Policy choices that make us feel rich
When we moved to Melbourne, we prepared to be poor. According to a recent survey, Melbourne is the world’s 8th most expensive city to live in. It took us a few months to figure out where our finances would settle. At the end of those months, we were shocked to find that our disposable income in Australia was significantly higher than in the United States. How could this be?

Photo: http://www.perthnow.com.au

Super Annuation. All Australian employers are required to pay something called super annuation. It’s similar to a mandated contribution to a 401(k) in the United States that equals 9% of your salary. In the United States, Laura and I put about that much into our own 401(k) plans, but here we don’t have to since our employer does it for us. All things being equal that’s an 18% increase in our take home pay (when you add our two salaries together)!

But wait, there’s more!

Salary Packaging. A few years ago, the Australian parliament passed a law that gave workers employed in certain sectors of the economy (primarily non-profit and medical personnel) preferential tax treatment. The policy goal was to increase the number of people entering and staying in these fields. As an employee of Save the Children, I am able to take advantage of salary packaging. The first $16,000 of my annual income is not taxable. This is on top of the first $12,000 (I think) that applies to all Australians. In addition, I also get to discount all of the costs associated with eating out and staying at a hotel. We save our receipts, submit them, and this amount comes off my taxable income. So each time we eat out, we reduce both my taxable income and creep closer to a lower tax bracket.

Sounds crazy right? It is crazy. It’s a total racket. But one we love!

The sporting lifestyle
Most general interest articles about Melbourne will mention that Melburnians are ‘sports mad’. We weren’t sure what this meant before we arrived. As we’ve mentioned in previous posts, Melbourne is the heart and soul of Aussie Rules Football and has the country’s most important sporting stadium – the Melbourne Cricket Ground. It’s also the home of the Australian Open (I’m watching the women’s final while typing this post). Since arriving we’ve been to a few Footy matches, a handful of soccer matches, and the Australian Open. These are fun and great, but what we really love is how easy Melbourne makes it for us to get out and play sports.

There are parks, bowls clubs, and tennis clubs everywhere. Everyone plays sports, even if they’re terrible. Ask a Melburnian if they want to play tennis with you and almost all of them will accept. It doesn’t matter if they haven’t played for twenty years and are terrible, they’ll still say yes. So you don’t have to feel intimidated about playing almost any sport here. It’s fantastic. Since arriving, Laura and I have both picked up new sports. Laura plays tennis at least once a week, often more. I play squash once a week. And after learning how to play lawn bowls (we refer to it as lawn curling) over the holiday, we’re eager to get out one night each week and play at our local bowls club.

Australianisms
Australians talk funny. And I’m not talking about their accents. Australian phrases are often hilarious in their simplicity and straightforwardness. I’ve come to look forward to learning new Australianisms each day. Here are a few of my favorites:
Cool Change. In the heat of the summer, Australians look forward to the moment a low pressure system arrives and drops the temperature. They call this moment the cool change. Meteorologists here will even predict when the cool change will arrive, “it’ll stay hot until about 8pm when the cool change will arrive”.
Sticks out like dogs balls. Something that will be difficult to conceal. “If we do that it’ll stick out like dogs balls and our boss will definitely figure it out”.
Peak body. Everything in Australia must have a peak body. For example, an organization like the Australian Medical Association would be known as the ‘peak body of the medical profession’.
Anything ending in -y or -ie (and the list could be neverending). Cossie (bathing costume); pressie (present or presentation); brekkie (breakfast); sunnies (sunglasses); schoonies (mid-sized glass of beer); footy (Aussies rules football).

Yarn bombed tree in downtown Melbourne. Flickr: Bonito Club

Street art
Melbourne is full of street art. At first we thought there were graffiti taggers everywhere. In the United States the amount of graffiti in an area is usually proportional to the level of crime. Here street art is celebrated and encouraged and has nothing to do with the crime rate. There are street art walking tours, government grants to street artists, and neighborhood associations that support different types of street art (i.e., yarn bombing, which is particularly popular in our neighborhood).

As you know if you’re a reader of this blog, I’m not a big fan of art in museums. Art should be accessible. Australian cities excel at encouraging accessible art. We love it.

The video embedded below does a great job of demonstrating the diversity and vibrancy of Melbourne’s street art scene.

