It’s June which means winter has officially arrived. As we rug up and spend more time indoors (unless like us you love the snow in which case it’s time to get out and about!), it’s a perfect time to get your financial house in order as another financial year draws to a close. And what a year it has been!
The local economic news in May was dominated by the federal Budget and better-than-expected economic data. Australia’s budget deficit is smaller than expected just six months ago, at $177.1 billion in April. This was underpinned by rising iron ore prices, up 22% this year, and higher tax receipts from more confident businesses and consumers.
The NAB business confidence and business conditions ratings hit record highs in April of +26 points and +32 points respectively. New business investment rose 6.3% in the March quarter, the biggest quarterly lift in nine years. Housing construction is also going gangbusters, up 5.1% in the March quarter while renovations were up 10.8% thanks to low-interest rates and government incentives. Retail spending is also recovering, up 1.1% in April and 25.1% on a year ago. The ANZ-Roy Morgan weekly consumer confidence index rose steadily during May to a 19-month high of 114.2 points, well above the long-term average. As a result of the pick-up in economic activity, unemployment fell from 5.7% to 5.5% in April.
In response to all this, the Reserve Bank lifted its economic growth forecast to 9.25% for the year to June and 4.75% for calendar 2021. If realised, this would be the strongest growth in 30 years, albeit rising out of last year’s COVID recession. The major sticking point remains wages. Wage growth was 0.6% in the March quarter but just 1.5% on an annual basis, below inflation. The Aussie dollar finished May at around US77c after nudging US79c earlier in the month.
Budget your way into the black
$2.2 trillion. That’s how much Australian households owe right now, according to the latest ABS stats.i Household liabilities grew by $1.2 billion in the last quarter alone. Real household debt per person has risen steadily by around 2 per cent per year, and now sits at around $79,000 per person.ii
Sound scary? The good news is, there are ways you and your family can buck this trend and ensure your finances stay out of the red and in the black. The key is good old-fashioned budgeting.
Why a budget is important
Budgeting is simply the most straightforward, proactive way to ensure you will always have enough money for the things you need whilst allowing you to put a little aside for the things at the top of your wish list. That’s the practical side of it. A budget can also help you reduce financial stress, improve your family relationships, redefine your personal values and provide a good example for your kids or grandkids.
How to set up a budget
The first step is to do an audit of what you’re spending. You may also need to do a round-up of what you’re earning, if you have several income streams. Start by gathering as much evidence as possible; utility bills, receipts, bank statements etc. Make a tally of your outgoings. Be as accurate as you can; where you don’t have a record to substantiate a line item, try not to underestimate it.
Then, compare your income to your outgoings. If you spend more than you earn, you’ve got work to do. If you’ve got a surplus, that’s a great start, but there’s always room for improvement.
The second step is setting goals. Choosing well defined goals – beyond just ‘save more’ or ‘get rich’ – is important for your long-term budgeting success. Try setting at least a few short-, mid- and long-term goals. For example, in the short term, you might aim to reduce your spend on clothing by $100 a month. In the long term, you could aim to build up an emergency fund equivalent to six months’ household income.
Why budgets fail
If all this sounds familiar to you, chances are you’ve tried and not succeeded at budgeting in the past. That doesn’t necessarily mean you’re ‘bad with numbers’ or lacking discipline. There are several common reasons why budgets don’t stick. Budgets lacking in defined goals are often prone to failure. As are those that are too restrictive, allowing no room for spending on things like meals out or entertainment; anyone who’s tried to completely cut ‘fun’ spending knows how unrealistic this is. Many budgets also ‘break’ after a short time because they fail to account for unexpected emergency expenses, from vet bills to car repairs.
Once you’re aware of why your last budget didn’t succeed, you can start to build a better one.
The right technology can help make your budget more accurate, realistic, effective, and easy to stick to. You don’t even have to create a spreadsheet from scratch, or use complicated software on your PC. Carry a budgeting solution in your pocket with a handy smartphone app:
Budgeting apps to make it easier
1. ASIC MoneySmart’s TrackMyGoals and TrackMySpend apps – FREE
These government-produced apps draw on tonnes of research to help you implement proven savings and budgeting strategies.
2. Pocketbook – FREE
Pocketbook syncs with your bank account, automatically sorts your expenses into categories, and receive automatic alerts and warnings to keep you on track.
3. You Need a Budget – US$5/month or US$50/year
In the case of YNAB, one of the world’s most popular budgeting apps, it’s a case of spending money to save money. According to their stats, the average user saves US$3,300 in their first nine months – that’s over $4,300 Aussie dollars.
