6 January 2017

John Barton

Director & CEO

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If there is one thing 2016 taught us, it is that peace of mind is a valuable thing. There was no shortage of doom and gloom in 2016 with superannuation changes, rising interest rates and not to mention the US Presidential election and Brexit. These events, and so many more, can easily contribute to a sense of anxiety and worry. In fact, regardless of how much money we have or make, it is still a human tendency to let the what ifs? get the better of us.

But 2017 is a new year. A fresh, new chapter. We are both excited and hopeful for the year to come and have shared 7 tips below to help make 2017 your best financial year yet and to help you achieve peace of mind for the year to come, regardless of what events unfold this year.

 

1. Begin with the end in mind

First and foremost, determine what you want to achieve, for the short term and the long term. Don’t be tempted to gloss over this point – it’s first on the list for a reason. Coming up with a wish list is easy, the hard part is prioritising your goals because, regardless of personal wealth and income, resources are limited and none of us can have everything we want. Start with thinking about what is most important to you. Being debt free? Helping out your children? Philanthropy? Travel? Changing the world? Living a simple life? Enjoying time with your family? Knowing you are on the right track to achieving whatever it is that is important to you is the key to minimising anxiety and stress. The geopolitical and financial landscape is forever changing, and it is all too easy to get caught up in the day-to-day, focusing on short term problems that will always be there. Keeping the end in sight will help ensure you don’t make unnecessary decisions that could compromise your long-term strategy and goals. Being clear on what you really want is a very good step to mitigating worry and concern, and provides the foundation for more sensible long term decisions that you can confidently stick to.

 

2. Take a look in the mirror

Before you can move forward, you need to know exactly where you are. We encourage you to take some time to understand your current circumstances in some detail. Take stock of your assets, your cash flows and your commitments (debts and lifestyle expectations). This will help you make informed decisions about how to move forward. A professional adviser, who is able to take a more dispassionate perspective on your affairs, can be highly valuable in helping you navigate and understand your current situation, and to help you determine the best way to move forward towards your goals.

 

3. Consider the downside

Knowing where you are today is great. Understanding what might go wrong is equally important. Make sure you understand (to the extent possible) the nature and level of risk associated with each area of your finances – your income; your business; your investments; your assets. Likewise in the investment world, you may feel comfortable with an asset or asset class, but always consider the downside. We live in an era of business disruption where nothing can be taken for granted, regardless of your profession or level of business experience. Facing up to risks and taking action to manage them will help reduce your anxieties and build confidence.

Also remember the importance of your health, particularly if you’re still working or running a business. The single largest asset for most individuals isn’t their house or superannuation. It’s their unearned future income. Asset and income protection in the event of death, disability, illness or loss of income-producing ability, is something many tend to put off – only really considering it after a major life event such as a new mortgage or birth of a child or when accident or illness impacts someone close to them. As you head into 2017, now is an ideal time to reconsider your need for protection, or that of your adult children, and how it could influence your financial future. Our Director of Risk and Succession, Andrew Proudfoot, has discussed the value of purchasing life risk insurances here.

 

4. Understand the upside

We’ve said it before, and we’ll say it again. Investing is a long-term game. The future will always be uncertain – it just comes with the territory. It’s only natural for our fight or flight response to kick in when things get a bit bumpy. Before making financial decisions, take a step back and look at the big picture to avoid knee jerk reactions that may cause more damage than good in the long run. The upside comes to those who find a balance between risk and return because in many ways, risk and return are simply two sides of the same coin. You can’t really expect a return without taking a risk. Having made the call on which risks you’d like to accept, stick with it (unless the risk changes) and wait for the upside to emerge. When it comes to investing, patience is often rewarded.

 

5. Take the easy wins

Most of us have low hanging fruit available for the picking – but we’re busy and there’s not a lot of money involved, so we tend to put it off and before we know it, years have passed. Nobody wants to pay any more than they need to, but making sure of this requires some work. Whether you have deductible or non-deducible debt, keep an eye on the rate. Similarly in the constantly evolving taxation landscape, it is important for both individuals and businesses to consider restructuring their financial affairs to be the most tax effective as possible – and to continue monitoring this as the tide changes. We also recommend taking some time to review both your insurances and your spending, and to continue to do so every year or so. For example, do you really need that Foxtel subscription now that you’re watching Netflix 5 nights a week?

 

6. Get it into super when you can

With all the superannuation legislation changes coming into force 1 July, now is a good time to make sure you understand what these changes are, how they affect you and what you can do in order to maximise your superannuation. One of these changes currently playing on most lips is the $1.6 million pension cap. If you have pension phase assets in excess of $1.6 million you have two options – transferring the excess back to accumulation phase or withdrawing the excess and investing it elsewhere, such as Insurance Bonds (which we are now referring to as the next best structure outside of superannuation) which are tax effective, flexible and a valuable estate planning tool. We’ve put together all the key facts regarding the $1.6 million pension cap which you can read here.

 

7. Conduct a ‘health check-up’ of your fund (for SMSF trustees)

Being an SMSF trustee, or a director of a trustee company, brings with it a number of legal obligations that must be carefully considered. Now is a good time to review your trustee responsibilities and ensure you’ve ticked all the compliance boxes so that you can move forward in 2017 with peace of mind knowing your fund has met all the requirements. Alternatively, you can outsource the strategic functions of your fund to SMSF specialists and not have to worry about it. We’ve created a short questionnaire to walk you through some of the essential trustee responsibilities so you can assess whether your SMSF fund is up to scratch or if you need a hand to get everything in order before 1 July.

 

2017 is now here and it will certainly be an interesting year. We encourage you to enter the year with your goals in mind, draw up a plan to reach them and have the discipline and knowledge to stick with it. Doing so will help alleviate your financial anxieties and worries and allow you to get on with what matters most to you this year. With specialists across wealth management, taxation, superannuation and risk and succession, our team is here ready to help, support and encourage you to make 2017 your best financial year yet with the peace of mind in knowing your finances are taken care of, regardless of what surprises the year has in store. Please don’t hesitate to give us a call on (07) 3391 5055 or email via advice@mgdwealth.com.au.

Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.