The Great Australian Dream: Property Ownership

Research by CommBank has revealed that 43% of millennials are investing to create wealth and achieve financial independence. Among these young investors, 45% favor property investment, closely followed by the stock market at 38%. But what drives millennials to choose property over a diversified investment portfolio? And are there potential drawbacks to this preference?

1. Tangible Appeal

For most people, residential property serves as an accessible entry point into the world of investing. Its tangibility plays a significant role. We can see houses, touch them, and many of us have lived in one or rented one. Perhaps we’ve witnessed our parents navigate the mortgage process and buy property. This familiarity gives us extra confidence and comfort with real estate as an asset class.

In contrast, intangible assets like shares can feel less familiar. The stock market’s mechanics might seem complex, leading some investors to hesitate. While property’s tangibility is appealing, it’s essential to recognize that it may not always be the best investment strategy for everyone. When starting any investment journey, begin by defining your goals and then tailor your strategy accordingly.

2. The Trendy Factor

Reality TV shows like “The Block,” “House Rules,” and “Fixer Upper” have fueled our fascination with real estate and renovations. If you’ve ever watched these shows, you’ve probably daydreamed about becoming a property flipper—buy, renovate, sell, and cha-ching! Property investment offers a level of control over performance and outcomes. Investors can enhance capital value through renovations or development.

However, property flipping isn’t foolproof. It requires hard work, planning, and diligence. While it can be financially rewarding, remember that property investment is a long-term commitment due to high transaction costs. Plus, you can’t sell off a bedroom for quick cash if needed!

3. Misconceptions and Risks

Misconceptions abound regarding property investments. Investors often perceive property as less risky than other asset classes. This perception stems from our familiarity with real estate. However, investing in property carries its own risks:

• Lack of Diversification: Property investments often involve purchasing a single asset with substantial value. Diversification is limited, putting all your eggs in one basket.
• Borrowing and Gearing: Many property investors borrow money to fund their purchases. While gearing can magnify gains, it also amplifies losses. Rising interest rates can impact your financial responsibilities.
• Property serves as a growth asset, typically implying a higher risk for potentially greater returns, especially over the long haul. Although Australian housing prices have seen an average annual increase of 7.25% over the past three decades, it’s crucial to recognize the cyclic nature of this trend, noting that not all properties yield equally.

While acknowledging risk as a pivotal factor in wealth accumulation, it’s imperative to comprehensively grasp and manage it through diligent research and an appropriate investment strategy.

Whether you lean towards a portfolio or property investment as your preferred avenue, don’t hesitate to reach out today to explore whether they align with your goals!

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Discover six steps to boost your mindset and cultivate a healthier money relationship for a brighter life today:

1. Discover Your Core Values.

When did you last ponder what truly matters to you?

Your core life values play a crucial role in managing your personal finances. If your spending doesn’t reflect your values, you might sense discontent or a feeling of something amiss.

Let your values guide your decisions like a lighthouse, ensuring your financial choices and life are in line with what matters most to you.

2. Envision Your Future

Once you’ve pinned down your core values, the next step is to crystalize your big picture – also known as your vision.

The keyword here is ‘your’.

It’s a breeze to fall into the trap of comparing yourself to others, but chances are the Joneses don’t share your values, priorities, or vision… so trying to keep up with them will likely not only burn a hole in your pocket but also lead you somewhere you never really aspired to be in the first place.

Keep your values, priorities, and vision in mind, stick to your own path, and relish the journey towards realising your personal aspirations, at your own pace.

3. Check out your Belief Systems

You’ve probably come across these phrases before: ‘Money doesn’t grow on trees’, ‘Money is the root of all evil’, ‘Money can’t buy happiness’. These common sayings reflect beliefs about money. Our belief system shapes our views on right and wrong, true and false. Often rooted in childhood experiences, these beliefs influence our lives. Lacking positive money role models, many struggle with their financial mindset. If you feel restricted by money beliefs, it could be time to rewrite your money narrative.

