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Should I rent or buy a home?

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Whether to rent or buy is a hotly-debated question. The answer might come down to where in Australia you live.

With the housing market continuing to boom in many parts of Australia, it’s no wonder some potential home buyers are wondering if they’d be better off continuing to rent. While for others, who are priced out of the property market or can’t save enough for an initial deposit, buying may not be an option.

With rent money often referred to as ‘dead money’ you’d be forgiven for thinking that renting was the inferior choice, but there are transactional costs to do with buying a home, such as stamp duty and home loan interest payments that might be regarded the same way.

So is it better to rent or buy? The answer, like most things to do with the economy, is far from simple.

AMP Capital economist Diana Mousina says that while the question of buying versus renting mainly depends on each individual’s circumstances and stage of life, which city you live in also has an impact.

Sydney or Melbourne

Diana explains that the ‘phenomenal’ house and apartment price growth in Sydney and Melbourne over the past three years has coincided with a large increase in housing construction in these cities (particularly for apartments).

The result of more new properties in Sydney and Melbourne is that rent increases are slowing as an oversupply of property hits the market.

As a consequence, investment returns for property investors are also slowing and Diana says this will lead property price growth in Sydney and Melbourne to slow over the next 2-3 years (especially for apartments).

The combination of slow growth in rents – and the expectation that house price rises will also slow in the next few years – makes renting the better choice in Melbourne, and particularly Sydney, Diana says, as rents become comparatively more affordable and the opportunity for buyers to benefit from the kind of capital gains seen in recent years diminishes.

The rest of Australia

In the other major capital cities, slower house price growth and less new housing construction compared to Sydney and Melbourne in recent years means that rent increases have been stronger, Diana says.

‘The difference between renting or buying is more balanced outside of Sydney and Melbourne,’ she concludes.

What do the statistics tell us?

Statistics from the latest Census reveal that more and more Australians are renting.

In 1991, 26.9% of the population were renting their home compared to 30.9% in the 2016 census.1

In line with the rise in renting, less Australians owned their home – either outright or with a mortgage – in 2016 than they did in 1991, with home ownership dropping from 68.6% to 65.5%.2

Diana says these numbers show the impact that the recent boom in housing prices, coupled with low wages growth, has had on housing affordability, with more households choosing or in many cases having to rent, rather than to buy because of increased difficulty in gaining a foothold on the property ladder.

Weighing the pros and cons

Economics and statistics only tell part of the story, as both renting and buying have their pros and cons:

Benefits of renting:

  • You’ll have more short-term financial freedom because you don’t have to pay interest on a home loan, or for landlord expenses such as building maintenance, repairs, rates and property insurance.
  • You’re more likely to be able to afford to live in the suburb you want (because you’re not paying for the expenses of owning a home).

Downsides of renting:

  • You generally don’t have the same freedom to change or renovate the property like you would if it was your own.
  • You’re never sure how long you can stay in a rental property. This might be fine while you’re young and flexible, but as you grow older you might want more certainty and stability.

Benefits of buying:

  • You could own your home within 25 to 30 years, or sooner if you pay your home loan off more quickly, and will own an asset which will hopefully have increased in value.
  • Owning a home gives you certainty around where you’ll be living and additional security in retirement.
  • Because you own your property, you can renovate it, nail pictures into the wall or even remove the walls if you want to!

Downsides of buying:

  • The costs of buying a property add up – stamp duty, legal and conveyancing fees, interest, loan fees, pest and building inspections, bank valuation fees, rates, possible strata fees, title registration and ongoing costs of property maintenance and insurance.
  • There’s no guarantee the value of your property will increase – it could fall, leaving you with an asset that’s worth less than what you paid for it.

What’s right for you?

Diana says that as the housing market goes through cycles every few years, the longer you plan to live in the property the more attractive buying is because home owners will be able to ride out any medium-term price fluctuations.

‘Over the longer term we remain positive on the housing market because of solid fundamentals in the Australian economy,’ she concludes.

For more help

Use our rent vs buy calculator, which illustrates the potential benefit of either renting or buying a property over time, to explore your situation, or our borrowing power calculator to work out how much you could afford to borrow.

