40 per cent less millionaires

Australia has taken third place in a survey of the biggest casualties of the global financial crisis, a report shows. Boston Consulting Group's latest Global Wealth Report found Australia suffered the third largest drop in personal wealth among 62 countries surveyed, due to a high exposure to equities markets.

Personal wealth in Australia - excluding housing and self-owned businesses - fell 27.1 per cent to $1.67 trillion in 2008, from $2.3 trillion in 2007. Only the UK and Sweden experienced larger declines in personal wealth, losing 32 per cent and 28 per cent respectively.
Globally, personal wealth dropped to $US92.4 trillion in 2008, from $US108.5 trillion in 2007.

The report also shows that the financial crisis slashed the number of millionaire households in Australia by 40 per cent. Millionaire households in Australia, as measured by households with minimum personal wealth of $US1 million, fell to 49,452 in 2008, from 82,242 in 2007.

(source: Sydney Morning Herald)

Do your sums on FHOG

The Boost to the First Home Owners Grant has been extended until 30 September, 2009. After that it reduces by half until 31 December 2009. In the New Year, the grant returns to an ongoing amount of $7000 for both new and established homes for those buyers who are eligible.

However, being eligible for the grant doesn’t necessarily make buying a house achievable. Prior to the announcement of its extension, we were inundated with calls from customers who wanted to take advantage of the government’s generous offer, particularly for the $21,000.00 for the purchase of a new dwelling. While the $21,000 is still up from grabs for those whose construction commences on or before September 30, it might not be enough to get you into a home on its own.

This is largely because lending has changed significantly over the past several months. In the current environment, the great majority of banks will only lend you 90 per cent of the value of the property you are considering for purchase. This means you have to come up with the other 10 per cent yourself. In some circumstances you can still borrow 95 per cent but even 5 per of an average property is still a lot of money.

The other stumbling block is the fees. While state governments have come to the rescue on stamp duties (for example: first home buyers are virtually exempt from transfer and mortgage duties on homes under $500,000 in Queensland) there is still the matter of mortgage insurance. To get a loan where the borrowing amount is greater than 80 per cent of the purchase price, you have to get your loan mortgage insured and this comes at a cost - the lower the LVR the cheaper the premium. However, as we’re talking 95 per cent, these premiums are at the upper end and even with the discounts some insurances offer first home buyers, the amount can be several thousand dollars.

The last hurdle you need to overcome is the requirement to provide evidence of genuine savings. This means you have to demonstrate to a bank that the money you are contributing as 5 per cent has been saved over a period of time – usually 6 months.

Table 1. Estimate of Savings Required – Established Home

Costs
Purchase Price $350,000.00
Lenders Mortgage Insurance (approx)* $ 6,949.00
Government Fees (estimate) $ 676.00
Legal/Conveyancing (allow say,) $ 1,000.00
A Total Costs to Purchase $358,625.00

Funds
Borrowings from Bank @ 95% $332,500.00
First Home Owners Grant $ 14,000.00
B Total Funds Available $346,500.00

A - B = Your contribution (savings) $ 12,125.00


After December this year when the FHOG reduces, this same scenario will be $7,000.00 dearer. Trying to do the same thing with only a 90 per cent loan will be even more difficult. You should note that there are conditions surrounding your circumstances in qualifying for a 95 per cent LVR loan apart from the obvious issues of affordability.
In summary, if you are nearly in a position to buy your first home it might make sense to explore your options sooner rather than later. However, don’t put yourself in a situation where you can't afford your new loan just for the sake of the extended first home owners grant.

* Lenders Mortgage Insurance will vary depending on bank and Mortgage Insurer

Be climatesmart

Over the last several quarters we’ve been getting electricity bills that are enough to make you cry. Despite our best efforts, we’ve had little luck in reducing our electricity costs. We’ve installed energy saver light globes in all our lights; turned off the second fridge in the office. Reduced the amount off time the pool filter runs but we still can’t seem to make any significant impact in amount of each bill.