Australian animals
We knew before arriving that Laura was going to love Australian animals. I, on the other hand, figured they would be fun to see once. I was wrong. I still get excited to see koalas. Not as excited as Laura and her family, but still excited. Kangaroos are overrated, but wallabys and padamelons are pretty cool. Feeding possums in the park may be illegal, but they’re darn cute.

Little Penguin at St. Kilda Pier. Flickr: Richard Fisher

Seeing cockatoos, ibis’, kookaburras, and parrots fly by as I run in the park is still a thrill. Catching a glimpse of the fairy penguins at the St. Kilda pier makes me speak in the high pitched tones of a five year old. And after seeing two Tasmanian Devils ‘fight’ over an Ostrich egg at the Healesville Sanctuary today, I can tell you that they are amazing little animals. Did you know they suffer from a rare transferable cancer and are in danger of going extinct? It’s pretty crazy and if they need foster parents, I’ll be the first in line.

A hungry Tassie Devil at the Healesville Sanctuary

Writer, editor, teacher, all round good guy

I’m delighted to introduce my friend, editor and publisher Matt Potter as author of the first in a series of guest blogs.  A gifted writer and sharer of knowledge, Matt is earning a name online as THE editor to work with if you want to learn how to improve your writing, fast.  He’s also great at highlighting the cultural differences a writer should bear in mind for their target market.  Here, he tackles the timely subject of money and discusses the difficulties of gaining employment as a capable, experienced adult in Australia.

The largest pool of money in Australia is – apparently – that created by superannuation funds. All employees by law have to contribute to their own super (the word super in everyday vernacular years ago used to mean superphosphate, the fertilizer: funny how things change) so even the crappiest savers have some money set aside for when they retire. It’s currently 9% of your salary, paid directly by your employer. In 2013 it’s set to increase to 12%.

You can also pay money yourself into your super fund, which many do. And it’s the source of endless conversations, particularly at any gathering of anyone over 40. How much super do you have? How much are you putting in yourself? When can you claim it tax-free and at what age can you then retire? How much of your retirement will be self-funded and what will a part-pension (from the government) give you? And for government employees, Are you under the old super scheme or the newer scheme? (The old one is a lot more generous and pre-dates super becoming compulsory.)

What’s great about superannuation in Australia is no one thinks it’s a bad idea. I’ve never heard anyone complain about its existence. Ever. Though sometimes I wonder what we as an ageing nation talked about before compulsory super was introduced in 1992.

I don’t have any super beyond what employers have paid on my behalf. (Remember, my employers paid it but it’s actually my money.) I receive a statement in the post once or twice a year (I can’t remember how often) and I open the A5 envelope and turn to page 4 to look at the pretty graph, purple and mauve columns climbing towards a funded future.

But I try not to think about my super too much because it worries me I’m not contributing anything voluntarily and I’ll be poor (or poorer than others) when I retire, whenever that is. I worry I’ll have some money, but not enough.

This worry is exacerbated by the fact that, at the moment, I’m also unemployed.

What is ridiculous is that I’m hugely employable! No one needs to tell me this: it’s a given. When describing my CV, the word prospective employers, recruitment agency personnel and obsessive resumé-readers always use is comprehensive. (If you want to see just how comprehensive, email me and I’ll send it to you: maybe you have a job for me.)

I’ve worked a lot of jobs and packed in a lot of experience, mainly in community services, marketing and promotions, the media, and English as a Second Language (ESL) teaching; mainly in not-for-profit organisations; mainly earning shit money; mainly doing a lot of interesting things; and mainly on-the-ground, though sometimes in management. My last job was for a British multinational, and while I loved the job teaching English to refugees in detention, I loathed the management structure and the fake ethos of the company. (Really, I just don’t do private enterprise. And I hate it when for-profits pretend to be about service in the ways not-for-profits are about service. The company was turning a profit doing work the government should be doing, making money out of other people’s misery!)

That job finished six months ago. (Okay, three of those subsequent months were spent travelling in North America and Europe. But to do this I had to resign from the ESL teaching job, which paid okay.)

But I had a job interview last Tuesday. It was for an admin support role with a company working in gas and oil exploration. (“Sure,” I’d said to the woman from the recruitment agency when she’d emphasised the communications aspect of the position, before she said the words it’s basically reception, “put me up for it.” But I went through with it because I’d said I would, despite later thoughts. Plus, I thought it should make me look dependable to the recruitment agency.)