For more information about the process of buying a property, check out our Goals info centre page, and whatever you decide, it’s best to seek professional advice and talk to your financial adviser. If you don’t have an adviser but would like to speak to one call us on 131 267 or use our online tool.

1, 2 Census 2016, Australian Housing section  

Affordable school holiday activities

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We asked our readers for their top tips to keep the kids entertained during the school holidays without blowing the budget.

AMP News&insights ran a competition on Facebook asking our readers for budget-friendly ways to keep the kids busy in the school holidays.

Art and craft, board games and movies at home all proved popular, as did visits to the park, playground, picnics, riding bikes and camping.

And perennial favourites such as taking advantage of museums and galleries with free entry, and visits to the local library, also rated a mention.

Our readers’ most creative low-cost school holiday activities

If you’re looking for some fresh school holiday inspiration, some of the most creative ideas included:

  • Looking through photo albums together and creating a family slideshow.
  • Putting on a concert or play for friends, getting the kids to create the show, make costumes and props, and make tickets and food for the guests.
  • Getting the kids to write books and turning them into movies.
  • Going on a park crawl, by setting a timer and after an hour at a park, moving onto another one.
  • Using old bottles and jars to create terrariums using succulents and plants from the garden.
  • Getting together with a group of friends and each taking all the kids for a day, so you only have one day to plan and pay for, and some child-free days during the holidays.
  • Making a list of things for the kids to spot then heading out in the car and playing car bingo.
  • Cutting out pictures from old magazines and cards and creating new homemade cards for upcoming birthdays and events.
  • Scouring the internet in the lead up to the holidays for free and cheap activities to create a lucky dip jar to draw from when boredom sets in.
  • Instead of just playing board games, making one, including planning the theme, rules, making the board, cards and questions, then playing it.

Any advice in this page is general in nature and is provided by AMP Life Limited.  The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters. AMP Bett3r Account is issued by AMP Bank Limited ABN 15 081 596 009, AFSL 234517. Consider the terms and conditions available on request by calling 13 30 30 or at amp.com.au/bett3r and whether this product is appropriate for you. Fees and charges apply. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

All information on this website is subject to change without notice.  Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.

Changes to Powers of Attorney – Victoria

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On 1 May 2017 the Powers of Attorney Act 2014 (Vic) was amended by the Powers of Attorney Amendment Act 2016 (Vic).
The amending Act introduced changes to clarify some operational and other matters associated with the making of a power of attorney.
Further changes have been implemented via the new Medical Treatment Planning and Decisions Act 2016 (Vic) which came into effect in March 2018.
This article outlines some of the changes and revisits the purpose of a power of attorney.
Primary and alternate attorney appointments
The Act now provides principals with greater flexibility when appointing alternate attorneys and / or supportive attorneys under an enduring power of attorney.
A principal may now appoint multiple alternate attorneys for any primary appointed attorney. A principal may also appoint one alternate attorney for multiple appointed attorneys.
The amended provisions essentially confirm that a principal is not restricted in the number of alternate attorneys he or she may appoint – before the amendments, the legislation provided only for an alternate attorney to be appointed on a one-to-one basis.
Revocation
The Act promotes consistency by making it clear that a new enduring power of attorney will revoke a previous enduring power of attorney in its entirety, unless a contrary statement is made in the new appointment.
Previously, the Act required that a new enduring power of attorney specifically state the intention to revoke a previously-made appointment, otherwise the new appointment would only revoke the previous one to the extent of any inconsistencies.
What is a Power of Attorney?
A Power of Attorney is a legal document that enables you to choose another person or persons to act on your behalf.
There are presently two categories – a General Power of Attorney and an Enduring Power of Attorney.