Recently we had an electrician come and conduct and audit out as part of the Queensland Government’s “climate smart home service”. He checked a number of things as well as looking at previous electricity bills. For me however, the most significant aspect of the audit was the provision of a wireless energy monitor. It shows how much energy we’re using in a very meaningful way – in dollars and cents.

The monitor tells you how many cents per hour its costing you to run your house based on the electricity you use. When we’re not doing anything significant with electricity it shows a cost of around 12 to 15 cents per hour. Turn an electric kettle on and that goes to 55 cents per hour. Electric irons, hair driers, clothes driers, anything that uses an element to create heat really adds up.

Now we already knew this and always tried to keep the use of such things to a minimum. But when you can see the meter ticking on the energy monitor it becomes very motivating to turn the offending item off and in some cases not to use it in the first place.

It’s also helped my boys understand the cost of electricity and they’ve really got on board and are trying to keep the use of electrical appliances to a minimum. My youngest boy rang me the other day to tell me the monitor was showing an increase from 18 cents to 57 cents and he couldn’t work out why. He said he wasn’t using anything that he could account for. We soon figured out it was the instant electric water heater in the office switching on as its store off water was being re-heated. We’ve yet to figure out how we can reduce the cost of this, we’re experimenting with the temperature at present.

If you know any money saving tips through more efficient use of electricity please don’t hesitate to share them with us. We’ll be glad to put them into effect. In the meantime, I urge you to have an audit arranged for your own home. In the interest of saving some money and reducing your carbon footprint go to climatesmarthome

FHOG extension a chance to boost savings

The Federal Government’s extension of the boost to the FIRST-HOME Buyers Grant will give would-be first home-owners a chance to get their finances in order before applying for a loan.

Under the scheme as it was, the boost to the grant was due to cease on June 30, 2009. The Federal Government will extend the boost to the first home-owners grant by six months to December 31. This additional six months extension, announced in last night’s federal budget, will allow borrowers to build their savings to meet the current, more stringent requirements of lenders.

The boosted grants were due to end on June 30 but will now apply for homes purchased on or before September 30 this year.

Since October 2008, first home-buyers have received an extra $7,000 when purchasing an established home and an extra $14,000 for new homes, on top of the $7,000 provided under the first home owners scheme. The boosted grants were due to end on June 30 but will now apply for homes purchased on or before September 30 this year. The extra grants will then be phased down to an additional $3,500 for established homes and $7,000 for new homes up to December 31, 2009. After that date the scheme will continues in its original form providing $7000 to eligible persons to purchase either a new or existing home.

First Home Owners Grant - about to reduce

We all know the recent drop in interest rates has made home loans that little bit more affordable. With the spiralling price of housing finally easing somewhat, First Home Buyers are presented with an unprecedented opportunity to enter the property market. However, for most part, the days of access to the property market with little or no cash may be gone.

Two reasons for this. The first is that the Federal Government has indicated that the extended First Home Owners Grant (FHOG) will reduce back to $14,000 and $7,000 respectively for new and established homes by June 30 of this year (down from $21,000 and $14,000 respectively). In the current economic environment of government fiscal stimulus, we cannot rule out an extention to the current FHOG but just in case, if you are a first home buyer, consider looking now as you may regret it come June 30.

The other reason is the withdrawl from the market of the 100 per cent home loan. Of the three remaining lenders offering this type of loan, all have now withdrawn it. Prudently, this means buyers will now have to save a 5 per cent deposit and have the FHOG cover the fees and charges including mortgage insurance.

You have the power to save

I was paying my electricity bill last week and happened across a person instead of the usual machine. In the course of paying my account they noticed I was paying a little extra each week ($0.69) so I could access some renewable 'green' energy. I was told for another 0.31 cents extra I could qualify for additional green power and get one month's electricity credited back to my account.

Check out your current electricity account and see how much you are paying. If this sounds interesting to you simply switch to Origin for your household electricity and natural gas and they'll reward you with a month off from paying your electricity bill.

