valley in South Australia, Mudgee in New South Wales and Ballan in Victoria.

We asked our Tribel advisers which choice has been most popular with their clients and it appears that it is fairly evenly split across Australia with some clients choosing areas that offer bushland surrounds not too far from the sea.

After doing the maths and analysis, each clients’ situation is very different, but all needed to consider the same financial factors.

Practical and financial costs to consider when making a sea or tree change

Depending on your stage of life, you will of course have many things to consider:

• “Try before you buy” – consider renting in the area before you buy.
• Consider purchasing two properties in the new area (one can generate income to fund the other).
• Consider keeping your property in the higher capital growth area, renting in the new area.
• Consider the tax implications of each option.

What are the financial benefits of the move?

When considering the option of a sea change or tree change, some interesting benefits can present themselves, depending on your current financial situation.

These include:

• An opportunity to unlock wealth from selling your existing family home to purchase a much more affordable home and reduce your debt.
• Earning rent if you decide to keep your city home that can offset your rent in the area you move, plus potentially (depending on rental returns) produce a positive income.
• A potential to buy two properties for the price of one and generate a retirement income.
• Less maintenance, increased retirement savings, more time for hobbies.
• Downsizing provides an opportunity to contribute a downsizer contribution to your super and tax-free account based pension fund.
• Lower costs of living including council rates and electricity rates.

There are various scenarios that come into play when making these decisions. Your age, your income opportunities, family structure, assets and liabilities. Your individual financial situation needs to be taken into consideration when planning a sea change or a tree change.

For those lucky enough to have made significant gains on property, the question of when is the best time to sell and/or whether you are in a position to hold on to both properties all needs to be considered.

You may be concerned about risking losing wealth, however, keep in mind the importance of lifestyle; there needs to be a balance at different stages of your life in terms of wealth retained and money well spent on lifestyle improvements.

For most people the decision of making a sea change or a tree change is usually about trying to improve your life, your physical and mental wellbeing and your financial wellbeing. We recommend that you visit your Tribel adviser if you are considering this as an option. We can help with professional advice on your particular situation before you choose to sell or hang onto your property and before leaving the big smoke for greener pastures.

Contact your local Tribel adviser to make an appointment.

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Has working from home (WFH) become your new norm? What’s the impact on your budget and how can you make the most of it?

There is no doubt that the COVID-19 pandemic has changed the way we’ve worked in 2020, and it seems likely that this sudden move to working from home may have changed the way we work forever.

According to the Australian Bureau of Statistics (ABS), two in five Australians (41%) with a job reported working from home one or more times a week in October. This compares to 12% reporting working from home most days before March 2020. And in a sign that the WFH trend could continue, a recent survey commissioned by the Boston Consulting Group showed that between 41 and 60 per cent of the respondents who can work from home would prefer to keep doing so two or three days a week.

Working from home has a direct impact in terms of reduced commuting time and the associated travel costs. When combined with the lockdown measures that have been in place since March 2020, it is not surprising that a survey conducted by the ABS shows that one in seven Australians (15%) have both increased savings and reduced debt since the COVID-19 restrictions began. In fact, 12% of people surveyed said their household finances had improved in the prior 4 weeks. The decline in consumption has had a real impact on disposable income and the savings ratio in recent months.

If you are working from home these days, you can claim a tax deduction for the additional expenses you incur but remember – you must keep a record of the hours you have worked from home. After all – every bit counts!

According to the ATO, the additional expenses you may be able to claim include:

• electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
• cleaning costs for a dedicated work area
• phone and internet expenses
• computer consumables (for example, printer paper and ink) and stationery
• home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the
  • full cost of items up to $300
  • decline in value (depreciation) for items over $300.

The ATO website lists out the three ways of calculating home office expenses, depending on your circumstances and the tax year you are claiming them in.

There are many Australians who are working from home that have been financially better off. If this is you, here are a few ideas on what to do with the savings:

Pay down expensive debt

The first thing to focus on is reducing debt, particularly expensive debt such as credit cards and buy now, pay later (BNPL) arrangements.