A General Power of Attorney is usually used for a specified period and / or for a certain purpose. For example, you may appoint an attorney to act for you if you are purchasing a property and propose being overseas at the time the sale is finalised. Your attorney will be able to sign and act on your instructions which will be legally effective.
In Victoria, there are presently two types of Enduring Power of Attorney – and unlike a General Power of Attorney, these continue to be effective after the principal becomes incapacitated.
An Enduring Power of Attorney (financial and personal) allows the attorney/s to deal with personal matters, financial and legal matters, or both and are often made between spouses enabling one to continue with the daily management of personal and financial affairs if the other is unable to. Alternatively, an elderly parent may appoint a child or children as the attorney or an alternate attorney.
The other type is an Enduring Power of Attorney (Medical Treatment) which allows the attorney to make decisions about the principal’s health treatment.
Advance Care Directive
The Medical Treatment Planning and Decisions Act 2016 (Vic) came into effect on the 12 March 2018 and replaces the existing Medical Treatment Act 1988 (Vic).
New laws allow you to make a legally recognised Advance Care Directive and to appoint a medical treatment decision maker to cover the possibility that you may not be able to make medical decisions for yourself.
In the absence of such an appointment the new Act determines who has legal authority to make such decisions – generally this will be the person’s domestic partner.
A person no longer makes a separate Enduring Power of Attorney (Medical Treatment) document; however an existing appointment will still be recognised under the new laws. The present laws however do not allow for the inclusion of the principal’s wishes with respect to advanced care planning. This changes with the new laws.
An Advance Care Directive may include directives with legally binding instructions about future treatment to which you may consent or refuse, and a values directive outlining your values and preference with respect to future medical treatment. The Act also allows the appointment of a support person to assist and to help communicate a principal’s decisions with respect to medical treatment.
What do I need to do?
Planning for the inevitable is essential to ensure the ongoing management of your personal, medical and financial affairs are conducted in accordance with your wishes.

A Power of Attorney enables you to appoint one or more persons you trust to handle your legal and personal affairs, for when you are no longer able to do so yourself.
An Enduring Power of Attorney will help to ensure that your affairs are handled as you would want them to be, should you lose mental capacity.
If you already have a Power of Attorney or an Enduring Power of Attorney the law changes will not affect the validity of these documents.

Sourced from and article by Sally Nicolazzo & Associates Lawyers, June 2018

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

Sport lovers enjoy better financial fitness

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Sport lovers enjoy better financial fitness

 

Online source: Produced by AMP Life Limited and published 2 October 2017

Print source: By AMP Life Limited, originally published on 2 October 2017

 

If your golf clubs have been under wraps or your tennis racquet has been tucked away for some time, it could be worth dusting them off. Research by AMP found Australians who play sport regularly are 64% more likely to achieve their financial goals than those who don’t.

Plenty of us think about getting in better shape. That can mean heading outdoors for a round of golf or just kicking a ball around the local oval with the kids. The health benefits of physical activity are well documented, but AMP’s study also found a clear link between our sportiness and the way we manage our money.

According to the survey, playing sport on a regular basis makes us more likely to think about our long term financial wellbeing. As a guide, people who frequently play sport are 66% more likely to make extra contributions to their super fund, and more than twice as likely to own an investment property as less active people.

If you ride a bike or play netball, take a bow – the AMP survey found you’re likely to be among the nation’s most financially savvy thinkers. Cricketers are most likely to have a financial advisor, and golfers top the league table for personal savings – with one in three having more than $50,000 in savings.

When you think about it, these results aren’t all that surprising. Keen sportspeople often achieve success by setting personal or team-based goals. So it’s a natural step to set goals in other areas of life like money management.

A number of overseas studies confirm AMP’s findings that physical and financial health often go hand-in-hand.

One group of US researchers explained the link, saying that people who make healthy choices today to enjoy good health tomorrow, are also more likely to regularly put money aside to achieve greater financial security in the future.

I freely admit I’m no sports scientist, but it’s fair to say there’s another link between physical health and fiscal fitness – both can be achieved when you make it part of a regular routine.

Getting physically fit involves taking the time to exercise regularly. It may not happen overnight but your fitness should improve over time.

The same applies to financial security. It’s all about developing and sticking to good money habits – like using a budget to gain control of your cash, spending less than you earn, and saving and investing for the long term. It’s not hard and it delivers great results without working up a sweat.

People who take their sport seriously use a coach for help lifting their game, and your financial advisor is like a mentor for your money. It could even be worth thinking about having your next meeting over a round of golf, and achieve two goals at the same time.

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Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

First home buyer help

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New legislation aims to benefit first home buyers

 

Online source: Produced by AMP Life Limited and published December 2017
Print source: By AMP Life Limited, originally published on December 2017

Changes aimed at improving housing affordability have passed through parliament. See what the new rules could mean for you.