My interview time was 3.00pm, so from when I stumbled out of bed at 9.00am (remember people, I’m not working at the moment) to 3.20pm when the interview finally commenced, I had a lot of time for my stomach to put itself through its back-flipping, somersaulting, spasm-churning paces.

I ’phoned my partner at work. “I really don’t want to do this,” I said, my voice athrob. “I just want it to be over.” Buying some new ‘interview’ clothes took my mind off my unease briefly, but I couldn’t work out why I felt so squeamish about it.

But I think it was this: I knew I had to lie. I knew I had to sit in the interview room and pretend I wasn’t über-overqualified for the glorified-reception-with-the-possibility-of-advancement, fulltime, starting next week (hopefully), initially twelve-month contract position.

Aged 46, bullshitting is getting too hard for me. And given my experience, as egotistical as it might be, in my heart of hearts I don’t see why I still have to prove myself. Take me as I am: I’m not shitting you.

And they must have known, the man and woman (she clearly eight months pregnant), both in their very early thirties at most, smiling faces sitting on the other side of a round table asking me questions so I can reveal to them, through my targeted answers, how suitable I am for a job I am eminently not suitable for, each answer I give only emphasising that.

The interview lasted forty minutes. And I shook their hands when I left.

There are certainly worse ways to spend time in the western suburbs of Adelaide, but afterwards, walking back to my car parked on the street a few doors away, I wondered who should get the flowers for the best performance: them, or me?

I’m hoping a job that suits my varied skills and comprehensive work experience will reveal itself soon. Because until then, I won’t be contributing to Australia’s giant superannuation pool and I won’t be saving for my retirement, whenever that will be.

And one of the fewer things sadder than a 46 year-old man who’s not good at bullshitting and who can’t adequately provide for his retirement, is a 66 year-old man who’s not good at bullshitting and who’s still looking for work so he can retire in 20 years time.

Matt Potter’s collection, ‘Vestal Aversion’, is available to buy NOW from
http://www.lulu.com/gb/en/shop/matt-potter/vestal-aversion/paperback/product-20230601.html

You can leave a comment for him here or contact him via his site ‘Pure Slush’, where he publishes short pieces of nonfiction and “flash without the wank” –
http://pureslush.webs.com/

There are more than 430,000 self-managed superannuation funds (SMSF) or DIY super funds operating in Australia. The majority of these funds have been established for one reason only and that is to enable members of the fund to control the investment of their superannuation monies. Many have become sick and tired of leaving their retirement dreams in the hands of faceless money managers. Although this is a powerful driver, this single focus limits the strategic possibilities of the fund and misses the whole point of these powerful vehicles.

In short these unique super funds have a very special place in Australia and for that matter the world if designed and used properly – they allow the aggregation and investment of a family’s superannuation benefits as well as providing a pool of monies and assets to look after family members including children and grandchildren at the time of an accident, sickness, permanent disability, death, pre-retirement and retirement. To make the most of a SMSF, turn it into an Enduring Family Superannuation Fund, in other words “turbo charge” it for maximum benefits.

The Enduring Family Superannuation Fund

The Chan & Naylor Enduring Family Super Fund is the same skeleton tax structure as a DIY super fund and a SMSF but the key focus is on the family and improved functionality to allow the trustees to avail themselves of all possible superannuation strategies. Surprisingly of the 430,000 SMSFs in Australia that have the opportunity to have up to four members of a family in the fund, only 10% have chosen to do so. 20% of SMSFs have only one member with 70% having only two members. This is a great loss of opportunity – can anyone imagine what it would be like to establish a family trust with only one or two beneficiaries. No Chan & Naylor accountant or any accountant for that matter would recommend this limited course of action. Why purposely restrict what you can do?

Image via Wikipedia

 

To see the difference between the Chan & Naylor Enduring Family Superannuation Fund and the DIY or SMSF fund consider some of the following Enduring Family Superannuation Fund strategies:

• An adult child member in the fund has an accident and spends six months off work. The trustees of the Family Super Fund can begin to pay out salary continuance benefits to the incapacitated member to ensure that their salary and wages are kept to a level they were before the accident.

