Quick Tax Tips for 2013

I really enjoyed writing last week's blog because I shamelessly cashed in on Dean's intellectual property.  I actually enjoyed it so much I'm going to do it again!!!

Dean has prepared a fantastic tax newsletter this year - filled with facts you need to know before you lodge your return, and some fundamental advice about deductions.  If you haven't read it yet, it's only two pages and a really easy read, just click here for a copy.

Talk soon,

Caren

To claim the home office or not to claim the home office; that is the question.

Let's get one thing straight - I'm not an Accountant.  I do not own, nor will I ever own, a brown cardigan!  Oh actually I just realised that's a lie - I do remember owning a brown cardy once - but brown was waaaaay cooler in the 70s...

I'm a Financial Planner who is completely surrounded by tax experts - my partner, my father, my brother, my uncle, even my 19 year old step-daughter is at Uni studying tax!  So I do get asked a lot of tax questions, especially at this time of the year.

One of the most common (not to mention the most commonly misunderstood) is what's deductible when it comes to the home office.  And it's important to understand that from the tax office's perspective there's a significant difference between "working from home" and "working from a home office".  So first you need to....

Hang on!  I just mentioned I'm surrounded by tax experts, so why should I do the hard work?

Click here for a short and easy to read ePaper written by Dean Hendrie (the brother tax expert), outlining what qualifies as a "home office" and what deductions you can claim.

Of course, if you'd like to hear more of what I have to say on the matter, click here for a recording of my most recent "You & Your Business" radio segment on 98.1FM Radio Eastern.

Talk soon,

Caren

“Would you like shoes with that?” How the banks are selling credit cards to our kids!

In our last 4 Ways Bulletin I included an article on teaching our kids about credit cards.  Since then I've been quite shocked to learn exactly how hard some banks are pushing credit cards on them.

A few weeks ago our 19 year old Ashlee received a marketing call from one of the 4 major banks where she holds an account.  It was a fairly young guy who was extremely friendly, asking her about what she was doing at uni and how she was going etc.  He then led the conversation to how she really should have a credit card.  First he used scare tactics - did she realise she'd never be able to get a home loan without a credit rating and a credit card would help her with that?  But then he went in for the real kill - "haven't you ever seen a pair of shoes you really wanted but couldn't afford..."!!!!!!

Terrific!  In one sentence, this guy had tried to undo years of us teaching our kids the value of saving for what they need, any not going into unnecessary debt.

When Ash explained she needed time to think about it, and might look at it in her uni holidays, he told her she shouldn't really wait when she could do it now, and told her he was putting her through to a Financial Planner, presumably to "seal the deal".  Again, the chap was very friendly when he started chatting to Ash, but when she explained that she really didn't want to commit on the spot, his attitude changed quickly and he all but hung up on her.

Some facts about Ash:

• She is only 19;
• She is studying Accounting at uni and does not have a full-time job;
• She has just $50 in an account with the bank that called her;
• She does love shoes;
• She did go online afterward and applied for a card herself, but thankfully was declined!

As you'd imagine, finance is a fairly common topic in our household (1 Financial Adviser + 1 Accountant = wild family fun times) so Ash told Mick and I about the whole ordeal over dinner that night and we were able to have a frank discussion about the pros and cons of credit cards.  But I shudder to think about how many kids might get into credit card debt before anyone even realises they'd been given the card!  Or should I say "sold" the card.  Because I'm sorry, but if you dangle shoes in front of most females as the proverbial carrot, that's a hard sell!!!

I'd really like to encourage all parents to have the credit card conversation with your kids before the bank does.  To that end, if you didn't catch my article in the 4 Ways Bulletin, just click here as it highlights some important issues everyone should know about the so-called "fantastic plastic".

Talk soon,

Caren

How can your business compete against 7,000 other marketing images per day?

If you’re a business owner, then I don’t need to tell you that there’s a lot of competition out there. It can be hard to get your message across when there are soooooo many other messages in your space alone.

I attended a webinar recently where the speaker advised us that we’re exposed to a whopping 7,000+ marketing and sales images every single day – and you’re trying to compete against that!!!