They calculate the total amount of electricity you used over the previous 12 months and divide it by 12. This amount will then be credited to your electricity bill after your 12 month qualifying period so long as you pay your accounts by the due date or advise them when you will pay if you can't make the due date (this happens to all of us from time to time).

Why not visit www.originenergy.com.au/1230/One-months-FREE and see if this is something you could use.

Do you know any money saving options for other everyday expenses?

Merry Christmas Mr Rudd

The Federal Government has announced a $10 billion financial stimulus to help prevent the Australian economy from sliding into recession in the next six to 12 months. The package is aimed mainly at low and middle income earners, and includes five main planks:

1. $4.8 billion in new support for pensioners and carers, to be paid in the form of lump sums later this year.
2. $3.9 billion for low and middle income earners. Eligible families will receive a payment of $1000 per child.
3. $1.5 billion for first home buyers, with the first home buyer bonus to be doubled from $7000 to $14,000 on established homes and tripled to $21,000 for new homes.
4. $187 million to double the number of training places available to 113,000.
5. Fast-tracking of the Government’s $20 billion infrastructure program.

The package is designed to stimulate economic growth by boosting consumer spending, so retailers stand to benefit most of all, as pensioners, carers and families will all have around $1000 more in their wallets. Most payments will be made around 8 December so this should mean the Christmas trading period will be a lot better than previously thought.

The Government’s support for the property sector has also attracted approval. The Housing Industry Association is predicting a big jump in construction activity and an improvement in housing affordability. When the first home owner’s grant was doubled for new house purchases in 2001, the number of new dwellings built increased by 3000 per month over a nine month period. This time around, HIA is tipping new housings starts will jump by 15,000.

Time is of the essence for those wanting to take advantage of this initiative as the changes to the grants are only available unitl June 30, 2009. Because of this "urgency", a wide range of property services and construction businesses should feel immediate benefit, including real estates agents, builders and other trades, home maintenance companies and conveyancers.

First home saver account facts

• Only first home buyers can apply.
• You must be between 18 and 65.
• Limit one account per customer.
• You must save $1000 a year to get the 17 per cent government contribution.
• You can't take the money out until you buy a home at least four years down the track.
• If you change your mind about buying, the money goes into your super fund.
• Earnings are taxed at 15 per cent.

Extra money towards your first home

The burden of saving for your first home has never been greater but, for those saving to purchase in a few years time, the job might be just a little bit easier. From today the federal government’s First Home Saver accounts become available.

If you're saving to buy or build your first home then a first home saver account may suit you. The accounts are complicated by a few rules and regulations but in essence they allow you to attract a contribution from government of up to $850 a year and the tax on the interest you earn is capped at 15 per cent (the same as your superannuation).The overall account balance will be limited to $75,000 and a minimum of fours years needs to pass before the money can be withdrawn to buy a home. The real bonus is that operating one of these accounts doesn’t disqualify your eligibility for the First Home Owners Grant Scheme (FHOG).

To earn the maximum government contribution you need to have saved $5000.00 per year yourself. The contribution is calculated as 17 per cent of the amount saved in each year (17% of $5000.00 = $850.00). If you can achieve this for 4 years you will have $23,400.00 saved which includes the government contribution plus any interest you have earned (less some tax at the lower rate). Add to this the FHOG of $7,000.00 and you’ve got yourself a tidy deposit of just over $30,000.00.

This represents a 6 per cent deposit on a home with a price of $500,000. With the recent exemptions from government stamp duty on homes up to this amount, $30,000.00 will go a long way towards getting you into your first home.

Planning a budget

We have reached a point where we buy on impulse with no thoughts to the consequences. In order to reverse this trend we need to become more responsible with our spending habits. One of the best tools to help an individual accomplish this is the personal budget. Many people do not see the value in creating a budget as they simply have no desire to restrict their spending habits. However, budgeting is not about “financial dieting” but rather it is a decision-making process. While it is about numbers it is not about accounting. It is about making decisions in your life and choosing specific plans to make your goals a reality.