Government proposals around improving housing affordability in Australia were passed through parliament on 7 December 20171.

As part of the changes, first home buyers will be given a tax concession through the ability to save for a home deposit inside super.

We take a look at what the changes could mean for you, bearing in mind that like with all important financial decisions, it’s a good idea to get financial advice before deciding what’s right for you.

Tax concession for first home buyers

From 1 July 2018, eligible first home buyers will be able to withdraw voluntary super contributions (which they’ve made since 1 July 2017), along with associated investment earnings, to put toward a home deposit.

How does it work?

Under the First Home Super Saver Scheme (FHSSS), first home buyers who make voluntary contributions of up to $15,000 per year into their super can withdraw these amounts, in addition to associated earnings, from their super fund to help with a deposit on their first home.

If eligible, the maximum amount of contributions that can be withdrawn under the scheme is $30,000 for individuals or $60,000 for couples.

Voluntary contributions can be made by salary sacrificing from before-tax income, by making personal tax-deductible contributions, or by making personal after-tax super contributions.

When the money is withdrawn, before-tax and tax-deductible contributions are taxed at your marginal tax rate, less a 30% tax offset, while after-tax contributions aren’t subject to tax.

Due to the favourable tax treatment, generally available through super, this scheme intends to help first home buyers grow their deposit more quickly.

Things to note

To make a withdrawal under the scheme, an application to the Australian Taxation Office will be required, and an eligible person is only allowed one FHSSS withdrawal in their lifetime.

There are super contributions which will not qualify and cannot be withdrawn under the scheme, such as super guarantee contributions made by your employer, as well as spouse contributions.

FHSSS amounts that are withdrawn and not subsequently used for a property purchase must be put back into super as after-tax contributions, or penalties will apply.

The first home buyer must reside at the property for at least six months in the first 12-month period from when it can be occupied.

Additional rules may apply to your situation, so make sure you do your research and speak to us before making any decisions.

How are Australia’s states and territories tracking?

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June 2018

  • An end to the fall in mining investment is helping to stabilise growth in Australia’s mining states and territories (WA, Qld and NT to a lesser extent) while a slowing housing sector is starting to act as a drag on NSW and Vic. Tas is benefitting from a lift in population growth and housing “refugee” demand from Sydney and Melbourne. Growth in SA and the ACT has been stable.
  • After years of growth divergences across the states and territories, expect a convergence in growth across the regions over the near-term which means more comparable activity across the nation.

Introduction

The various comparative advantages of Australian states and territories (e.g. tourism in Qld, manufacturing in Vic and SA, mining in WA, QLD and NT and agriculture in SA and TAS) means there are often periods of growth divergences across the country as industries are impacted by different trends at various points in the economic cycle.

A multi-speed economy has been a feature of Australia’s economic environment for numerous years. The mining investment boom over 2010-12 transferred labour and investment to Western Australia (WA), Queensland (Qld) and (to a lesser extent) the Northern Territory (NT) from the rest of the country and these regions outperformed the rest of the nation. This changed after the downturn started in mining investment (from 2013) when mining state growth slumped while growth in the large non-mining states of New South Wales (NSW) and Victoria (Vic) lifted as services demand rose and interest rate cuts spurred a housing boom. More recently, slowing home price growth in Sydney and Melbourne, a bottoming in WA growth and an upturn in Tasmania (Tas) is leading to a growth convergence across Australia (see chart below) and should result in more comparable outcomes across the states and territories.

Source: ABS, AMP Capital

Our tracker of state and territory performance (see table below) based on the latest indicators reveals that Vic and ACT are ranked as the best performing state/territory across the various metrics, followed by NSW, with SA and Tas running around the middle of the pack. Qld, the NT and WA are still lagging behind because of the remnants of the mining investment decline.


In this note, we look at key indicators of state and territory performance, as well as the outlook for the medium-term.