So what’s the answer? You must be unique! Actually, it’s more than that. You can’t just be unique, you have to be able to articulate and promote your uniqueness.

Essentially, you need to give your target market a compelling reason to buy from you rather than someone else. It’s these differences that make one business, product, or service more attractive than another in the customers’ eyes.

So how do you develop a Unique Service Proposition? Well there are three main types:

1. An 'Actual' Unique Service Proposition. That is, there's something genuinely unique about your business, the products, or services you provide or the way in which you provide these products and services.

Creating your Unique Service Proposition will revolve around expressing that actual uniqueness in a way that's meaningful to your potential customers and clients. This is often easier to do if you sell a product rather than a service.

2. The second is a 'Created' Unique Service Proposition. That is, you create a point of differentiation between your business and your competitors.

You may have heard me talk about "Paddy the Dentist." It's one of my favourite (true!) stories. Paddy openly acknowledged that there were a lot of other good dental practices in the area, so he knew he had to make his practice unique if he wanted to do really well. He interviewed his clients to find out what they hated most about going to the dentist. Turns out the overwhelming majority claimed it was the waiting room - the smell, the noise, the anticipation of pain.

So Paddy turned his waiting room into a tea salon! When you arrived at his surgery there was classical music being piped through the waiting room, you were shown to a comfortable seat and handed a menu to choose from a selection of over 50 tea varieties. It was served to you from a pot in a fine china cup and saucer. The experience was indulgent and relaxing. Can you guess the result for Paddy’s business? Phenomenal! Paddy had created a difference that certainly gave customers a compelling reason to go to him, stay with him, and refer him to others.

3. The third kind of Unique Service Proposition, the ‘Perceived Service Proposition,’ is also critically important - your Unique Services Proposition does not (in fact) have to be unique.

You may not have anything in your business that’s totally unique. But if you’re the first one to articulate a difference (even though others do the same), you’ll stand out in the marketplace as if you are unique.Simply because you’ve been the first to articulate it.

I mentioned earlier that not only do you need to offer something unique, but you need to articulate it. It sounds obvious, but most businesses have never articulated those differences. They expect people to buy from them simply because they’re in the marketplace. Most simply say ‘buy from us.’ But they don’t give the potential customer a clear and compelling reason why they should do so. 

Those things that make you unique, must permeate your entire business: the way your team members present themselves, the way you deal with your customers or clients, the way your business itself is presented, all your marketing material, even your signage, if possible.

I hope this has started the creative juices flowing, and that you’ll take some time to work out the key point of differentiation between you and your competitors to help the customers identify that they really do need to choose you over anyone else. 

For a detailed fact sheet on developing your Unique Service Proposition (including lots of examples), just click here

And if you’d like to hear more of what I have to say on the matter, click here for a recording of my most recent “You & Your Business” radio segment on 98.1FM Radio Eastern (or ask me about a one-on-one session to help identify a Unique Service Proposition for your business).

Talk soon,

Caren

4.4 billion reasons to protect your family (of which you may not have been aware…)

It always surprises me when people say that one of the reasons they won’t protect their family is because insurance companies don’t want to pay out claims. My response is usually a confused “Huh? Whaddya mean? Ummmmm, that’s their job…”

I’m a member of a great service called the Risk store which publishes insurance claim statistics each year. According to their figures, more than *$4.4 billion dollars was paid out in life insurance claims last year! We’re talking death cover, total and permanent disability, income protection, and trauma.

That’s $4.4 billion dollars paid out to help re-build family lifestyles, assets, and businesses after the devastating effects of illnesses and injuries.

To really break it down –an average of $17.6 million was paid to Australians every working day in 2012.

Ok, now think on this - not one of these claimants expected to claim on their insurance.

That’s a lot of people who didn’t ever want to claim – but had to. How glad do you think they and

their family were, to have been wise enough to plan for the unexpected?

And something else to think on - if these claimants hadn’t had insurance policies in place, where else would they have got that kind of money?

Don’t get me wrong, I have no doubt there are people with very legitimate grievances against their claim process, my point is that it’s a rarity and that there are at least $4.4 billion reasons in the last year alone to protect yourself and your family’s financial security.