The object of a good budget is to make your money help you reach your goals, not to force you to conform to rigid rules. Don't be discouraged if your plan doesn't work for you right away. You may have to revise it several times until it fits your wants and needs.

Cut your repayments

ABS statistics show that Australian household debt is at record levels with many people paying high rates of interest, particularly on credit cards.

If you have debts, especially those with very high interest, you might be considering debt consolidation as a way to provide some relief. This strategy can have the benefit of saving you money and making it easier to track and control how much you owe but only if you approach it with the right frame of mind and the correct loan structure.

When it comes to consolidating your debts there are a range of options available. Which one is the most appropriate for you depends on your individual circumstances and factors such as whether you own a home, the nature and number of your debts and your overall financial situation. Working through all your options and taking everything into account can be complex, but very rewarding.

One of the most cost effective ways of consolidating debt is to use the available equity in your home – Rolling your entire consumer debt into a single loan repayment. This can reduce both the repayment amount and the overall interest rate charge. However, in doing this you must be aware that you are probably extending the repayment terms of what was otherwise short-term debt. Any personal loans you had, difficult though they may be to pay now, would have been taken over terms like 3, 5 or 7 years. By putting this debt into a mortgage you will now pay off these amounts over 25 or 30 years. This means that you while you will be paying a lower interest rate, you will pay a lot more interest on the original debt over the term of the loan.

A potential way to avoid this is to structure the loan so that your original property mortgage and the new, consolidated debts are separated through a split loan account. Many banks can offer this facility in one way or another without any increased costs. This will allow you to continue to pay your mortgage at the original amount so it will clear in the least time possible (at least within the original loan term). You can also pay your consolidated debts at the lower mortgage interest rate but with a repayment amount that will allow you to clear this debt at somewhere near an acceptable 5, 6 or 7 year term.

And really, if you are prepared to commit to paying something like the amount you were obligated to before you consolidated the debt, you will pay this new loan off in 1,2 or 3 years.

Get thrifty - save some money

Here are some tips that we've used ourselves or that people have told us about that can help you save some money.

1. Have a look at your mobile phone bill. Can you cut a better deal. Look at other providers and see what's available. We just moved providers and our mobile bill has come down from $300 per month to $90 pm. Try to text rather than calling mobile phones when its appropriate.
2. How high is your electricity bill? With privatisation we're not tied to one provider. Call another and see if they can service you. We just moved to Integral Energy and they guaranteed to take 8% off our bill. That represents a saving of about $60 a quarter. Use your clothes dryer only when you desperatley have to. Turn off lights when not in use and turn off appliances at the power point.
3. What about your insurance? Consider consolidating them with a single insurer for extra savings on premiums.
4. Do you outsource? If you have a cleaner or gardner come in once a week, consider having them come in once a fortnight. Even better, look at the jobs you can do yourself.
5. Consider selling unused items around the house. A client had her kids collect all the Playstation games they have in the room that they don't use any more. They traded them in and received $200. Is there money sitting around your home?
6. Cut down on tuckshop for kids and keep bought lunches for yourself to a minimum. Make it yourself, you will save a fortune. Baking cakes from packet mix is fine for their morning tea and let the kids help with the cooking. I do and my little ones think its great.
7. Stop the take away! Sure its (somestimes) quick and easy but it really is very expensive for what you get. Haven't you wondered how they can afford all those commercials? Have a no take away rule in your home.
8. Cut down on your coffee. At $4 a cup just 2 a day adds up to $40 in a week! And I know people who are drinking more than that a day.
9. If its convenient shop 1 hour before the supermarket closes, they mark down a lot of fresh produce - especially meat, just before they close.
10. Email, to keep in touch rather than using your mobile phone.
11. Cut down on your Austar or Foxtel subscription. Hiring the video is cheaper!
12. Do you have consumer debt? Credit cards, personal loans etc. Consolidate them and pay the one loan at a lower interest rate.
13. Don't buy bottled water. Get a water bottle and take your own water. Australian tapwater is of the highest quality and you will be helping the evironment by not purchasing more plastic bottles and saving money!
14. If you really want to save money, take the savings you have made by using these tips and put it on your mortgage. Over time you will save thousands of dollars.