The state of the labour market


Source: ABS, AMP Capital

NSW employment growth has been strongest across Australia over the past year, with large gains in healthcare, retail and construction being partly offset by losses in public administration and professional service jobs. But the steadily increasing participation rate has been pressuring the unemployment rate a little higher (although the unemployment rate is still the lowest across all of the states). The labour market is expected to remain solid in NSW, especially in infrastructure-related construction jobs. Qld’s unemployment rate still remains elevated but jobs growth has been good and the state has absorbed the majority of mining-related job losses. Recent federal government funding towards infrastructure projects in Qld will be positive for employment. The SA and Vic labour markets have weathered the closure of car manufacturing and SA may benefit from higher spending on battery technology at the margin. Vic jobs growth has been modest, helped by gains in construction and transport (which are likely to continue) while public administration has also had job losses, along with healthcare. The WA labour market has probably gone through its worst, but strong employment growth is unlikely as mining investment still has further to fall. NT jobs growth remains slow. The ACT labour market is very reliant on government funding and the size of the public sector.

Home Prices

Source: CoreLogic, AMP Capital

The big negative for NSW and Vic will be declining dwelling prices in Sydney and Melbourne and its impact on consumers. Very high new dwelling supply in the two cities (especially for apartments) over recent years, affordability pressures given the run-up in prices and a tightening in lending standards is putting downward pressure on prices. We expect prices in Sydney and Melbourne to fall another 4% this year (predominately focussed in apartment prices), another 5% next year and a modest fall in 2020. Prices in Perth and Darwin look to be bottoming, or close to it, price growth in Brisbane is likely to be modest while Hobart price increases are expected to continue to be solid due to investor (and potentially relocation) demand from the rest of Australia.

Limited upside for consumer spending across regions

The employment and wages outlook are the major drivers for the consumer outlook. Wages growth in WA (+1.5%pa) and NT (+1.1%) are significantly below the rest of Australia (+2%) from the mining investment drag while wages growth across the rest of Australia is clustered around 2% or slightly higher. Better employment growth is needed to lift wages and household spending (the chart below shows that WA retail spending is clearly trailing behind) but it does look like the worst of the wages slump has passed. The next risk is the negative housing wealth effect which will impact NSW and Vic the most.

Source: ABS, AMP Capital

Don’t forget about population growth

Population growth is often overlooked but needs to be considered, given population and productivity growth are the two fundamental drivers of potential economic growth. Australian GDP growth has been much higher compared to our global peers over recent years partly due to strong population growth.

Victorian population growth continues to outpace the rest of the states significantly (see chart below). Part of the flows are from overseas migration but Vic also enjoys strong interstate flows.


Source: ABS, AMP Capital

The strength in underlying population growth in Vic has been an important source of housing demand for the state and in keeping prices from declining too much, particularly over recent periods. In comparison, NSW home price has been declining faster than in Vic. While NSW population growth is also good overall, one negative offset has been interstate outflows (see chart below) which has been accelerating lately. These NSW “refugee” outflows appear to be going towards QLD lately and probably reflect housing affordability pressures in Sydney.


Source: ABS, AMP Capital

Housing affordability pressures do not look like they are easing for now, so NSW is likely to continue to see interstate outflows and Vic inflows may slow and the beneficiaries will be Qld, Tas and SA. Keep in mind that short-term visitors (e.g. those staying for education purposes) mainly reside in Sydney and Melbourne and would not be included in population flows but still add to demand for housing and provide a positive offset to lower prices.

Implications for investors

Some convergence in growth outcomes across the states and territories over the near-term means that investors should anticipate more comparable outcomes across Australia.

Diana Mousina
Senior Economist
AMP Capital

Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

Retirement travel: Holiday money saving tips

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Ways to save when your bank balance doesn’t quite match your retirement travel goals.

One of the great perks of life after work is your ability to travel whenever you like, but what do you do when your bank balance doesn’t quite match your retirement travel goals?

Never fear, these five holiday hacks will help you tick off your bucket list and save money while you’re at it.

Smart ways to save money

1. Travel off-peak

It’s great to know that the freedom that comes with being retired can also save you money. From avoiding travelling during school holidays – when flight and accommodation prices are at a premium, to flying outside of peak business travel times (such as Mondays mornings and Friday evenings), to travelling in low or shoulder season – there are serious savings to be made by adopting this strategy. And there’s an added bonus: by avoiding peak times you can enjoy the sights without the crowds too.