It seems that many Australians have been focused on doing just that. RBA data shows that in the 12 months to September 2020, balances accruing interest, i.e. credit card debt, fell by 28% from $29.3 billion to just under $21.2 billion. Given an average credit card interest rate of 13.76% per annum, with rates as high as 24.99%, it is definitely worthwhile making sure you clear this debt as quickly as you can.

We also note the rising popularity of buy now, pay later arrangements, with popular provider Afterpay’s full year financial results showing that they added an average of 17,300 customers each day during FY20 globally, including an increase to 20,500 a day during the fourth quarter (March – June 2020).

A recent report from the Australian Securities and Investments Commission (ASIC) shows a worrying new trend, with one in five consumers reported to have missed their BNPL payments, from providers like AfterPay, Zip, and Humm. In the 2018/19 financial year, over 1.1 million transactions incurred multiple missed payment fees, which represents 45% of all transactions that incurred missed payment fees.

Set some aside for a rainy day

Despite a reduction in spending since the lockdowns commenced in March, one in seven Australians (14%) reported in mid-August that their household was unable to pay one or more selected bills on time over the last twelve months due to a shortage of money, and 23% of Australians said they wouldn’t be able to raise $2,000 within a week for something important.

So, if you find yourself with extra money at the end of each month, you might want to consider stashing at least some of it away in a savings account or in an offset account if you have a mortgage.

As a rule of thumb, Moneysmart suggests aiming to have enough in your emergency fund to cover three months of expenses.

Plan for the future

If you have your rainy-day fund sorted, and no expensive debt to consider, you might want to think about paying extra on your mortgage or contributing more to super. There are pros and cons of each strategy, with the right choice depending on your personal circumstances.

As discussed previously it has frequently made sense in the past to focus on paying off your home loan faster, given the benefits to be gained from saving on the interest over time.

With home loan rates at historic lows, it may be worth comparing the interest rate you are paying on your home loan to the rate of return on your superannuation fund – you may find that the returns on your super are higher. Those rates of return will vary over time, as markets move, and there are caps on how much you can contribute to super. Timing is important too as you can’t access those funds until you reach preservation age or meet certain conditions of release. Depending on your circumstances, contributing to super might not be the right strategy, especially if you think you might need to access those funds before you are legally able to access them.

Speak to an expert

If you find yourself in the position where you have extra income, and you want to make sure you are making that money work as hard as possible, speak to one of our financial planners. We can help identify the right strategy for your situation.

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¹_{ABS, Household Impacts of COVID-19 Survey – October 2020, released 16 November 2020, https://www.abs.gov.au/statistics/people/people-and-communities/household-impacts-covid-19-survey/oct-2020}
²_{https://www.abc.net.au/news/2020-06-23/most-workers-want-hybrid-of-home-and-office-post-coronavirus/12381318}
³_{ABS, Household Impacts of COVID-19 Survey – September 2020, released 13 October 2020, https://www.abs.gov.au/statistics/people/people-and-communities/household-impacts-covid-19-survey/sep-2020#household-finances}

Pay off the mortgage, build your investment portfolio or focus on building your superannuation fund?

In what seems to be an extremely unlikely outcome, given the economic impacts of the COVID-19 pandemic and subsequent lockdowns, a large proportion of Australians have managed to have more money in their pockets. With fewer opportunities to spend, combined with an increase in social assistance benefits like JobKeeper and JobSeeker, household savings rates increased in the June 2020 quarter to 19.8 per cent, up from 6.0 per cent¹. Moreover, household savings in June were 10 per cent higher than in February and up 31 per cent from a low point in January².

With many Australians suddenly finding themselves with an increase in their savings, we are being asked more often than ever how best to use those extra funds – pay down the mortgage, start an investment portfolio or invest in super.

The quick answer is – it depends!

The right strategy will depend on your circumstances and what you are trying to achieve financially, and this is where good financial advice is essential. To help you get started, there are some common questions you might want to consider when working out the right strategy for you.

