Salary sacrificer ... Melanie Rowe, 30, is well aware of the historical retirement shortfall experienced by women. Photo: Simon AleknaThat New Year's resolution has probably fallen by the wayside, so here's another chance. A new financial year is about to begin, thank goodness.
This one has been nothing to write home about, that's for sure. The super's probably going backwards, along with the sharemarket and property prices; the job's been getting tougher; and to top it all off, prices of things you can't avoid are surging.
And the new financial year is off to a bad start with the flood levy, the prospect of higher interest rates and even bigger jumps in council and utility rates, not to mention food prices.
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Happy financial new year, almost. Things will get better when the long-awaited mining investment boom finally kicks in some time before Christmas.
So hang in there and think about what else you need to do in the new financial year.
I've come up with a few sample resolutions from which you might like to choose:
1. I will not be spooked by the sharemarket
Keep your head while all around you others - about 40 per cent of the market, give or take the odd hedge fund - are losing theirs.
''The importance of the dollar can't be understated. Forty per cent of the market is owned by foreigners,'' says CommSec economist Savanth Sebastian, who tips the market will reach 5250 in a year's time, a 14 per cent rise.
And they're flighty. Past about $US1.05, they opt out by taking some profits. But what looks expensive to them is cheaper for us.
The point about booming commodity prices is that they add to our wealth, which then washes through the economy - and into the sharemarket.
The governor of the Reserve Bank, Glenn Stevens, says for every dollar the mining companies earn, about 40¢ is spent on supplies including power, transport and even things like accounting and legal services.
That's why white-collar jobs, which at first blush would seem to have nothing to do with what's going on in Port Hedland, have been growing so strongly.
It also suggests a cheaper way of riding the mining boom might not be buying shares in the miners themselves but the pick and shovel suppliers, as well as those who recruit the labour to use them.
These would be stocks such as Decmil Group, Forge Group, McMillan Shakespeare, Monadelphous Group and Skilled Group.
The end of the financial year is a good time to review your shareholdings anyway, so you can shuffle capital gains and losses around.
2. I will allocate my assets properly
If you have a portfolio of stocks, you need to rebalance it.
That is, sell some of the stocks that have jumped in price and buy more of those that have fallen if you think they're still worth having. Since the market hasn't budged all that much since June 30 last year, this shouldn't take long at all.
It's also a good time to check what your super fund is doing, which won't have been much.
But you need to make sure you're in the right investment option. These range from the conservative, where most of the money is in cash and fixed interest, to high growth, where the lot is in shares.
The right one for you depends on how sensitive you are to risk, which is to say whether you panic if half your money suddenly disappears. The rule of thumb is you start out in a high-growth option to let the magic of compounding do its trick.
Then pick more conservative ones as you get closer to retirement.
If you've never specified what you want to be in you'll find you're in a so-called balanced fund, which is midway between the two.
3. I will take a deep breath and put more into super
OK, this is a tougher vow. How do you psych yourself up to put more money into something that's been going backwards?
Sorry, that's your problem. But if it helps, unless your fund does something really silly, money in super will do better than money out of it because of the tax breaks.
Salary sacrificing cuts your tax rate to a flat 15 per cent on the money that goes into super. As a bonus, it might bring you down to a lower bracket and so you would save tax on your whole pay packet.
Remember 2011-12 will be the last year that the over-50s can salary sacrifice $50,000 (a maximum that includes the employer levy) to super before new rules come in, halving it if your fund has more than $500,000.
4. I won't be conned into fixing my mortgage unless I get a great deal
Don't fix your mortgage because you're scared rates are going to rise.
They probably will but you'll just be paying higher interest in advance.
The banks have been anticipating further rate rises for months and have built this expectation into their offerings.
So only fix if you can get a lower rate than you're already paying.
In fact, you might be able to get a cheaper rate anyway.
If you're paying the standard variable of 7.67 per cent to 7.86 per cent, ask your bank for a 0.5 per cent discount.
Everybody else is getting it.
Or, if you would feel safer, fix at a rate of just under 7 per cent for two years - see cannex.com.au for lenders.