4. Strike the right balance for a healthier you.

From what we’ve learned in diet culture, following an overly strict diet or exercise routine is not good for you and is usually hard to stick to.

Balance is crucial for a healthy lifestyle, just like it is for your finances.

If your budget is unrealistic, it will only lead to disappointment. Therefore, be truthful when planning your budget and find a good balance between enjoying the present and saving for the future you.

This could mean taking a step back and making sure your goals are practical and reachable.

5. Get Moving

Nothing occurs without taking action. Both successful and unsuccessful individuals frequently have similar objectives. The pivotal point lies in establishing a continuous system of small enhancements to yield different outcomes.

While goals serve as valuable compass points, it’s the systems you put in place that propel you towards those directions. To achieve superior outcomes, direct your attention towards your systems (or habits). Habits serve as the building blocks of our lives, with each one acting as a foundational element contributing to your overall advancement.

Your current level of success holds little significance. What truly counts is whether your habits are steering you towards the path of triumph.

6. Express Gratitude

Practicing gratitude isn’t just another new age concept. Positive psychology and the effects of gratitude have been scientifically researched, with most studies finding a link between gratitude and improved well-being.

According to research by Robert Emmons, author of ‘Thanks! How Practicing Gratitude Can Make You Happier’, regular grateful thinking can increase happiness by as much as 25 percent.

Next time you’re feeling down about your financial situation, take a moment to acknowledge the positives in your life to shift your thinking!

The key to financial success is more than just about numbers, just as achieving your financial goals requires – more than a well thought out financial plan.

You can take steps to align your plan with your values to improve your beliefs around money, and take action to live a grateful and balanced life, and you’ll be well on your way to achieving greater financial success.

What action will you take to get started on improving your financial mindset and creating a more successful relationship with your money today?

The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.

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It’s always a good idea to regularly check in on your financial position. For those who find themselves with spare funds, it often raises the question, “Should I pay down my home loan or invest these funds elsewhere?”.
For most, there is nothing like the comfort of reducing their mortgage. Knowing you’re building ever more equity in your own home and moving just that little bit closer to owning your own home outright.

What’s more, repaying your home loan feels less risky, in the way there is risk attached to investing in the market. Somehow, it just seems that much easier to commit to paying more off your home loan, than strictly setting aside an amount each month to invest.
In addition, there is a significant tax benefit. The money you save by reducing your mortgage and lowering your overall interest rate bill is not taxed, while any earnings or capital gains received from investments will most likely be taxed at your marginal tax rate.

Against that, there is a good argument that if you can generate returns from investments in excess of this rate, then the smart money is on making investments beyond your home. Especially if you contribute these extra savings to your superannuation fund and then invest the funds within superannuation. This is because the associated tax rate for earnings within super is a maximum of 15 percent, which for most people is below their marginal tax rate.

In addition, you might be able to reduce the tax you are paying on your weekly earnings. Again, depending on your situation, you can contribute up to $27,500 a year to super and potentially claim a tax deduction for these contributions or up to $110,000 a year using after-tax income or savings.

Investing funds outside of your home also means you are diversifying your assets. Rather than having all your funds tied up in one property, you can choose to invest any additional funds in a range of opportunities such as fixed-interest investments, commercial property, domestic shares, or international shares.

But just how do the numbers stack up? Just what sort of returns can you get from investments compared to repaying your own home loan?
Let’s assume you take out a $500,000 home loan over 30 years at say 3.5 percent.
The Government’s Moneysmart online mortgage calculator suggests monthly repayments would be $2,245 and the total interest charged would be $308,280.

If you repaid an extra $500 a month to reduce this loan, you would reduce the term to 21 years and nine months and the total interest bill would be just $214,168 – saving you some $94,112 in interest payments.

Alternatively, if you invested $500 a month in an investment generating 7.5% percent per year, at the end of 30 years, the Government’s Moneysmart compound interest calculator suggests this investment would be worth $678,433. That’s $584,321 more than the interest you’ve saved.