Home loan versus building your investment portfolio

There are significant benefits in investing outside your existing home, especially at the moment with the current low interest rates. In order to manage this effectively you do need to ensure you have the right advice and weigh up all the scenarios.

By building a diverse investment portfolio you will effectively spread your risk and increase the opportunity for financial gain. There are also many tax implications that will need to be assessed.

Factors to consider when planning to build an investment portfolio

1. Your return rate needs to be higher than your home loan rate
2. How easily can you divest the assets if you unexpectedly require the funds?
3. Decide on your timeline and consider your future plans

Most people have a threshold in terms of how much debt they can cope with (both from a financial point of view and an emotional point of view). In the past, with interest rates a lot higher, you may have decided to focus on paying off the mortgage as the first priority.

It is worthwhile in the current market to consider your options. Investing prior to paying off your mortgage may allow you to see returns sooner and therefore pay off your mortgage a lot sooner as a result.

Home loan versus retirement

When considering the option of putting your money into super, it is worth comparing the interest rate you are paying on your home loan to the rate of return on your superannuation fund. With home loan rates at historic lows, you may find that the returns on your super are potentially higher. If you haven’t reviewed your home loan for a while, you might not be taking advantage of these record low rates. If that’s the case, you may wish to speak to a mortgage broker to see if you could be saving even more by refinancing to take advantage of the lower rates.

Compound interest

The upside of contributing to super is that you gain the benefit of compounding interest, which helps to grow your retirement savings faster. Even small amounts make a big difference, and the longer you save, the more interest you earn. Depending on how your super is invested, it may grow significantly over time.

If there is one thing 2020 has taught us though, it’s that no-one can predict the future. Markets will vary over time, and the returns you get on your super today may be different to those you receive in the future. The benefit of working with a financial planning team like us is that we can help you stay on track to achieve your financial goals, especially as things change over time.

Tax implications

Depending on your marginal tax rate, contributing to super may also be an effective way of reducing your overall tax bill. That’s because the repayments on your mortgage are made from ‘after-tax’ dollars, whereas contributions to super can be ‘pre-tax’. Australians can contribute up to $25,000 per annum pre-tax to their super, and these contributions are taxed at 15% when they are paid into your super fund. One thing to note – if you earn over $250,000 you may have to pay an additional 15% tax on some or all of your super contributions.

Regardless of the strategy you choose, it is important to regularly review it. Markets will move over time; interest rates can vary, and your circumstances will change over time. The right strategy today may be different in the future. That’s where we can help – we can work with you to get the right strategy in place for your situation today, and then help you stay on track with your financial goals as things change.

Once you are comfortable that you have your home loan in order, there are a couple of factors you might want to consider when deciding where to direct those extra savings:

Loan size and life of your loan
Paying off more of your home loan at the start of a 30-year loan will have a much bigger impact on the total cost of that loan than it will if you pay off more at the end. Similarly, the total interest you pay over the life of the loan will be less if you can start to make additional repayments early on, as interest on home loans is calculated daily.

Peace of mind
For some people, they are looking forward to the day when they know they own their home outright, and so paying off the mortgage helps them achieve that peace of mind sooner.

Future plans
Depending on where you are in life, you may already be planning for significant changes – starting a family or planning to downsize. The right strategy will vary depending on those plans – if you think you will need to access those extra savings before you retire, you may be better to set up an offset or redraw facility on your loan. This would mean you still get the benefit of the interest savings but can access the funds when you need them. In comparison, contributing to super means you can’t access those funds until you reach preservation age or certain conditions of release are met.

A Tribel adviser can help you decide on the right approach to building a manageable investment portfolio and advise on the best approach for your future.

Arrange a consultation

 

¹_{ABS, Australian National Accounts: National Income, Expenditure and Product, June 2020 quarter}
²_{ABC News, Savings increase could either mean a deeper, longer recession or faster recovery, 9 June 2020, https://www.abc.net.au/news/2020-06-09/bank-savings-go-up-raising-risk-of-deeper-longer-recession/12332250}