Giving yourself a money makeover

Posted by Administrator on April 10, 2014  /   Posted in Opinions


It is never too early or late to sit down and take financial stock — you may be surprised at what you discover and save yourself some money at the same time, writes Chris Wright.

Time for some spring cleaning. Not of the house – your finances. Many of us think occasionally that we ought to take a long hard look at our money, our bills, our lifestyle, our plans for retirement – but few of us really take the time to do it.

However, the effort is well worth making. Here are 10 ways to perform a financial makeover: to work out what’s right and wrong about your financial position and to decide what to do about it.


“If you don’t know what you don’t know, how can you fix it?” the chairwoman of the Australian Financial Planning Association, Julie Berry, says.

Working out how to give yourself a financial makeover first requires you to know exactly what you’ve got today.

“It’s very hard to plan for the future if you don’t know what you’re doing now,” the principal and consulting actuary with Towers Watson, Nick Callil, says.

Knowing what you have doesn’t just mean your bank balance or your latest super statement: it’s the precise level of your mortgage, your shares and your commitments.

“We try to encourage clients, when taking stock, not only to look at dollar value but to factor in things like their earning potential for future income or the health of the family,” Align Financial adviser, Darren Johns, says. “It’s not difficult to draw up a family balance sheet.”


Many people found, during the financial crisis, that they were over-geared or stuck in investments from which they couldn’t escape. Let that be a wake-up call. Regulators require banks to imagine how they would fare if various scenarios happened. I

t’s good discipline: if you have an investment property, what would happen if you were without a tenant for three months or the tenant stopped paying rent? Would you still be able to repay the mortgage? What if interest rates rise 3 per cent over the next few years? And, if you think you’d be able to sell an existing investment to meet a shortfall, have you checked the circumstances in which you can sell out?

If you don’t like any of the answers, take action.

Related to this is diversification. People who had everything in shares had a rude shock during the financial crisis, though, mercifully, they’ve got most of it back again.

What would happen to you if the sharemarket took a 30 per cent nosedive? And, given that bonds, property and other asset classes usually don’t behave in the same way as shares, do you need to rethink your portfolio?


It’s pretty obvious but few people do it properly. “A lot of people come in and have no idea they should have done a budget,” says Berry, who is also a certified financial planner. “Budgeting is a big missing link. It’s the key to everything.”

It doesn’t have to be complicated. “Don’t make it hard. It’s not about a huge Excel spreadsheet. It might be as simple as keeping a notebook: if you know the fixed costs you have to pay but, at the end of the week, are wondering where all your money went, keep a note of it as you spend.” For those who do prefer a more complicated and detailed approach, many computer programs are available, including some online that are free.

Johns prefers to talk of a spending plan rather than a budget. “Budgeting tends to have restrictive or cannot-do connotations,” he says. “People think of it as something they have to stick to. But it’s not that people can’t spend money in their retirement. It’s more about understanding where it’s gone – not questioning it, just understanding it – so you can live like you want to live.”


This relates to Johns’s point on planning. Know what you want to do, then you’ll have a better chance of working out how to afford it. “Everything starts with establishing goals,” Paul Moran Financial Planning’s Paul Moran says.

When he sits down with clients, he speaks in terms of seven goals: short-term, which are specific things people plan to do in the next three years, such as holidays or buying a car; medium-term, over four to 10 years, such as saving for a house deposit or paying off debt; long-term, which is 10 years or longer, such as mortgage repayment, education costs or a holiday home; insurance goals, in which clients identify what level of protection they would want if they died or were injured; retirement goals, about the income people want in retirement and when they want it to start; estate planning; and cash flow, which involves looking at your income today and where it goes.

“We always have two meetings with clients: one to tell them what the goals are that they have to discover, then a second meeting to talk about it,” Johns says.

“As a planner, I know what the characteristics of the goals are but I can’t tell a client what those goals should be. It’s the single most important part of the process.”

Clearly, retirement is a key goal. “When would I like to retire?” Callil asks. “What would I like to have to spend in my retirement? How much would I need in order to be able to achieve that? Those are big questions and there’s another whole series of steps to achieving

what you want for them but the key to it is assessing where you are now and what retirement means to you.”