Your budget needs to work for you and your individual circumstances and will require attention on a regular basis to make sure it’s still working for you. Get started today and you’ll soon be well on your way to achieving your saving goals.
i ABS, 5232.0 – Australian National Accounts: Finance and Wealth, Mar 2016
ii ABS, 4102.0 – Australian Social Trends, 2014 (Final): Trends in Household Debt
Quarterly property update
Heated property market heads into winter
After a sizzling hot start to 2021, when rising home prices were clocked at their fastest pace in 32 years, the Australian residential property market is heading into winter still on the boil.
Up until the end of May, housing markets continued to surge with CoreLogic’s national Home Value Index up 2.2 per cent over the month.i While the May result was stronger than April’s 1.8 per cent rise, it was still weaker than March when dwelling values made their biggest monthly move since October 1988 at 2.8 per cent.
City versus country
Prices across every residential market – city and country – are rising. House and unit values in each capital city were up more than 1 per cent over May and of the 334 statistical sub regions monitored by CoreLogic, 97 per cent had experienced positive price growth during the quarter. Although a post-pandemic escape to the country lead to soaring home prices throughout early 2021, the tide appears to be turning – albeit slightly. For the second time in three months, growth in capital city home values outpaced regional markets. The combined capital city figure was up 2.3 per cent for May against a 2 per cent rise across the combined regions.
Timing is everything
All the right drivers are at play in the current market to keep the tide rising. Historically low interest rates, a healthy economy, extra household savings, and a desire to reevaluate one’s work-life balance in the wake of COVID-19, have all come together to create an ongoing demand for housing.
Couple these factors with a lower than average advertised supply of housing, and the perfect storm is perpetuating an upwards pressure on prices.
Buyer types are shifting
Despite strong activity from first-home buyers late last year and into early this year, the end of HomeBuilder in March and rising affordability constraints have seen this buyer type be overtaken by home buyers already on the property ladder and now investors.
Australian Bureau of Statistics data showed that February and March recorded a 4.8 per cent reduction in first-home buyer borrowing, while investor financing was up 17.7 per cent in March compared with January. As a result, the share of financing secured by investors sat at 25.9 per cent, up from 23.1 per cent in January.ii
Australia’s most populous city, and the rest of NSW, have been home to some of the most extraordinary property price growth throughout the start of 2021. From January to April 2021, Sydney dwelling values have risen 9.3 per cent according to CoreLogic data, and across regional NSW dwelling values were up 9 per cent. Sydney’s median dwelling value is now just over $970,000.
Although extended lockdowns impacted Melbourne’s inner city unit market, prior to the most recent spike in Victorian cases, the market had bounced back strongly. Dwelling values for the capital were up 5.5 per cent for the quarter to a median of $740,562.
Dwelling values across Queensland are currently 13.7 per cent above their previous record high, partly fuelled by interstate migration to the Sunshine State. Brisbane itself saw a 6.2 per cent increase in dwelling values for the last quarter, taking the current median to $574,572.
By April, Western Australia had marked its the eighth consecutive month of growth in state dwelling values, and the 19th month in a row of rental increases. For Perth there was a 3.8 per cent rise in dwelling values during the past quarter so that the median reached $521,688.
Throughout the start of 2021, ACT’s housing market surged to the point of 20 consecutive months of dwelling values reaching record highs, placing the market value 19.1 per cent higher than the previous high in April 2019. After a quarterly rise of 6.5 per cent, Canberra now has a median dwelling value of $746,573.
To find out how you can make the most of 2021’s property market conditions, contact us today.
Note: all figures in the city snapshots are sourced from: CoreLogic’s national Home Value Index (June 2021)
The latest government home schemes explained
There was some good news for first home buyers in the recent Federal Budget. It included a variety of new schemes and extensions to existing schemes, all aimed at helping more people realise their dream of home ownership.
Here’s an overview of the assistance being made available and who can benefit.
Building your first home
On 1 July 2021, the New Home Guarantee, previously referred to as the First Home Loan Deposit Scheme, will release 10,000 places for first home buyers wanting to build a new home or buy a newly built home.
Any home buyer with less than a 20 per cent deposit normally needs to pay lenders mortgage insurance, which can represent a large additional cost at purchase or potentially add to your repayments if it forms part of your loan. With the New Home Guarantee, first home buyers can buy their home with a deposit of as little as 5 per cent without having to pay lenders mortgage insurance. This is because the government will guarantee up to 15 percent of the value of the property.
In order to be eligible for the New Home Guarantee scheme, you and/or your spouse or de facto partner, will need to be an Australian resident over the age of 18. There are several criteria you will need to satisfy including an income test, a prior ownership test, meet the owner occupier requirement and have a minimum 5 per cent deposit.i
Help for single parents with dependents
The new Family Home Guarantee is providing mortgage guarantees for single parents with dependants, who want to build a new home or buy an existing one.
The scheme allows single parents to buy a home with a deposit of as low as 2 per cent, and is open to single parents who are first home buyers or have been owner-occupiers before. To be eligible your annual income must be below $125,000. It is flagged to run for four years with the first 10,000 places opening on 1 July 2021.ii
The Family Home Guarantee works in a similar way to the New Home Guarantee scheme and is an exciting initiative for single parents who are struggling to save a deposit.