In most cases conflicts over claims come down to the quality of the specific company or the definitions within the policy. That’s why you should always get professional advice from people (like us!!!!) who can not only help you select the best company and policy for you - but even more importantly - in the event that something unforeseen does happen, we deal with as much of the claim work as possible on your behalf.

We feel this is the most valuable part of our insurance service, and obviously our clients do too because we recently received this email from one of our clients after the claims process: “Thanks Michael for a tremendous result. You have been very professional & balanced in your advice through this somewhat unsettling period.”

So next time you’re tempted to justify not protecting your family by saying insurance companies don’t pay their claims, just remember that over $17 million dollars was probably paid out between breakfast and dinner.

Clearly this is a personal soapbox of mine, and if you’d like to hear more of what I have to say on the matter, click here for a recording of my most recent “You & Your Money” radio segment on 98.1FM Radio Eastern.

Talk soon,

Caren

With thanks to the Risk store for all statistics, and thought provoking claims information.

*Statistics based on claims from AIA Australia, AMP/AXA, Asteron/Suncorp, BT, Clearview, CommInsure, OnePath, Macquaire, MLC, TAL, Zurich.

Should you loan money to friends or family?

A number of years ago one of my clients came to me to ask my advice about loaning a significant amount of money to her daughter. The first question I asked was whether there was any chance that her daughter might not pay her back, to which she replied “oh there is every chance she won’t pay me back.”

I knew her financial position and knew that she couldn’t afford that risk, so told her to explain to her daughter that she wasn’t in a position to help out.

But there are cases where we are in a position to help, and at the end of the day, the only person who can decide if you want to loan a friend or family member money is you, but I do have some tips.

Questions to ask yourself:

1. Will you suffer financially, if the loan isn’t repaid. If the answer is yes, then my recommendation is to walk  away. You don’t want to put yourself into financial hardship because of somebody else’s money problems.

2. Will your relationship be damaged beyond repair if the loan isn’t repaid. If the answer is yes, then again, I recommend walking away. You don’t want to lose your relationship AND your money.

In the very few times I’ve loaned money, I have gone into the arrangement with the attitude that if I never saw the money again, I would live with it. If I can’t feel that way, then I just don’t do it.

3. How formal do you want the arrangement to be? If someone asks to borrow money from you, particularly if it’s what you consider to be a sizeable amount, then you have the right to expect a formalised written agreement. The written agreement should state the amount borrowed, any interest that may apply, payment terms (how much and how often), and the date the loan should be finalised.

I’d recommend having the agreement drawn up by a solicitor, and I personally believe that the person borrowing money should foot the cost of any fees.

4. Will you charge interest? And if so, at what rate?

Often loans between friends or family members are no interest, or low interest, and this is of course up to you. You may wish to apply a market rate of interest, particularly if you believe there’s a reasonable chance that you might not get your money back. Perhaps it’s unlikely that person will be able to get a loan from a bank or other lending institution, and would be more than happy to pay the market rate to obtain the capital

You do need to be aware that legally you have to declare all interest to the ATO, even if it’s a loan between friends or family.

5. If it’s not a formal written agreement, what are your terms? Even if you decide not to formalise the agreement, I do think you need to be clear on the terms. You terms might include a structured amount to be credited to your account each month, or a lump sum to be paid at the end of a certain period.

6. And once you’ve decided the terms, what happens if the terms aren’t met? At what point are you going
to start jumping up and down, or at least giving a little nudge? That’s probably something you should also agree upon from the start. And if the loan is never repaid – what are you going to do? If an agreement is in place, are you going to take legal action?

Probably the best advice I can offer is to be totally up-front right from the start. You may feel a little awkward, but if someone has had the courage to ask you for a loan, then setting the terms should definitely be your prerogative and should be expected. Some ideas for approaching this might include:

“This is a lot of money to me, and while I’m happy to loan it to you, I will need it to be repaid in monthly installments by July. Is that going to work for you?”

“I won’t need the money for the next twelve months, but after that I really do have plans for it. Will you be able to pay me back by September next year? And will you do that as a lump sum, or regular payments.”