Obviously, if you don’t have any money available, this isn’t an option but, if you have any free cash squirrelled away somewhere, there are few smarter things you can do than pay off the card.

The interest rate on a credit card is higher than you could ever expect to gain on any investment you might make yourself. The logic speaks for itself.

“But it is surprising the number of people we see who do carry forward credit card debt each month and don’t make a decision to pay it off,” Johns says.


Consolidating debt is always a good place to start,” Berry says. For one thing, it can get rid of those horrible credit card repayments. It’s also much more manageable. “If you consolidate into a debt where you know what your repayment is and you’ve got a defined term on it, it makes life easier,” Berry says.

It also brings some money back in because the repayments are probably going to be lower than they were before (particularly if you’ve cleared a credit card).

However, not all debt needs to be paid off urgently and some has advantages because it is tax-deductible. If you can afford to pay down some but not all debt, do the investment-related debt last.

“You can rank your debt from really bad debt to really good debt,” Johns says. “Personal loans and credit card debt might be first, then car loans, home loans, investment loans – not many people know which order they should be paying it off in.”

“Always work from the highest interest rate backwards. There’s little point making repayments on a mortgage at 7 per cent when you’re paying 19 per cent on your credit card,” Moran adds.


“People tend to underestimate what it costs them to live,” Johns says. “But, inversely, they overestimate what dollar figure they might need to sustain a lifestyle for 30 years.”

Although daunting, it is arguably easier than ever to work out what people need from retirement savings.

“There are tools individuals can use to project where they might be up to at the date they are thinking of retiring,” Callil says.

“If you’re 40 you can jump online to a calculator and get a handle on the amount of money you need and how much you need to put in to save it. Savings vehicles can do so much but,

for a lot of people, it’s not just relying on markets to do the work for them but putting the money in. There is an under-emphasis on savings, on adding to the pool.”

People have greater control than ever before over their superannuation since the introduction of super choice but moving your money around to chase the best recent returns may not be the answer.

“The idea of chasing the best fund is fraught with danger because no one can know what the best fund is going to be,” Moran says.

“All they can do is know what was the best fund in the past. And there’s reasonable evidence that what was the best fund in the past is certainly not the best fund in the future. What they should be looking at is, does the fund offer them the investment choices they want, the insurance options, and are the fees reasonable?”

Many believe that self-managed super funds are the way to go.

“There are large numbers of people with significant amounts of money saved who are voting with their feet and setting up their own plan,” Callil says. “That’s driven by a combination of wanting to have control and, perhaps, members not having had faith in the fund they were in to do a good job for them.”

For some people, they are a wonderful way to take control of their savings. However, they are a huge commitment and require expertise and, invariably, good advice. Do not take this lightly.

Many people who started earning well before compulsory super came in feel they have missed the boat: that there is barely any point in saving for retirement now because the amount they save is going to be negligible compared with what they need. Not so.

“Don’t panic, it’s never too late to start,” Berry says.

Additionally, the nature of retirement has changed for people: more and more choose to phase themselves into it, reducing the hours or the stress of their job but still earning enough to get by so that retirement savings are not depleted. This is another important option to think through.


Some quite lucrative financial techniques are straightforward but little used. Johns highlights putting the savings in the account of the partner on the lower tax bracket as an effective example.

Moran suggests another: knowing what insurance you are covered by through your superannuation savings.

“People sometimes have more insurance than they think because they’re ignoring their super.” Also, be aware that, as a consumer, you have power. “In my experience, banks are more willing than they have ever been to have a negotiation on the current rate on a home loan facility,” Johns says.

The Key to Wedded Bliss? Money Matters

Posted by Administrator on July 30, 2013  /   Posted in Opinions

Published: September 10, 2008
The New York Times

IF you ask married people why their marriage works, they are probably not going to say it’s because they found their financial soul mate.