If you can think of other savings tips, or if there is something you have done that was particularly successful, please let us know.

Women and their super

Women tend to be less concerned about superannuation even though they probably have a greater need for it in retirement. Women have a longer life expectancy, take greater time out of the workforce for parenting and, on average; working women earn less than men.

In general, women will have a need for more super to support a longer life but their circumstances mean they will generally have less in their accounts.

There are simple things women can do to boost their superannuation, including:

1. Keep as few accounts as your employment circumstances will permit. Multiple super accounts mean more fees than necessary. Also, keep your address up to date with your providers to prevent accounts from going astray.
2. Find lost super, especially if you've done a lot of casual or part-time work. You could easily have little pots of money in accounts you've forgotten about.
3. Top up your super when you can afford it. Tax concessions make super an excellent way to save for retirement. Outside of your home equity, most people will save more through super than through any other way.
4. Get interested in your super – read your 6 monthly or annual statements and keep track of how your super is growing. Balances may vary from year to year but over time, with steady and appropriate contributions, your super will grow into a tidy nest egg on which to enjoy a comfortable retirement.

5 Tips to get kids saving

As parents, we want to do everything we can to help our kids get the best possible start in life. One of the most important things you can do to help them get off on the right foot is to teach them to respect and value money.

1. Talk about money with your children as they often see you spending money and getting money from an ATM, but they don’t see the monthly bills and other expenses. As a result, children develop a perception that money is easy to come by and don’t understand how it needs managed. When appropriate, sit your children down when you are balancing your chequebook or paying the monthly bills. This will give them a broader view of how money is earned and managed.
2. Pocket money will allow children to practice saving and spending money, and is a great way to teach them how to be responsible with their money. Spending money all at once and losing money is part of the lesson most children will go through in order to develop financial care in the future.
3. Provide the opportunity for your kids to earn money – Children should be accountable for the regular daily chores around the house – making the bed, watering the plants, washing the dishes etc. However, for those tasks outside of the day-to-day running of the household, you should create opportunities for your child to earn a little extra pocket money.
4. Take your children grocery shopping – Get your children involved in identifying grocery items and how much they cost. This will teach them how smaller priced items can quickly add up to a much larger total.
5. Set up a savings account for your child – Maintain controls, which you govern (like when they can make withdrawals), but let them see their deposit book or statement regularly, particularly when interest is credited. This will teach your children about rewards and saving.

Women falling into a financial trap

Of all those who need a helping hand planning their financial future, women approaching retirement with a modest net worth are highest on the list. I was recently asked to contribute to an article on this subject for the Courier Mail Newspaper here in Brisbane.

You can view the full article here:

http://www.news.com.au/business/money/story/0,25479,23758162-5013953,00.html

Little interest in high interest

Recent research by Citibank indicates that 81 per cent of Australians don't know what rate of interest they are earning on their savings account. The survey of 1,100 people, shows that those on a household income below $40,000 were more likely to know exactly what rate of interest they get on their savings (30 per cent) than those earning a higher income of $70,000 or more (16 per cent). This suggests lower income households need to keep a closer eye on interest rates than their higher income-earning counterparts.

Men and Women

The research also shows that 24 percent of men know exactly what interest rate they are currently earning on their savings. While for women this figure drops to 15 per cent. One in five men (21 per cent) knew the interest rate when they opened their savings account but have since forgotten. For women, the corresponding result is more than one in three (34 per cent).

Women are also more conservative than men when it comes to knowing the top interest rates available in the market. When asked for the highest interest rate on offer at the moment, 20 per cent of men said 8 percent or more compared to 12 per cent of women.

The cost of a little discipline

A personal loan may be more costly than home loan rates but they have the advantage of instilling discipline in certain borrowers when purchasing consumer items.