The numbers suggest overwhelmingly that you are better off investing outside your own home if you are confident that you can commit to this investment strategy, and if you are assured, you can obtain at least 7.5 percent after tax year after year for 30 years.

For most people though, the best strategy is a mix of repaying your home loan early, contributing extra funds to super, and, building up an investment portfolio.

To find out the ideal mix & create a plan that is based on your unique situation, we have created the Finnacle Financial Blueprint. This allows us to model your current situation & multiple scenarios to see what the outcomes are and see which one is the ideal one for you. The financial projections will show the growth in your money over time, as well as being able to factor in things like holidays, upgrading your home, or having another child to see how that will impact things.

If you would like to know more about the Financial Blueprint, click here. From there you can join the waiting list for our Financial Blueprint program, and access some of the tools that we use with our members!

To discuss more about what we do and if we can help you on your financial journey click here to organise a quick phone call with me .

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One of the most common questions I’m asked as a financial adviser is “will I have enough to have financial security?” It truly is the million-dollar question!

With so many variables involved, there is no set answer, but these days with so many of us expecting to live longer, at least one million dollars is the minimum required to fund a comfortable retirement.

The reason that this figure has become accepted by most experts is this: if you have $1,000,000 making you 5% (after fees) you have $50,000 per year. This may not sound like enough to live on, however is one pillar of your financial independence. If you have your dream home paid off, your super funds pumping & an emergency reserve as well, you will have achieved financial bliss!

This might come as a shock to many, and a lot of people might think that figure is only achievable by winning the lottery, but I can assure you that it is achievable. It requires the right structure, plan and commitment… and a little bit of magic called compounding.

Here’s an example on how you could be on your way to a million dollars, starting with just $5,000. The more you begin with the better, and the earlier you start the more time for the magic of compounding to take effect!

Start with your focus. For this example it’s reaching your goal of one million dollars and become a millionaire.

• Frequency – Regular deposits are recommended straight from your pay. What you don’t see you don’t miss. Setting up the right banking structures is crucial for this. You can automate your accounts so your investment grows without you needing to worry!
• Amount – A minimum 10% of monthly net income is recommended. If that is too high, start smaller and build up. Increase the amount everytime you get a pay rise, so you won’t feel like you are sacrificing as much.
• Rate – Choose investments that suit your risk profile (for example, are you comfortable being a ‘growth’ investor or more ‘moderate’?). In this example, we’ll look at achieving at least a 6-8% annual rate of return.
• Risk (Volatility) – Speaking of risk, remember, high returns generally mean high risk. On the other hand, lower risk means lower returns. So while it may take you longer to get there, it will generally be a smoother ride along the way. Everyone has a different risk tolerance which depends on age, personality, and circumstances.
• Type of investments – High interest savings account to get started, then perhaps managed funds once you have saved enough for the minimum investment. As your balance grows, as a financial adviser we can look at other assets to spread or diversify your investment risk. If you’re taking advantage of the low tax applied to super, in addition to the superannuation guarantee, you may want to salary sacrifice to your super fund – as long as you don’t exceed the concessional contributions cap.
• Age – Obviously it’s best to begin as early as possible, but you can still save a substantial amount whilst you are generating a positive cash flow, by earning more than you spend! If you want to achieve the goal of being a millionaire sooner, you will need a mix of higher contributions and/or higher returns.
• Planning, for emergencies and life events. – We recommend you always have a buffer aside in case of financial emergencies, such as a sudden loss of your job. That doesn’t mean you miss out on enjoyable lifestyle events such as buying a car or going on holiday. Part of our role as your financial planner is to help you understand the impact of these lifestyle choices on your financial position and to plan for them. Remember, living your life today is an important part of your savings and investment plan.
• Goal – The figures quoted here are based upon a $1 million target, however, depending on your lifestyle and expectations, you can revise that amount to suit your circumstances.