But if they are lucky, they have. Marrying a person who shares your attitudes about money might just be the smartest financial decision you will ever make. In fact, when it comes to finances, your marriage is likely to be your most valuable asset — or your largest liability.

Marrying for love is a relatively recent phenomenon. For centuries, marriages were arranged affairs, aligning families for economic or political purposes or simply pooling the resources of those scraping by.

Today, while most of us marry for romantic reasons, marriage at its core is still a financial union. So much of what we want — or don’t want — out of life boils down to dollars and cents, whether it’s how hard we choose to work, how much we consume or how much we save. For some people, it’s working 80-hour weeks to finance a third home and country club membership; for others, it means cutting back on office hours to spend more time with the family.

“A lot of the debates people have about money are code for how we want to live our lives,” said Betsey Stevenson, assistant professor of business and public policy at the University of Pennsylvania’s Wharton School, who researches the economics of marriage and divorce. “A lot of the choices we make in how we want to live our lives involve how we spend our money.”

Making those choices as a team is one of the most important ways to preserve your marital assets, and your union, experts say. But it’s that much easier when you already share similar outlooks on money matters — or when you can, at the very least, find some middle ground.

The economies achieved by pairing up are fairly obvious. However, the costs of divorce can be financially devastating, especially when children are involved. And, not surprisingly, money manages to force a wide wedge between many couples.

“Most people think people break up over sex issues and children issues — and those are issues — but money is a huge factor in breaking up marriages,” said Susan Reach Winters, a divorce lawyer in Short Hills, N.J.

Not everyone is married to a financial twin, and that’s not necessarily a problem. There are several ways that you and your significant other can become more compatible, and ultimately more prosperous, when it comes to money.

These guidelines are compiled from the successfully married and from experts on psychology, divorce and finance:

TALK AND SHARE GOALS Before walking down the aisle, couples should have a talk about their financial health and goals. They should ask each other tough questions: Do we want children? When? Who will care for them? Will they go to public or private school? What kind of life do we want? When will we retire?

“In my ideal plan for couples, they would have a meeting every week on their finances,” said Karen Altfest, a financial planner who runs the New York firm L. J. Altfest & Company, with her husband, Lewis. “That way, they are in sync with each other’s goals.”

Set those goals together. Jerry Ballard, 58, a former insurance executive in Houston, said that he and his wife of 36 years, Susan, also 58, managed to avoid money clashes because they share a savings philosophy. “The cardinal rule was that we don’t interrupt our savings,” he said, adding that they saved between 10 and 20 percent of their salaries each year. As long as they did that, they were less likely to disagree about spending.

Eric Gundlach, 53, of Owings Mills, Md., who has been married for 29 years, said he and his wife, Ann-Michele, “made our expectations explicit.” These included sending their son to private school and having big experiences, like traveling, in lieu of purchasing things.

RUN A HOME LIKE A BUSINESS Make a budget and keep track of earnings, expenses and debts. And structure your business as a partnership; when it comes to making big financial decisions and setting goals, do it together. “When they are making the decisions together, they really have ownership of those decisions and any results of those decisions,” said Mary Ann Sisco, national wealth adviser at JPMorgan’s private wealth management division. “Even if you have negative results, you tend to weather the storm better.”

Share responsibilities, too. Though one partner tends to control the finances, advisers recommend rotating tasks. One person should handle investments for a certain period, while the other pays the bills; rotate and repeat.

BE SUPPORTIVE OF CAREERS Having a supportive partner helps you professionally, which should trickle down to your mutual bottom line. “Marrying the right person helps you succeed in your career through encouragement and support, the only kind of support that comes through a supportive, intimate relationship,” said Mr. Gundlach, whose wife backed his decision to start a management consulting practice after 22 years as a human resources executive.

ENJOY, BUT WITHIN REASON Create a cash cushion, and live a lifestyle you can sustain. Many people who were working at hedge funds that went bust or financial firms like Bear Stearns are learning these lessons now. Ms. Sisco, of JPMorgan, said that because her younger clients haven’t experienced a downturn, they assumed the money would keep pouring in.