Consumer finance is by definition, finance for items that get consumed - things that get used up or wear out. It would be perfect if we could always access the cash when we needed it to buy these kind of items.

When you're looking at a new car, holiday, boat or other worthwhile purpose, the cheapest way to get it is to save. But when these items cost upwards of $20,000 saving might not be an option.
Borrowing for consumer items using credit that operates on a revolving basis, like credit cards or some home mortgages has its advantages. But when it's used by borrowers with limited or fixed income, often the principal remains unpaid for years or never gets paid off at all.

When you do need to borrow for consumer items a personal loan might be the best option. A personal loan allows you to access goods and services now, that you might not otherwise be able to take advantage of if you were forced to save. The repayment of the loan, both principal and interest is required to be made over a specific period of time, usually one to seven years.

Borrowing for consumer items can make good sense. If your car is older and is in need of constant maintenance and is costly to run, there may be good financial reasons to borrow funds for a newer and less costly vehicle. The running costs alone might be preventing you from saving any money towards a new vehicle. However, before you consider borrowing on this basis ask yourself a few questions first. Do I really need the item? Would it be possible to get something a little less expensive and save for it? Also consider the consequence additional debt will have on other financial goals you may have. If you are a first homebuyer looking to enter the mortgage market, it might be better to defer the decision to borrow for an overseas holiday until you are in your new home.

The simple fact is that some people do need the discipline of a certain payment every month for a set period of time to pay things off - and there's a lot to be said for that. But if you're on a higher income and you have the discipline and can afford to service new debt, then you've probably earned the right to make the choice to "consume now and pay later"

Relationship breakdown and debt

If money wasn't the cause originally, problems with debt can occur when a relationship comes to an end. To reduce the financial impact of relationship breakdown, ensure that your ex-partner does not take savings and use available credit from any joint bank accounts, home loan redraw facilities and credit card accounts.

Five things you should do in the event a relationship turns sour.

1. Establish a new transaction account in your name only and ensure that your salary and other payments are diverted to the new account immediately.
2. Close joint accounts unless these are being used to pay joint debts of the relationship, childrens expenses etc.
3. Tell your bank or lender about the relationship breakdown and demand, in writing, that it stop any further use of the any loan redraw facility. This will be critical if the redraw facility allows either party to access the available credit without the other borrower's authorisation.
4. Cancel any right your ex-partner may have to access your credit card account as a secondary card-holder.
5. Arrange for copies of all joint account statements to be sent to you in the event you change address.

If the breakdown is permanent, you will generally need advice from a family law lawyer about dividing the property of your marriage or de facto relationship.

The super self-employed

By Jaeneen Cunningham

A report by the Association of Superannuation Funds of Australia (ASFA) says that Many self-employed Australians remain unprepared for retirement with little or no superannuation or other appropriate savings. According to the chief executive of ASFA, Pauline Vamos, the research has revealed a significant gap in the retirement savings of the self-employed when compared to wage and salary earners in Australia. The report shows that while the self-employed sector makes up over 10 per cent of labour force, 28 per cent of the sector has no superannuation at all, while a further 53 per cent has a super balance of less than $40,000.

We know small business is under greater financial pressure than ever but given the tax incentives aimed at boosting contributions, self-employed people should consider superannuation as part of a strategy to increase their retirement savings. If you're self-employed its imperative you dont let all the years of hard work slip away by not providing adequately for youself in retirement. Look at your expenditure and find a little to make those important contributions now!

Creating Wealth with regular savings

With rising interest rates and rising house prices, your dream of one day buying your own home is possibly just that - a dream. You can give your medium term financial goals a kick start by setting up a regular savings plan now.

A regular savings plan is an arrangement you make with a fund manager or someone similar to invest an initial lump sum followed by regular investment installments; the most common installment period being monthly. A lump sum amount of $1,000.00 will get you started and minimum monthly amounts usually start at around $100.00. You can invest anything above these amounts according to what you can comfortably save. If you're like most of us, it can be a good idea to have your monthly payments direct debited from your bank account to make sure you stick with the plan.