logo
What truly is financial planning?
26 September 2021
Written by Melissa Grimshaw – Associate Adviser

It is a question that you ask a range of people and you are surely to get a range of answers, with the theme often being “something to do with Investing and Superannuation”. 

Yes, these answers would fit into the holistic aspect of financial planning, but it is about setting the right path to help achieve YOUR aspirations/goals. 

Whether, it is getting married, buying your first home, just getting into the market, protecting your family income and assets, building your nest egg, retirement and preserving the nest egg, transfer of wealth to next generation are all milestones along one’s financial path.

The key to help best achieve these milestones is getting the right strategies in place at the right time to give you the best opportunity to have a good time while travelling your financial path. 

Should life throw you a curve ball, it’s okay, as the path can always be adjusted.  

This is where the value of advice becomes so important, as structuring, reviewing, and adjusting your financial path is inevitable throughout different milestones that each of us reach through our financial journey.  Having the right strategies/advice can make the world of difference.

Let’s looks at a simple example of investing surplus cashflow of $10,000 per annum over a 15-year period. 

Client A- Joe and Client B- Bill age 50 years, have surplus income of $10,000 per annum in which they would like to invest in a “Moderately Conservative” portfolio.  This means investing up to 50% of the available funds in growth assets such as shares and property and the other 50% invested in defensive assets such as cash and fixed interest type investments, average rate of return net of investment fees 4.81%.  They have a 15-year investment timeframe.  Both have other assets that they can call upon if required. 

Both Joe and Bill, have a personal marginal tax rate of 32.5% plus medicare. 

  • Joe just decided to invest in his personal name, as can access the capital at any time.
  • Bill, sought advice and decided to implement the strategy of salary sacrificing into superannuation.  Both simple strategies. 

 Note – Both investment structures are invested in the exact mix of managed funds.   Earnings on Joe’s portfolio is taxed in own hands-32.5% and Bill’s portfolio is taxed within superannuation environment at 15%. 

Projected Outcome

Joe

It is projected that based on consistent savings of $10,000 per annum over the next 15 years, Client A may have capital of $198,074 accumulated in future dollars. 

Bill

Based on the same scenario, though $10,000 per annum is being contributed into super as a salary sacrifice, and no lump sums taken, projected capital is expected to be $212,578. 

There is an overall difference of $14,504 in this simple example, with Bill ahead of Joe, simply by choosing a different investment structure in which to invest exact same way as Joe.

It does not end there, should Joe decide to sell his portfolio at the end of year 15, he will trigger capital gains, which will be taxed at his personal marginal tax rate, whereas Bill, can structure his portfolio before sale, and avoid capital gains tax altogether.  Bill does need to meet certain conditions before he can access and sell down assets.  

This example, demonstrates that as simply as choosing the right strategy/investment structure, could make a difference in achieving your goals. 

There are so many facets to a good financial plan, which include but not exclusive to the below 5:

  1. Uncover savings capacity and debt structures
  2. Structuring capital and recourses that best fit you
  3. Identifying the right level of income and asset protection
  4. Tax planning
  5. Estate Planning

All the above interweave together to develop the right path ahead for you to work on your financial journey.  Your plan should always be reviewed regularly and adjusted where it needs to as things change – we all know that this is a certainty!  Sure, there are costs associated with seeking advice, but it comes back to the old saying “you get what you pay for”.  Good advice is an investment in your financial future.

What truly is financial planning?  It is working together with your trusted Hudson advisor to build a robust financial path, that provides direction, with your Hudson trusted advisor taking the journey with you, guiding you and getting you to the next goal on your financial hit list!  

General advice warning –The above example is an illustration only and does not take your specific needs or circumstances into consideration.  Therefore, you should consider your own financial position, goals and objectives and naturally ensure you seek advice before committing to any financial decisions you may be considering. 





Facebook Comments