She said she is working with one couple in their early 30s who have two young children. Right before the husband lost his job on Wall Street, the couple had ordered $35,000 drapes. They had to move to a smaller apartment in Manhattan and had to sell their vacation home.

USE A MEDIATOR Perhaps both of you have strong yet divergent opinions about how to invest. Or maybe you are a saver while your spouse prefers to hand over a big piece of earnings to Bavarian Motor Works. An independent third party, whether a financial planner or a therapist, can help you find a middle ground.

Marc B. Schindler, a financial planner at Pivot Point Advisors in Bellaire, Tex., recently did this for a client who complained that his wife spent a thousand dollars a month on her wardrobe. Mr. Schindler then contacted the wife, who said her husband spent just as much on dinner with his buddies. So the husband asked Mr. Schindler to show how much they would save if they invested the $12,000 she spent each year. Mr. Schindler — careful to title the report “Clothing, Dinner or Invested?” — ran an analysis and found that the couple would have $1.6 million after 28 years, assuming a 9 percent rate of return. “They are going to try and compromise,” he said.

MAINTAIN SOME INDEPENDENCE Pooling resources is important, but so is maintaining a degree of financial independence. Carve out some money for both partners to spend on things that make them happy. And when paring back, it’s essential that each person make sacrifices.

INVEST IN YOUR MARRIAGE Spend it — time and money — together. Go on dates. “What that does is enliven the marital foundation,” said Gary S. Shunk, a Chicago therapist who specializes in wealth issues. “It’s a kind of investment into the heart and soul of the relationship.”

Think of it as dollar-cost averaging your marriage, where you make small investments over time. If you wait until retirement, it could be too late.

Melanie Schnoll-Begun, a managing director in the Citigroup Family Office, worked with a couple that waited too long. The husband had amassed great wealth for the family, and his wife kept a beautiful home. But once the husband retired, “they found out that over the years they grew so far apart that they didn’t have enough in common,” she said.

“They had this magnificent wealth, and it was the building of this wealth that ultimately led to their divorce.”

Don’t let death take you by surprise by Diana Clement

Posted by Administrator on April 16, 2013  /   Posted in Opinions
Don't let death take you by surprise. Image / Getty Images

Don’t let death take you by surprise. Image / Getty Images

The best time to prepare for your death is when you’re young, fit and healthy. How and where will you be buried or sent off? What bills will you leave behind? Who will look after the children? How do you want your assets divvied up? And so on.

Left until you’re incapacitated or not done at all, these issues will create a nightmare for those left behind. There is a lot to think about, says Phil Morgan-Rees, personal client services general manager at Guardian Trust.

This week I’ve compiled a list of 15 things to consider or do in preparation for your death.

Get a filing cabinet. If all your documents are in one place it makes matters comparatively easy for the family and the executor of your will. Any good filing system will work, although some people prefer a safe deposit box. In it should be originals or copies of birth and marriage certificates, passports, driver’s licences, IRD numbers, copies of recent tax returns, among other things. Include contact details of financial advisers, insurance brokers, close friends, tenants and organisations to which you belong.

Including a list of whom to notify in the event of your death is a good idea.

Collect proof of ownership. Where is all the documentation proving ownership of your house, land, Maori incorporation shares, share certificates, cemetery plots, health and life insurance certificates, KiwiSaver and so on? No documents equals one big headache for the executor. They may not even know you have a Cash Isa with RaboDirect when your main accounts are held at Westpac, or an ancient life insurance policy taken out 30 years ago. Sometimes relatives end up playing detective to find out what their loved one owned. Unsurprisingly there is millions of dollars unclaimed being held by the IRD (ird.govt.nz/unclaimed-money).

Communicate your wishes. As well as filing all the paperwork in one place, says Morgan-Rees, it’s important to follow up with documentation showing the big picture. This can include letters of intention that explain why you have chosen, for example, to leave everything to charity or decided to be buried rather than cremated. Don’t forget to note any promises or loans you have made in your lifetime.

Record the basics of family history/connections. The executor and the beneficiaries may not know whom you are related to, says Morgan-Rees. Your children or other descendants might also want to know after your death if there are any inherited diseases in the family.