2. Use age to your advantage

Being older has its benefits – and one of these is the discounts that come with being a senior. In particular, seniors can often save on train travel and entry to attractions, though you may need to have your seniors card or passport with you to qualify. And even if a seniors/concession/pensioners rate isn’t displayed, be sure to ask if one is available.

3. Eat out at lunch not dinner

Travelling on a budget doesn’t mean you have to miss out on eating out, or going to even the finest restaurants. The trick here is to eat out for lunch, rather than dinner. Restaurant meals are often cheaper at lunchtime, and for even better value, restaurants, especially those in Europe, often offer lunch specials as a set, three course menu (look for prix fixe menus).

4. Utilise the tourist refund scheme

If you’re holidaying outside of Australia, you can claim back the goods and services tax (GST) or wine equalisation tax (WET) paid on items purchased within 60 days of your trip, provided you take them on holiday with you and they meet other key criteria1. This can lead to a substantial saving if you need to upgrade a big-ticket item such as an electronic device like your camera, phone or tablet, or even for a splurge such as a new handbag. For more information, visit the Government’s Tourist Refund Scheme page.

5. Borrow, don’t buy

Depending on where – and when – you’re going, you may need special equipment for your trip. But rather than forking out big dollars, especially if it’s something you’ll only use once, ask around. You may find friends and family are more than happy to loan winter coats, snorkeling gear, travel adapters or even luggage. If you have to buy gear just for your trip, consider second hand rather than new to save.

For more help

If the trip of a lifetime, or even just your next adventure is on the agenda, it may be useful to put in place a saving strategy before you go. AMP Bank has a range of savings accounts and term deposits which can help to make more of your money.

And for more tips on budget friendly travel ideas, check out our articles 7 trips where you’ll pay next to nothing for accommodation, and Top money-saving travel tips from our readers, and for holiday inspiration read Over 50s travel – adventure holidays aren’t just for the young.

5 lessons from a cash only week

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Will paying cash change my spending habits? What I learned when I could only pay with cash for a week.

Firstly, an admission. I never – ever – have cash. I’m that annoying friend who doesn’t have cash to cover her share when spitting bills, that colleague who borrows money to chip into the birthday collection, the parent who gives her kids an IOU for their pocket money.

It’s not that I don’t spend money – believe me, I do – but my life is an endless cycle of direct debits, bank transfers, credit card and PayPal payments, and Tap and Go, with the odd dash to the ATM when actual cash is required – but even then, I’ll only withdraw enough to cover the expense itself.

While living cashless can be inconvenient at times, my rationale is if I don’t have cash, I can’t spend it. Which is, of course, highly dubious, given technology has never made more convenient, or easier, for us to be parted from our hard-earned money. So what lessons can we learn from a cash-only week?

Does cash really burn a hole in your pocket?

I wanted to test my theory to discover if having to pay in cash would actually change my spending habits, so I committed to a cash-only week.

The first question was how much cash to withdraw. The fridge and pantry were stocked, and the bills on direct debit, so I figured I’d only need cash for ‘incidentals’ – but I honestly had no idea how much these would be.

This led to my first lesson: I’m so removed from cash that I’ve lost touch with how much things actually cost. In the end, I withdrew $500 – and couldn’t remember the last time I had that much cash in my wallet.

What I learnt from my cash-only lifestyle

1. I’ve lost touch with what things actually cost

Much in the same way as I didn’t know how much cash to withdraw for the week, when I was faced with some expenses I had no idea how much they would actually cost.

For example, there was a gap payment owing between the cost of the service and my private health insurance when I took my daughter to the dentist and also for an unscheduled trip to the physiotherapist. I honestly had no idea how much these charges would be until the words came out of the receptionist’s mouth. (They turned out to be $70 and $97, respectively, in case you were wondering).

Perhaps even more revealing was when I got a regular prescription filled. Despite this being something I buy every 6 weeks, I usually Tap and Go to pay for it so I honestly didn’t know how much it cost.

2. I’m a lot more casual about money than I used to be

Not knowing how much that prescription cost was a lightbulb moment for me. I realised that when I pay using Tap and Go I rarely even bother to check the amount the sales assistant has entered anymore, especially for small payments.