“I’m happy to loan you some money, but I have to be honest I’ve seen some relationships turn really sour when money is involved, and I would hate that to happen to us. Would you be agreeable to formalising the arrangement so that we don’t have to worry about any of that?”

“If you happen to miss a payment, do you want me to give you a reminder straight away, or give you a few days in case it’s just slipped your mind?”

At the end of the day it comes down to personal circumstances and your relationship with the person needing a loan. Just make sure you consider the risks involved and what you need from the arrangement.

Talk soon,

C

Happy 2011!

So what were your New Year’s resolutions? Get fit? Give up smoking? Lose weight? Spend more time with the family? Work harder?

Did you make any financial resolutions?

The new year is a great time to take stock and make some decisions about your finances. Let me start you off with a few examples:

Create a Budget (or update the one you have).

This is the most basic step to getting your finances in order. It’s pretty tough to save money if you don’t have an accurate picture of what you’re spending. Creating a budget allows you to prioritise your spending and determine the patterns. Furthermore, you can work out where you don’t actually need to spend money.

It’s important to make your budget realistic so that you can stick to it. I suggest http://www.infochoice.com.au/distributions/asic/calculators/budgetplanner/index.asp This is a very comprehensive online budget tool. If you don’t already have a budget, it’s a great place to start.

If you do have a budget, then make sure you re-visit it each year in order to ensure it remains up-to-date and appropriate.

Get your credit card under control.

Eliminating debt is one of the most important aspects of any financial plan. Credit cards are probably the most expensive loan you’ll ever have (unless you’re planning a visit to a loan shark a la Sopranos style, in which case nothing I can say will help you).

Credit cards are very convenient, but you shouldn’t be spending more than you earn where you can help it.

Try to pay out your balance once a month – or at least make a decent payment.

Once you have that credit card under control – keep it that way!

Commit to investing:

There are many good reasons for investing, some include:

• provide for retirement;

• retire early;
• children’s education costs;
• sheer pleasure of knowing your money is working for you.

Make this year the year that you stop saying “I need to get around to seeing a financial planner” – do it, we don’t bite.

Perhaps you could make a commitment to save at least $100 per month into a regular investment plan.

Or if you have a lump sum of cash sitting in the bank that you know you don’t need for a few years, explore your longer term options

Invest your tax refund before you spend it! Instead of banking your refund along with the grocery and bills money this year, consider an investment that you can allow to grow over the next few years.

Protect what you have.

If you earn more than $40,000 and don’t have income protection insurance then you need to have enough income producing assets behind you to replace that income in the event you are unable to work due to illness or injury.

If you’re not in such a fortunate position, then you need income protection insurance. Simple as that. If you don’t have it, this could be your most important and valuable resolution.

Review Current investment strategy and portfolio.

The Australian Securities and Investment Committee (ASIC) recommends that all investors review their portfolio at least once a year. In fact, they have made it a legal requirement for all Financial Planners to offer an annual review service to their clients.

Investment is not a “set and forget” exercise. The reason reviews are so important, is because you can factor in changes to the market, economy, and your lifestyle.

Set financial goals and time frame:

It’s always easiest to save money when you have a specific goal – retirement, house deposit, paying off the mortgage, a holiday etc etc. It's important to work out what you want to achieve, and how long you have to achieve it.

A short-term strategy is just as important as a long-term strategy – but they are different. Don’t assume that what you’re doing is the most suitable just because it’s the way you’ve always done it.

Write down your short-term and long-term goals, as well as what needs to happen so that you can achieve those goals.

Learn more about the sharemarket.

Accepting that the value of your investment may go up or down over the short-term could greatly improve the potential for your money to grow over the long-term. Don’t be scared off by the last few years – learn from them.

Get good advice.

Engage professional advice to steer you through the investment maze. Like any professional service, check the financial adviser’s experience, qualifications, fees and services. Knowing your goals is one thing, but finding the best investment strategy to help you reach them can be difficult without guidance.

And yes, I would love it if you chose me and my terrific team to be the ones to help you!


Ok, I hope that gives you some ideas for this year’s financial resolutions. If you have any others, I would love to hear them! Just add a comment below or email me at askCaren@hendrie.com.au

Talk soon,

Caren