How many years to save $1 million

Let’s start with a savings balance of $5,000. The table below gives you an idea of how much you will need to save and at what interest rate it will need to be invested to achieve that million dollar mark.

Obviously, the earlier you start saving, the smaller the monthly contribution is needed. You can accelerate your contribution rate as your income increases. Savvy savers who pay a mortgage off early can accelerate their program considerably by directing the amount formerly devoted to the mortgage payment into savings.

And what about the money you receive along the way? If you receive an inheritance of say, $100,000 (assuming an annual return of 6%), the $1 million mark can be reached in just 30 years by also contributing only $400 per month.

Regular investing is likened to building a “saving muscle.” You grow accustomed to putting away this money over the years and can increase the amount as you would increase an exercise regimen. Eventually, it becomes a habit, and the payoff can be enormous in the end. Like achieving a fit and healthy body, building your saving muscle results in a healthy financial outlook.

And the best part: once you set this up it goes onto auto-pilot & you can continue on with your life! We have many members that have this set up, and it is just the beginning . When you add your home or a property, plus your superannuation funds into the mix (and make sure everything is in sync with your plans) you will see your wealth skyrocket!

Being a millionaire may seem like an unattainable dream, but with the right amount of planning and action, you can join the Millionaires’ Club sooner than you think.

Note: Taxation and inflation have not been taken into account in these calculations. Calculation is based on achieving $1 million in today’s dollars.

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Hey there! We know how important it is for you to achieve your homeownership dreams. Luckily, the Australian government has your back with the Home Guarantee Scheme. This awesome program was created to help you secure your own home, and we’re here to give you all the juicy details. Get ready to learn about the benefits, eligibility criteria, and how this scheme can be a game-changer for you and your family.

Understanding the Home Guarantee Scheme

Say hello to the Home Guarantee Scheme, a fantastic government initiative that makes life easier for first home buyers. It’s all about overcoming the challenges of entering the property market, like saving up a huge deposit.

Benefits of the Home Guarantee Scheme

• Low Deposits, High Dreams: The Home Guarantee Scheme lets you secure a home with a deposit as low as 5% of the property’s value. No more stressing about saving up a massive amount upfront – homeownership is within reach!
• No Mortgage Insurance Frenzy: Forget about Lenders Mortgage Insurance (LMI) eating up your hard-earned cash. With the Home Guarantee Scheme, you can avoid this extra expense and save even more money.
• Play the Field for the Best Deals: There’s a bunch of lenders that participate in this scheme. That means you can shop around for the best interest rates and loan terms that suit your unique financial situation.
• More Houses, More Options: With a lower deposit requirement, you can expand your horizons and consider a wider range of properties. Imagine finding your perfect home in that dream location you thought was out of reach!

Eligibility Criteria

To qualify for the Home Guarantee Scheme, you’ve got to meet a few requirements, such as:

• Being an awesome Aussie citizen or permanent resident.
• Being at least 18 and kicking.
• Never owning a property in Australia before.
• Meeting income thresholds, which can vary based on where you live and your family’s size.

How to Apply

• Hunt for “Guaranteed Homes”: Look for properties approved under the Home Guarantee Scheme. These little gems are your ticket to success.
• Check Your Eligibility: Make sure you’re eligible by meeting the scheme’s criteria, like income thresholds and property value limits.
• Get Your Finances in Order: Connect with a lender or mortgage broker to secure financing for your dream home. Don’t forget to tell them about your Home Guarantee Scheme participation.
• Apply with a Lender: The application process is usually handled through participating lenders. They’ll walk you through the steps and get you closer to approval.
• Score Your Dream Home: Once you’re approved, it’s time to make your move! Purchase the property you’ve been eyeing and enjoy those beautifully reduced deposit requirements and potential savings on mortgage insurance.