Given it’s easy enough to accidently enter an extra zero, turning the $8.50 into a $850 expense – something I’d rather pick up at the register than later on when I realise I’ve got no money in my account – I’ve decided not to be so cavalier in my attitude to small expenses in the future – especially when paying by card.

3. There are some things you can’t pay cash for

Sometimes cash isn’t king. Despite my best intentions there were things I couldn’t pay for using cash.

Firstly, getting public transport to work required a payment by either Opal card or credit card – there was no option to use cash.

I also had to buy some tickets for my daughter’s upcoming ballet performance and the only way I could do this was online via credit card.

Conclusion: In today’s modern world, living a pure cash-only existence would be very hard.

4. It’s harder to overspend when you’re paying with cash

I’ll admit, I had one fail during the week – a mid-week online clothing update. It cost me $300. While I did cull my online basket down from $500, would I have walked into a shop and spent $300 in cash in a one-off shopping trip? Possibly not.

What this taught me is that it’s much easier to overspend when spending ‘invisible’ money. I justify this by reminding myself how much I hate physically shopping for clothes and telling myself I can return anything that I don’t like or doesn’t fit, (free of charge and for a full refund), but we all know the likelihood of this happening…

Having to physically hand over cash for lunches, snacks and coffees at work strengthened my resolve to bring food from home more often and confirmed my conclusion that I’m more conscious of what I’m spending and less likely to overspend when paying with cash.

5. The cash I had dictated what I did for the week

In my student days I’d withdraw the cash I needed for the week and every dollar would be closely accounted for. If I couldn’t afford to go out with my friends, I’d stay home. This week was a little bit like that.

I made decisions for the week based on the money I had, rather than deciding what I’d like to do, and then working out how to pay for it. I found there was a lot more incentive to regulate my spending when I could see the cash literally disappearing before my eyes.

So, it turns out that my theory was completely wrong:  I’m actually less likely to spend money when I have a wallet full of it, as having cash gives me greater visibility over what I’m actually spending.

Other ways to track your spending

If carrying around a wallet full of cash isn’t practical for you, there are other ways you can get greater visibility over where your money goes. If you’re an AMP customer you can log into My AMP and use our Money Manager tool, which allows you to see your AMP and non-AMP accounts in the one place, with your transactions categorised automatically.

And if you’d like to try a cash-only week (or longer) yourself, it’s useful to keep notes on your experience to help you identify your spending habits and priorities.

Good luck!

Work Expenses – what can you claim on tax?

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With the ATO keeping a close eye on deductions, make sure you’re across what you can and can’t claim.

If you’re claiming back some of the money you’ve spent as part of your job this year, it’s a good idea to ensure you’ve kept the appropriate records that may be required ahead of lodging your tax return.

The Australian Taxation Office (ATO) said recently Aussies needed to keep the necessary records, adding that it would be paying close attention to claims made for certain work-related expenses1.

If you’re not really sure what you should be claiming, here’s a rundown on what you should know.

What is a legitimate deduction?

When completing your tax return for the financial year (1 July 2017 to 30 June 2018), you’re able to claim deductions for some expenses, most of which will be directly related to you earning an income.

The main thing to remember is a work-related expense is only deductible if2:

  • you paid for it and were not reimbursed by your employer
  • it relates to you earning an income and was not for personal use
  • you have a record, such as a receipt.

Note, if the total amount you’re claiming is $300 or less, you generally won’t need receipts, unless your claim relates to car expenses, meal allowances, award transport payments, or travel3.

However, you may be asked to tell the ATO how your claim was worked out and explain why the claim is reasonable, based on the requirements of your occupation.

What if expenses are related to work and personal use?

If your expenses are for both work and personal use, you can only claim a deduction for the work-related portion, which could for instance be 50% of your phone and internet bundle.

Another example is say you go on an overseas study trip, but are taking a holiday at the same time, you wouldn’t be able to claim the entire trip as a work-related expense.

What are some typical examples of things you can claim?

Below are some common examples of tax-deductible work expenses and for more information, including deductions for specific industries and occupations, check out the ATO website.