Increases to tax-efficient deposit saving in your super
The Government is extending and increasing the First Home Super Saver Scheme (FHSSS) to help even more people buy their own home.
From 1 July 2022, you are able to release up to $50,000 from your superannuation to put towards a deposit for your first home. If two people are saving under the scheme, that’s up to $100,000 you could add to your deposit. This is an increase from the $30,000 maximum per person previously available.iii
The great thing about this scheme is that you can benefit from the tax savings that apply to voluntary super contributions and the income those investments earn while saving for your first home deposit.
The changes apply retrospectively to valid FHSS release requests and contracts entered into on or after 1 July 2018. Please don’t hesitate to give us a call if you are interested in applying for the scheme or would like to find out more.
Extension to HomeBuilder start dates
If you applied for a HomeBuilder grant but haven’t started construction yet, there’s good news for you too. The construction deadline has been extended from six to 18 months for all applications, which includes contracts signed between 4 June 2020 and 31 March 2021.iv
We’re here to help
While having so many schemes on offer is great, it’s easy to feel confused about which you qualify for.
If you’d like to discuss whether any of these schemes may be appropriate for your circumstances and how to apply, then please get in touch. It’s never too early or late to start planning your path to home ownership.
Please note that some of these schemes are not yet legislated at the time of publication.
Counting down to June 30
It’s been a year of change like no other and that extends to tax and superannuation. As the end of the financial year approaches, now is a good time to check some new and not so new ways to reduce tax and boost your savings.
With so many of us confined to our homes over the past year, the big deductible item this year is likely to be working from home expenses.
Home office expenses
If you have been working from home, the Australian Taxation Office (ATO) has introduced a temporary shortcut method which can be used for the 2020-21 financial year. This allows you to claim 80c for each hour you worked from home during the year.i
The shortcut method covers the additional running costs for home expenses such as electricity, phone, internet, cleaning and the decline in value of home office furniture and equipment.
Some people may get a better result claiming the work-related portion of their actual working from home expenses using the actual cost method.
Alternatively, if you do have a dedicated home office, you can claim using the fixed rate method. The fixed rate is 52c an hour for every hour you work at home and covers things like gas and electricity, and the decline in value or repair of office furniture and furnishings. On top of this, you may be able to claim the work-related portion of phone and internet expenses, computer and stationery supplies, and the decline in value of your digital devices.ii
While COVID has changed many things, some things stay the same. Such as the potential benefits of pre-paying next year’s expenses to claim a tax deduction against this year’s income.
Some examples are pre-paying 12 months’ premiums for your income protection insurance and work-related expenses such as professional subscriptions and union fees. If you are unsure what you can claim, the ATO has a guide for a range of occupations.
If you own an investment property, you might also consider pre-paying 12 months’ interest on your loan and other property-related expenses.
Top up your super
If your super could do with a boost and you have cash to spare, now is the time to check whether you are making the most of the contribution strategies available to you.
You can make tax-deductible contributions up to $25,000 a year, including Super Guarantee payments by your employer. You can also contribute up to $100,000 a year after tax. From July 1 these caps will increase to $27,500 and $110,000 respectively, so it’s important to factor this into decisions you make before June 30.
For instance, if you recently received a windfall and are considering using the ‘bring forward’ rule, you might consider holding off until after July 1. This rule allows you to bring forward two years’ after-tax contributions. By holding off until July 1 you could contribute up to $330,000 under the new limits.
Also increasing on July 1 is the amount you can transfer from your super account into a pension account. The transfer balance cap is increasing from $1.6 million to $1.7 million.
So if you are about to retire and your super balance is close to the cap, it may be worth delaying until after June 30.
Finally, from 1 July 2020, if you are under age 67 you can now make voluntary contributions without meeting a work test. And if 2020-21 is the first year that you no longer satisfy the work test, you may still be able to add to your super if you had a total super balance below $300,000 on 1 July 2020.
Manage investment gains and losses
Now is a good time to look at your portfolio for any loss-making investments with a view to selling before June 30. Any capital loss may potentially be used to offset some or all of your gains.
Of course, any decisions to buy or sell should fit with your overall investment strategy and not for tax reasons alone.
For all the challenges of the past year, there are still many ways to improve your overall financial situation. So get in touch to make the most of strategies available to you to before June 30.
This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal tax advice prior to acting on this information.
Daniel Grusd and Onelife Wealth Management Pty Ltd (ACN 139 437 513) are authorised representative of Synchron, AFS Licence No 243313. Trading as Onelife Financial, Suite 806, 251 Oxford St, Bondi Junction NSW 2022. Unless specifically indicated, the information contained in this newsletter is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where necessary, seek personal advice from a financial adviser’.