The Australian Home Guarantee Scheme is your golden ticket to homeownership. It’s time to turn those dreams into reality! With reduced deposits, no LMI expense, and the freedom to choose the best loan terms, you’re on your way to joining the ranks of proud homeowners. Don’t worry – as your financial adviser & mortgage broker, we are here to guide you through the ins and outs of this scheme and help you make informed decisions along your homeownership journey. Let’s do this!

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Are you dreaming of owning your first home? We know it can be both thrilling and overwhelming. But worry not! The Australian government has your back with the First Home Loan Deposit Scheme (FHLDS). In this article, we’ll walk you through everything you need to know about this scheme – how it works, who’s eligible, how to apply – plus, we’ll dish out the advantages and disadvantages. Get ready to turn that dream home into a reality!

1. What’s the Deal with the First Home Loan Deposit Scheme?

The FHLDS is the government’s way of helping first-time homebuyers catch that big break. They want to make it easier for you to secure your dream property by reducing the financial hurdles. With this scheme, you can jump into the property market with a lower deposit requirement. Pretty cool, huh?

2. How Does the Scheme Actually Work?

Under the FHLDS, eligible first homebuyers can snag a property with a deposit as low as 5% of its value – all without having to worry about paying for lenders mortgage insurance (LMI). Usually, LMI is required when your deposit is less than 20% of the property’s value, but this scheme gives you an alternative. The government guarantees a portion of your loan (up to 15% of the property’s value) to reassure lenders. That way, it’s way more feasible for you to snag a home loan even with a small deposit. Just remember, regular mortgage repayments are still on the table.

3. Who’s Eligible to Get in on the Scheme?

To be eligible for the FHLDS, you’ll need to tick off a few boxes:

• You need to be an Australian citizen and at least 18 years old.
• You have to be a first homebuyer who hasn’t owned (or co-owned) a property in Australia before.
• Your income needs to meet the government’s threshold. The actual thresholds depend on the property’s location and your marital status.
• You’ll need a deposit of at least 5% but less than 20% of the property’s value.

• The property will need to be your primary place of residence.

4. How Do I Sign Up for the Scheme?

Ready to take the plunge? Here’s what you need to do:

• Do Your Homework: Get familiar with the scheme’s criteria. That means digging into income thresholds and property price caps. Ideally speak to a mortgage broker about your borrowing options.
• Secure Pre-Approval: Woo a participating lender and get pre-approved for a home loan. They’ll check if you qualify for the scheme during this process.
• Find Your Dream Home: Start the hunt for a property that falls within the FHLDS property price caps.
• Submit Your Application: Apply for the scheme through your chosen participating lender. If they give you the thumbs up, they’ll guide you through the next steps, including sorting out that government guarantee.

5. What Are the Good and the Not-so-Good Parts of the FHLDS?

The Good Stuff:

• Smaller Deposit, Big Win: The FHLDS lets you dive into the property market with a smaller deposit, making homeownership more within reach.

• Goodbye Lenders Mortgage Insurance (LMI): With the government guarantee, you can avoid shelling out extra bucks for LMI. Score!
• Fast-Track Your Dream Home: By slashing the time needed to save for a larger deposit, the scheme speeds up your journey to owning a home.

The Not-so-Good Stuff:

• Property Price Caps: Those pesky property price caps might limit your options, especially if you’re eyeing a high-demand area.
• Limited Availability: The FHLDS has limited spots each financial year. So, it can get pretty competitive to snag a place.
• Resale Restrictions: Watch out for potential restrictions from lenders on selling the property. It might impact your future plans.

In conclusion, the First Home Loan Deposit Scheme is your golden ticket to making that first home purchase less of a financial headache. But remember, it’s a big decision! Consider your circumstances, talk to the pros, and know what you’re getting into. By understanding the ins and outs of the scheme – from how it works to who’s eligible and the advantages and disadvantages – you can make an informed choice that aligns with your financial goals and dreams. Get ready to turn that key and unlock your home ownership adventure!

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