5. I will earn more interest
One good thing about the new financial year is that your interest will go further, because the tax on it will be halved on amounts up to $1000.
But don't stop there.
Unless you've got your savings in an online account, you're being ripped off.
Even then, there's the tricky question of whether to stay on the at-call rate (which is as high as 6 per cent without attached strings, such as having to put in regular amounts) or go for a term deposit and get a bit more.
You might decide that an extra 1 per cent (RaboDirect pays 7 per cent) isn't worth tying up your money for five years. Fair enough.
Although interest rates will rise when the mining boom takes off, it won't be by much while the global economy and banking system remain so fragile.
Besides, the banks aren't competing as strongly for deposits any more because they can't lend the money out.
So the term deposit rates being offered are likely to be as good as it gets for some time.
6. I will save more
Oh yes, pull the other one.
Remember, you're supposed to be putting more into your super.
But there's one way of doing both because it forces you to cut unnecessary spending. I hope you're reading this, Wayne Swan.
Financial planners call it paying yourself first. The idea is to set aside part of your take-home pay by having it automatically credited to a special savings account before you can get your mitts on it.
Think of it as salary sacrificing to your bank account. Then you pay your bills from the remainder and live off what's left.
Since some of your income has been purloined into a savings account, the living-off-the-rest bit will naturally be smaller.
There are unnecessary expenses you can chop without impinging on your lifestyle, such as bank fees.
''Next time you walk past a bank, go in and say, 'This is what I've got, can you do better','' says the head of technical services at Strategy Steps, Louise Biti.
It might even be your own bank. Often there are more-suitable, lower-cost accounts.
You should also review your health insurance and other policies.
''Companies bring out new policies to be more competitive,'' Biti says. ''You might find a better one because it's changed.''
Another suggestion is keeping a diary of where the money goes for a week or two.
Every time you buy a latte or fill up the car, write it down on a notepad, keep it in your mobile or whatever.
Invariably you'll find you're wasting money and it's easier than you thought to plug the hole.
Credit cards are one of the main culprits, needless to say. Not so much because it's easier to run up expenses - though you could do a lot worse than keeping the card under lock and key at home - as the fact that they're so easy not to pay off.
But unless you pay off each month's purchases you'll face crippling interest.
And far from saving you interest, paying the minimum monthly due will get you deeper into debt.
That's because the minimum repayment is way below the 12 per cent to 20 per cent interest rate. So if you don't think you can save more, vowing to pay off the credit card when it's due is just as good and probably better.
7. I will pay down debt
Good on you. Why not say so in the first place?
Patience pays
If you'd put $5000 into a typical super fund early last year it was worth only $4351 a year on. Just great. But what else could you have done with it?The sharemarket would have been even worse - just $3046 on the 37 per cent tax rate unless you struck it lucky - and if it had been a deposit for a property … well, bad luck there too.
Had you stuck it in the bank, with tax and inflation it would have done almost nothing.
But that's no excuse to put it under the mattress. The point is you have to be patient.
Melanie Rowe's new financial year resolution is to increase the amount she's salary sacrificing into her super fund with First State Super.
''I know women don't finish up with enough super when they retire because of gaps in their work history. The returns compound over time so I want to get in early,'' says Melanie, 30. ''I'm getting a pay rise in the new financial year so I'll increase my salary sacrificing then.''
First State Super says you need $488,000 in today's dollars to have a ''comfortable'' pension of $39,302 a year. What about the sharemarket going backwards? ''It doesn't worry me. I have enough time. Falls are a natural part of it,'' says Melanie, who is also saving to buy a house soon.
But she says falling property prices are a mixed blessing. ''It's kind of good but also a bit scary if you buy and it continues to fall.''
And the shrinking $5000?
The chief executive of First State Super, Michael Dwyer, says if you extend the investment from one to 20 years, whatever the final amount ''super would have provided around 70 per cent more'' than the same investment outside it.
Read more: http://www.theage.com.au/money/planning/resolve-to-get-your-act-together-20110625-1gkkw.html#ixzz1QRvgl65C
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