  • Vehicle and travel expenses (which generally won’t include travel between work and home)
  • Clothing, laundry and dry-cleaning expenses (which typically only applies if you wear occupation-specific clothing or a uniform)
  • Home office expenses (such as computer, phone and internet costs, but only the proportion that relates to work and not your own personal use)
  • Self-education expenses relevant to your job (such as course fees, textbooks and journals)
  • Tools and equipment (such as sunscreen and sunglasses if you work outside, or laptop and relevant software if you work in an office)
  • Other deductions (which might include things like union fees).

Meanwhile, remember there are other things outside of work that you may be able to claim, such as personal super contributions, interest, dividend and other investment-related income deductions, as well as gifts and donations to deductible gift recipients.

Is there any help to make tax time easier?

You can use the myDeductions tool in the ATO app to save a record of your deductions throughout the financial year, which you can upload when you do your tax return or provide to your tax agent, who may be able to provide you with additional tips if your tax situation is a bit more complex.

To ensure you’ve got all the relevant information you need ahead of filing your tax return, check out the ATO’s tax time checklist. And, keep in mind, if you’re lodging your own tax return, you have until 31 October 2018 to lodge it, or potentially longer if you’re using a registered tax agent.

 

1 ATO media release – Australians on notice to keep their receipts
2 ATO – Deductions you can claim
3 ATO – Work related expenses Rules for written evidence to substantiate deductions

How to build equity in your home and use it to invest

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Whether you’re looking to renovate, invest or pay off something big, home equity can be a valuable resource when it’s used correctly.

The equity in your property can be a valuable resource, as it may allow you to secure finance to achieve your goals, whether they be investment or lifestyle oriented.

If it’s something you’ve been thinking about, here are some pointers—the most important being if you borrow against your property and can’t make the repayments, you may lose your home in the process.

What is equity and how is it calculated?

Home equity refers to the current market value of your home—which won’t necessarily be the price you purchased it for—minus the amount still owing on your home loan.

To give you an example, say your home is valued at $800,000 and you still owe $300,000 on it, you’ll have $500,000 of equity.

Keep in mind that as the market value of your property can go up or down, so too can the equity you have in it rise and fall.

Meanwhile, to find out how much equity you have currently, you can organise a property valuation through various banks, lenders and independent agents.

Also note, even if you do have equity in your home, this doesn’t mean you can automatically borrow against it. Your lender will look at additional factors, such as your age, income, debt levels, the property’s location and whether you have any children.

What do people use home equity for?

The equity in your home can be used to secure finance for a variety of things.

As you’re effectively increasing the amount you owe to your lender and using your home as security for your borrowing, it is wise however to think about the long-term impact of taking on added debt.

For instance, you might be looking to access money to invest in another property or shares, undertake renovations, or pay for other big ticket items.

Borrowing money to pay for holidays or things that depreciate in value will come with greater risk.

Ways to grow your home equity

The equity in your home can increase a few different ways.

  • You can add to the value of your property by renovating and improving your home’s street appeal. The key here however is to avoid over-capitalising, which is when the cost of renovations outweigh the value added to your home in the process.
  • If your property is in a high-growth area or you’ve owned it for a number of years, the property may appreciate in value without you doing anything. However, depending on property market variables, the reverse could also happen.
  • Another way to increase the equity in your home is by reducing the size of your home loan, which you can do a number of ways.

What to consider first

Before you use your home equity to take on an additional loan, or a bigger one than what you have currently, there are a number of questions worth asking yourself, including:

  • What are you using your home equity for and is it a wise investment decision?
  • How much will your repayments to your lender increase by?
  • Will you need to extend the term of your loan?
  • Have you accounted for a possible rise in interest rates?
  • Do you have a household budget in place to accommodate for additional costs?
  • Can you access equity in your property via your current lender or will you need to refinance?
  • If you do swap lenders, have you thought about break costs, application costs—establishment, legal and valuation fees, stamp duty, and when lender’s mortgage insurance may apply?

Further information

Accessing the equity in your home could help you to achieve your goals. However, it’s important to stick to a workable budget and be committed to making your repayments on time.

Speaking to your financial adviser could go a long way in simplifying the process. And, if you don’t have an adviser you can find one using our online locator or by giving us a call on 9851 0300.