• The retiree members of the fund – aged over 60 use some of their superannuation benefits to fund a deposit on a property that is acquired with a loan from a bank. However the younger members of the fund – their children aged 40 and 38 who are also members of the Enduring Family Super Fund pay off the loan with on-going salary sacrifice contributions made by their employer. If the property is ultimately sold any capital gain is split between the family members relevant to their capital investments. While it is being rented the pre retirement members are reducing their tax liabilities on contributions to fund any negative gearing. Any other properties (purchased earlier) producing a positive income flow can go to those in person stage at zero tax.

• Mum is the sole remaining parent member of the fund and has been diagnosed with dementia. The adult child members are in the fund guiding her superannuation benefits towards the best in health and psychological care for their mother.

Enduring Family Super Fund FAQs

Let’s look as some important Frequently Asked Questions regarding a Family Super Fund.

1. I have a SMSF – can this be turned into a Family Super Fund or do I have to get some more documentation or a different trust deed?

Provided you are using a Chan & Naylor SMSF trust deed, which has in-built Family Superannuation Fund strategies and options, there is nothing preventing you and your family using your SMSF as a Family Superannuation Fund. For those with another SMSF trust deed, it is a simple process to upgrade the rules of the fund to a Chan & Naylor Enduring Family Superannuation Fund trust deed.

2. I don’t want to bring my children into the fund and they take control when I get older.

This is a key benefit The Enduring Family Superannuation Fund. When a child, brother, sister or grandchild becomes a member of the fund they must become a trustee of the fund or director of the fund’s corporate trustee if the fund has one. For child members under the age of 18, one of their parents can act as a trustee or director on their behalf. Under the trust deed each trustee is given the same number of votes for each $1 sitting in the account balance of the member they represent.

3. I have three children how do I get all of them into the fund?

The limitation of these small superannuation structures is that only four members can reside in the fund at any one time. This means that the controllers of a Family Super Fund -generally the parents need to choose who is best to occupy the fund at that point in time. As with children living at home, at some stage a child’s benefits and personal family circumstances may see them commencing their own Family Super Fund with their spouse and children -this may leave an opening in the parent’s fund which may be filled by another child. Alternatively, for sizable funds it may be wise to consider two or more Family Super Funds to cover the immediate and possibly the extended family.

4. Is my super balance protected if I go bankrupt?

Normally, yes but the Enduring Family superannuation fund is set up in such a way that if you go bankrupt say after age 60, then the fund can pay you a lump sum which is protected while pension payments are not protected.

If you look at insurance as a concept per se, then you will note that it is an extremely socially relevant concept today. The idea of collecting insurance premiums from several people to pay the claims of a few is as valid today as it was four decades ago. However, unlike the Western countries where there is a social security benefit for the elderly by default, in India, we do not have such a scheme except a regular pension scheme for those who have retired from service or a pension as part of super annuation.

Awareness about insurance as a protection tool is improving but considering the population in India, there is definite scope for improvement. Somehow I do feel that the “business” aspect of insurance has superseded the “social” aspect after liberalization. While the liberalization of the insurance business and establishment of IRDA were indeed steps in the right direction, the reduced success of the non-life insurance business and huge claims in motor and health insurance makes one wonder whether we are on the right path.

It is an undisputable fact that all the new private insurers who have set shop in India have brought in a great deal of professionalism in the sector and have also created employment opportunities. But one does have a nagging feeling that in the era of corporate social responsibility, they haven’t really pushed the envelope. Business survival and profit maximisation continue to drive the operational efficiencies of the insurance businesses. Micro insurance hasn’t picked up in India the way it should have. Despite a 100 million population of farmers, crop insurance has really not alleviated the afflictions of agricultural community.

When a city-bred individual earning lakhs and lakhs of rupees in the IT industry drives a car with the notion that insurance will take care of any damage to his vehicle in case of an accident and the garages/ workshops look at insurance as a way to make a fast buck, then the purpose of insurance as a protection tool gets defeated for sure. Motor insurance claims can boast of a great deal of fraudulent claims in them and the recklessness in most cases is due to the confidence that insurance will take care of the repair expenses [moral hazard]. The less said about health insurance the better. The claims procedure in a health insurance policy is no less complicated and the moral hazard and greed of the medical community to charge more because of “insurance” is something that is not easy to digest.

