What are the top financial tips for a new financial year?
With the new financial year upon us and increased market volatility, now is the perfect time for investors to revaluate their current financial position and gain a clear understanding of the direction they are heading in. The following article will outline some useful tips that can help all individuals to develop and refine their financial goals and the best courses of action to achieve them.
Budgeting and saving
With many Australians feeling the pinch with increased costs of living, a viable way for individuals to set themselves for financial stability is to revise their income and expenditure. It can be tempting to put your budget to the sideline, however, not knowing exactly what you are spending is likely to be more painful in the long run.
The first step in this process is understanding:
- How much income you are receiving;
- Where the income/s is coming from;
- How often you are receiving it (weekly, fortnightly, monthly)
This could be from a range of sources including wages, bonuses, pension payments, government benefits or investments.
From this, it is then crucial that individuals look at what they are spending. This includes essentials such as rent, mortgage repayments, bills, council rates, food and groceries, medical costs, insurance, transport costs and other essential expenses that are paid on an ongoing basis. After this, you will have a better understanding of whether you are spending within your means and what you may or may not have leftover.
Any leftover cash can then be allocated to discretionary spending or other goals you may have such as saving for a house deposit, investing, or allocating money to an emergency cash reserve. If you think you may be spending in a way which is likely to be detrimental to your future financial self, it may be a good idea to set a spending limit or look at ways to reduce your costs. In addition to this, setting a savings goal also provides individuals with a clear objective to work towards and keep in mind when making financial decisions.
Super
Although the cut off for making tax deductible contributions within the 2021/2022 FY has passed, the new financial year is a great opportunity to establish your superannuation goals and put the relevant strategies in place. The first thing to note is that from July 1 2022, the super guarantee will increase from 10% to 10.5% which is positive news for those trying to boost their superannuation balance prior to retirement.
Australians can also make concessional contributions of up to $27,500 p.a. which can provide a tax concession of if you earn less than $250,000 p.a. Non-concessional contributions of up to $110,000 can also be made, however, these do not receive the tax benefit, but it should be noted that any money withdrawn during pension phase, is tax free!
Those individuals who are selling their primary residence and downsizing may be able to make use of the downsizer contribution. From July 1 2022, those aged 60+ will be able to contribute up to $300,000 to their super following the sale of their home, whilst couples will be able to contribute up to $300,000 each. It is important to note that these proceeds which are allocated to super are counted in the asset test for the Age Pension, whereas retaining the home will not.
Another great legislative change for Australians is the abolishment of the work test for people aged between 67 to 74. This previously required people within this age range to be employed for at least 40 hours in a consecutive 30-day period before any contributions to super were accepted. From July 1, this will no longer be in place, allowing these individuals to make voluntary contributions. It should be noted that the concessional and non-concessional caps continue to apply.
These are some viable strategies to potentially reduce your taxable income over the year ahead and ensure you are maximising your super balance prior to retirement.
Investing
With rising inflation, it is likely that market volatility and uncertainty will continue to be a trend into the foreseeable future. Although this may scare away some investors, now is the perfect time to clarify your investment strategy and remain disciplined which can set you up for success when markets do recover.
Many investors who sell down their investments during this time are losing out on the returns which are yet to be realised. Adopting the dollar-cost averaging strategy is a viable way to boost your returns as investments can be purchased at a discount. It is also a good opportunity to re-evaluate your risk tolerance and determine whether you are invested according to your risk appetite.
This is an important consideration as if you are invested in high-growth assets but are not comfortable with this level of risk, you may be setting yourself up for both disappointment and stress if you are not willing to experience a drop in the value of your investments. This often leads to investors making emotionally driven and irrational decisions at the expense of their future financial selves.
If you would like to understand your risk tolerance and the best way to structure your investments, super and other assets for your personal circumstances, click the link to book in a complimentary 20-minute phone call with a senior EPG Wealth adviser today.