How will you pay for your death? The two most common choices, if you have the money, says Morgan-Rees, are to take out a pre-paid funeral plan, which is a type of life insurance policy, or set up a funeral trust. Funeral grants are available from Work & Income for people of limited means. There is a very interesting Campbell Live video about funeral costs in New Zealand at http://tinyurl.com/CampbellLivefunerals

Consider how your partner will survive financially. Whether your partner is young, middle-aged or retired, there are questions to be thought through about how he or she will survive financially. Even if you are a non-working spouse, your partner may face additional costs such as childcare or reduced income, such as moving from joint to single-person’s superannuation.

Disposal of personal effects. There aren’t many people who don’t own something of sentimental value. It can take quite a bit of thought to decide what to do with Great Aunt Phyllis’ Welsh dresser, or your great-grandmother’s jewellery. Some people start giving away these precious items during their lifetime – or at least earmarking them. If the heirlooms are financially valuable it’s worth discussing the implications of the gift with a lawyer or trust company employee who can highlight any potential pitfalls.

Write a will. Even if you have a family trust you still need a will to handle the personal effects that aren’t owned by the trust. If not, the rules of intestacy apply. You will also need to choose an executor, who could be a friend or family member or a professional executor such as a lawyer or trustee company employee. Many people choose family trusts as their preferred method to pass their assets on to the next generation. If you have a trust, however, make sure that your will forgives the debt on your death. Otherwise you could saddle your beneficiaries with assets they don’t want to hold in their own name.

Set up EPAs. When preparing for your death, says Morgan-Rees, you also need to consider the “what-ifs” you may encounter along the way. Just as important as a will, he says, are enduring powers of attorney (EPAs), which allow someone else to act for you, pay your bills, make decisions, file tax returns and so on if you become physically or mentally incapable to do those yourself. Some people write a living will, which outlines what medical care they would like if they can’t decide themselves. It’s a good idea to include contact information for your doctor and details of medications taken.

Take out insurance cover. One of those other “along-the-way” issues is disability through illness or accident. Taking out insurances such as income protection, accident and critical illness cover can help financially if death isn’t sudden. Life insurance can of course leave a lump sum to your dependants or other beneficiaries on death.

What will happen to your business? Will your business partners be able to carry on without you? How will the shares be distributed? Businesses can be hamstrung on the death of a director if the executor can’t act on his or her behalf.

Planning your funeral. Do you want a church send-off or would you prefer your loved ones to congregate at the crematorium chapel? Do you want a wake or tangi? What will happen to your ashes? Would you like hymns such as Amazing Grace played or are you more a Smoke on the Water type? Should there be flowers? Or would you prefer a donation to charity? If these things matter, it’s best to plan them rather than leave it to chance with grieving family and friends. Some people don’t even want funeral directors involved. There is no legal requirement to use their services.

Buying a burial plot. It’s not easy to arrange to be buried in a very old family plot. If you’re not the oldest son of the oldest son, you can’t necessarily lay claim to that plot. Some people choose to pre-purchase their burial plots in their lifetime. It may also be possible to pre-purchase a headstone. Parkinson & Bouskill director Peter Gibson says it’s not unheard of for people in their lifetime to install a headstone on the plot with just the family surname on it.

Become an organ donor. Your heart, pancreas or liver could save someone else’s life. But there is a very small window of time when they could be used. Loved ones could stymie your wishes if they come as a surprise, so make sure you let them know. If you are an organ donor it is noted on your driver’s licence. It’s also a good idea to include it in the will. Visit: donor.co.nz

Share your passwords. People’s Facebook pages can be turned into memorials once they die. There is a way of reporting deaths to Facebook. Another option is to give your password to someone else to administer the page after your death. There may be other reasons to include a list of passwords with your will so your wider circle of friends, acquaintances, business colleagues and others can be informed of your death and also online memberships closed down. Be careful, however, of letting anyone else know passwords to online banking and other websites where your assets could be plundered in your lifetime.

View original article by Diana Clement here.

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