Plan for your financial future

Save Print E-mail

The love of money is sometimes described as the source of all evil. I disagree, but the lack of it can definitely be the source of many a sleepless night – especially if you’re expecting a child, leaving a job, getting divorced, planning your retirement or going through one of life’s major stages. Sadly, some women fall victim to the Cinderella syndrome and hope someone will save them from their money misery. Someone may, though most likely it won’t be your partner but a qualified financial planner or advisor, who will help you find your own path to financial security. Notebook: readers went to see what advice such experts could give them.

Lisa Gilbert, 36, is a newly single mother thinking about a future for herself and her daughter, Bella, aged nine.

Lisa bought a home with her share of the divided marital assets and now has a mortgage. As she hadn’t been employed for many years, she had to apply for a ‘Lo Doc’ loan (see box opposite), which has a higher interest rate than a standard loan. She has no other investments and no superannuation, health insurance or personal insurances, although she does have a house and contents policy.

Lisa’s income comes from a single parent benefit ($10,000 a year), regular child support ($12,000 a year) and her earnings from contract concreting – a traditionally male-dominated job but one she enjoys and can fit into school hours. Her annual income is less than $27,000.

Lisa wants to earn more money and have more control over how she earns it. She’d like to be able to contribute to her super, to save, and to spoil Bella on occasion. She plans to travel with Bella in a couple of years and will need to renovate her kitchen within five. In the long term, she’d like to retire financially independent.

“My main concern is what to do with my life while still having time with my daughter – that’s my number-one priority.

“I’m a good saver. I hate personal debt. I use cash and I can wait for something. Mortgage repayments are a stress: they’re a stabilising thing in my life but I’ve probably stretched myself a bit.”

Megan Aikman, financial planner at National Australia Bank, on Lisa’s case:

“Lisa’s financial position can be improved by finding a more stable job, perhaps with the help of a careers counsellor. This will serve two purposes: saving for retirement, and helping to reduce the interest rate of her home loan.

“Once she has regular employment (on a casual basis), Lisa should consider income protection insurance to ensure she could continue mortgage repayments if she was temporarily disabled or unable to work. She should also ensure she has a current will, made since the end of her marriage.

“By working for an employer, Lisa will start to receive Superannuation Guarantee contributions (nine per cent of her income). Although this amount will not be enough for Lisa to be self-sufficient in retirement, it’s at least a step in the right direction.

“With a stable income, Lisa should be able to lower the interest rate on her home loan, but will need to weigh up any existing penalties on this type of loan against the savings.

“To fund an overseas holiday and kitchen renovation, she should direct any surplus income into her mortgage, giving her the ability to redraw surplus funds. By comparison, if Lisa was to invest the surplus into a high-yielding online savings account, she would be taxed (at her marginal rate) on the income, effectively reducing the yield from approximately 5.5 per cent to 3.85 per cent.

“By investing the surplus into her mortgage, Lisa will effectively receive an after-tax return of more than seven per cent. A smart move!”

What is a managed fund?
These are large pooled sums of money from many investors that are professionally managed across a range of investments. This has the effect of spreading risk and possibly accessing better investment opportunities through the pooled resources. The choice of funds depends on your circumstances, your goals and other investments already held. Investing from as little as $500 is possible, although the common entry amount is upwards of $1,500. There’s a trade-off between risk and returns. For example, balanced funds will hold 50 per cent or more of their assets in growth assets such as shares but will experience more ups and downs in the shorter term for better returns in the long haul.

Pros: Access to managers who are making the most of your money; risk reduction; potentially better returns than the cash rates.

Cons: The fees can be relatively expensive; investors don’t know day-to-day how or where it’s going; your funds may not be instantly accessible.

Finding the right plan

Making the call
Women-specific financial services are offered by Superwoman in Sydney and Women’s Financial Network in Victoria. Elsewhere, you can scout for planners using www.rainmaker.com.au (go to ‘Select Advisor’), ask friends and family for referrals, or make an appointment with your bank or credit union’s financial planner. Generally, the first consultation will be free.
A good planner will help you manage your debt, plan your super and retirement, get some investments organised and inform and mentor you on money issues. When deciding on a financial planner, check if they are a member of the Financial Planning Association of Australia (see www.fpa.asn.au). Visit three planners before committing and ensure they have at least a diploma of financial planning and have practised for a minimum of three years.

The cost
Most planning groups start at $550 for a financial plan known as a Statement of Advice, but can average closer to $2,500 for active help with investments.

For the no-frills service at www.superwoman.com.au, you pay a flat fee of $250 (plus GST) for two consultations with a money manager and a summarised report – a ‘financial health check’. If you decide to proceed with these strategies, you pay a further $250 (plus GST) for a full written report – the Statement of Advice.

Upon implementing the recommendations, Superwoman may charge more (though no more than one per cent plus GST on the balance invested) as commission. You can choose to have both $250 consultation fees deducted from these commissions. Typically, financial planners such as Megan Aikman at the National Australia Bank charge between $550 and $2,500 for preparing a financial plan with recommendations. Advice about consolidating super may cost around $550, but if the work is complicated and the amount to be rolled over substantial, there may also be an implementation fee.

Words: Julianne Dowling. Photography: Andrew Lehmann.