So, my grievance is that while insurance has succeeded in contributing to the GDP of the country, it hasn’t achieved that milestone in terms of contribution to social security. It is disturbing that the balance of insurance is tilted more towards the profit side rather than the social side of insurance. With the talent pool in national insurance companies having found their glory in the private insurance companies, the former finds itself caught in a peculiar situation. In a detariffed scenario, rate cutting in non-life insurance business has assumed so much prominence that insurance business has assumed a form that is similar to the business of selling soaps and shampoos and colas by FMCG companies.

While a free enterprise is the need of the hour for a developing country, in India, the national insurance companies (non life) seem to have been overtaken by the private players.

Should you stick with super?

Given the uncertainty in financial markets, many are asking if super is still the best place for retirement savings. The answer, from a range of financial industry experts CHOICE contacted, is a resounding yes. Essentially, superannuation is a way to invest in the same things as you’d invest in outside super, while paying less tax. You might have had the same losses outside super — or even worse — after tax. Superannuation isn’t tax-free, but it compares favourably to the alternatives.

Many people continue to view super as a long-term investment, even as they edge closer to retirement. You don’t have to withdraw your super when you retire or at age 65 — it can continue in the system, accumulating in value and providing you with an income for decades.

Use these simple strategies to get your super on track and working for you:

Choose the right investments

Ensure your super contributions are invested in the right types of market for your financial needs and tolerance to investment risk.

When you join a fund you’ll have a range of investment options to choose from. While some master trusts offer many options, some more than 200, most industry funds now offer at least three or four; larger industry funds offer around 10.

You can usually select from capital-guaranteed, capital-stable, balanced and growth options. Capital-guaranteed options offer minimal risk but returns are usually low. Growth options are high-risk but historically have higher long-term returns.

Salary sacrifice

If your employer allows it, making additional contributions from your pre-tax salary is an effective way to boost your super and pay less tax.

Free money from the government

Under the co-contribution scheme, people who earn less than $58,980 per year as employees, and who make an after-tax super contribution, can get an additional contribution from the Federal Government. It works on a sliding scale.

Make a contribution on your spouse’s behalf

Tax offsets can be claimed (up to a limit) on super you pay on behalf of your spouse if they have a low income, or no income at all.

Make after-tax contributions

They are taxed at lower levels, but there are annual limits for different age groups.

Pay lower fees

Industry funds often charge lower fees than commercial retail funds, as they don’t pay commissions to financial advisers and are not-for-profit. Pay for financial advice separately when you need it.

Review your investment choices

Select a well-diversified mix of assets that reflects your investment timeframe and willingness to accept risk and market volatility. ‘Growth’ assets such as shares are volatile in the short term, but over the long run have given a much better return than safer havens such as cash deposits and fixed-interest funds.

Source: http://www.choice.com.au/viewArticle.aspx?id=104237&catId=100494&tid=100008

Say your current salary is a comfortable $60,000 per annum (around $5000 per month before tax), you’re 30 years old and plan to retire at 65. Look at this formula:

NB. This example does not take into consideration promotions or pay rises, as they are not guaranteed.

Working Years Earning = Retirement Age 65 – Present Age 30 = Working Years Left

Working years left 35 x 12 pay slips/year= pay slips left 420

So you have 420 pay slips to last you for the rest of your life. Is that enough for you? Let’s break it down for our example.

NB. This example does not take into consideration interest rates, super annuation payments, tax or house price increases as this is a simple guide.

pay slips left 420 x current monthly pay slip $5000

= Remaining total earnings $2,100,000

This figure of $2.1m is to last you for the rest of your life. If you buy a house, let’s say costing about $400,000, that’s your total down to $1,700,000. Then you add the cost of a child, which is estimated to be around $170,000 over 18 years according to the U.S. Department of Agriculture in this MSN Money Article , so this brings your total to $1,530,000. So you now have $25,500 per year (if you live to 90) to do whatever you like with. But wait! What about food (take off $150 per week which equals $7,800 a year) and a car (take off $10,000 per year)?
Now you’re left with $7,700 a year! Is that enough?
What about socialising, holidays, hobbies, more children or improving your home? Also note that around a third of that will be lost in taxes (with a home business you also save on taxes). Will you have enough to do all the things you want to?

James

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