What to Focus on in 2023
Welcome to episode 3 of this series – understanding your superannuation.
Superannuation is such an important asset for Australians and it’s our mission at Scientiam.com.au to give you the knowledge to maximise your chances of success and a better retirement.
So, in this episode we are going to talk about some key financial items for the year ahead.
I’m going to break it into quarters because with all good intentions we start off with a long list at the beginning of the year… and it’s overwhelming. So, let’s start with some small bites.
Ill break it into 3 things a quarter, ok?
First Quarter 2023
- Review Interest rates
- Set up a Savings system
Let’s start with a quick story about the power of focus.
During the break, I was in western NSW and visited a town called Rylstone. You have most likely never heard of it. It’s a small town with a population of less than a thousand people near Mudgee.
So, what does this town have to do with focus?
In Rylstone there is an amazing dumpling house called 29 nine 99. Remember this is western NSW where steak and chips and chicken Parmi are the norm on menus and a cold beer.
Not only does the shop serve dumplings, you get no choice on the kind of dumpling! You simply can order 6, 10 or 14, and that is it! No choice, no other options, no rice, chips or other dishes.
And guess what – the queue is out the door! Remember this is a town of less than a thousand people, with a general mart, a petrol station, two pubs and a butcher. That is, it!
The message is that if you stick to what you are good at and focus on it, you can be successful.
Imagine how many times the restaurant was told it won’t work and to offer other Aussie menu items like chips or a burger?
So, in 2023 have a think about …what you want to focus on.
If money and finance is one thing you want to focus on, you are in the right place.
Financially this will be a good long-term move.
No 2 – review your loans, car loan, credit cards
Interest rates increased rapidly last year and many are now looking at home loan mortgage rates heading above 5%. Car loan rates are between 7% and 9 % and heading are over 10% and credit cards well over 10% and some heading towards 20%.
So, spend a few hours, work out what you have in debt, and review all your contracts and start talking to your bank or provider to re-finance.
If you have a credit card that you just can’t get down after the holidays, add that to your re-finance at half the rate and cut up the card and only use a debit card.
No 3 – set up a savings system.
There are some great personal finance books worth reading and many may have read the books like “The Barefoot Investor”. There are millions of similar books Most if not all have similar themes and one is to save least 10% of your salary.
If you can’t do this now, at least start with a tiny amount to start the habit. For example, set up a separate savings account with your bank, and on the day, you get paid set up an automatic saving of $10. Just start. The habit will be life changing.
The three actionable items for the second quarter are:
1 – Review your Super
Many Australians find super too confusing and don’t know what to compare, so leave it in the drawer for next year.
Performance is also confusing and a subject of many debates and advertising campaigns by funds trying to get your money. This is a 3 trillion dollar industry so there is a lot of money to be made. You need to be careful about who is advertising and why.
Many people ask me, how do we really know if our own fund is performing well or what it should be doing? comparisons can be difficult because different people have different objectives, time frames and risk profiles.
For example, in some years the best funds may have a negative year, and that can be ok for a long-term investor. However, some investors in these funds will be tempted to switch to another fund, and then the year after they will switch again and again. which ends up costing more in fees and transaction costs.
So here is something that is really important!
Returns don’t come from the manager of the product of the fund, they come from the underlying investments.
The key is to understand the asset mix that suits you, for example, if you are younger perhaps having more growth assets like shares and property is probably better for you as the money is going to be in super for a long time.
Once you have worked out what the right mix is for you based on your circumstance and attitude to risk, you want to be in funds that are diversified as possible and capture those market returns efficiently.
And then you want to make sure your costs are very reasonable and transparent
If you focus on these three steps you will be more successful over the long term than most investors.
2 – Tax lodgment
Yes, a bit boring perhaps but important.
Make sure you lodge your tax on time and claim all your allowable deductions. As the late Kerry Packer famously said, he believed in paying tax but not a penny more than he needed to!
If you have a self-managed fund ensure you are maximizing your tax refund if in pension phase.
3 – Tax planning
Didn’t we just lodge our tax?
While many focus on just lodging, it’s important to map out the tax year ahead and plan any opportunities. Will you earn more? Less? have more savings? have tax rates changed? are you running a business? Spend a few hours and map out the year ahead and where you may be able to improve from the year before. It may be ok to pay more tax because you are earning more. But this may open up the opportunity to add more to super for example that can be tax deductible.
Managing personal finance is a huge topic and broad and its why many people don’t do it well.
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CEO & Founder of Scientiam