Super Squeeze

What’s that sound I hear you ask?

Yes, it’s the government tightening the screws on one of the widely used and lucrative legal loopholes available to reduce your tax bill and boost your super. In the recent May budget Wayne Swan announced that, despite widespread expectation that the concessional contribution cap for those over 50 with balances under $500,000 would remain at $50,000, it was halved to $25,000. Sorry, delayed. For 2 years. Hmmm. We’ll see.

Further, for those of us you lucky enough to be earning over $300,000 you will pay 31.5% on your contributions rather than 16.5%.

There’s been a fair bit of huffing and puffing from those in the superannuation sector who say that these changes make building an adequate superannuation nest egg more difficult. They emphasise that those over 50 who have hopefully paid off their mortgage and raised their children require this potential tax break to provide impetus to make the best of the superannuation system.

Some commentators (like Ross Gittins from the Sydney Morning Herald) pooh pooh this argument saying half your luck if you can avail yourself of a $50,000 salary sacrifice arrangement to boost your super. Those on moderate incomes have a snowball’s chance in hell of growing their super as quickly as those on higher incomes and hence the gap between rich and poor expands. Moreover the government is also ramping up super contributions to 12% over the next 8 years which is a pro-super initiative.

In this debate, I might have to be that most irritating of observers  - a fence sitter. It’s tough when something that you take for granted (beneficial salary sacrificing arrangements) is “snatched” away from you. A few years ago you could salary sacrifice up to $100,000 per year and pay only 15 cents in the dollar. Now it’s $25,000. It does feel like the earth is shifting under your feet when the rules keep changing on you.

On the other hand, the superannuation system was introduced as a mechanism for those on low to moderate incomes to find a way to at least partially fund their retirement and ease the burden on the pension system. The generous concessional caps were (and still are) a fabulous tax planning strategy. But could a teacher on $60,000 a year take advantage of it?  Even if they didn’t have a mortgage and children your take home pay gets eaten up pretty damn quickly just living your life.

What IS patently clear to me is that building an adequate superannuation balance is a bloody tough thing to do. To give you some simple numbers, to earn $50,000 per annum tax-free in your retirement you need $1 million dollars earning 5%. This is assuming you don’t blow your budget and live on $4k per month and keep your capital intact. Assuming you can earn 5%. That’s a lot of assuming in there.

Yet I look around – at clients, at friends – and see many people a long way from that. A lot of them have earned decent money too. Quite frankly a lot of the time we are frittering it away on stuff that we don’t even remember – too many dinners out, too many clothes, bigger houses, new cars, stuff. There is capacity to save in there but somewhere along the way life and us get in the way. Damn human nature for making us want “more” all the time.

We need to educate our children to start young. First paycheck - get them to put 10% away. Don’t care where – super, bank account, managed fund. That’s detail. They’ll never notice it and it is the seed of a lifelong habit that might just make the difference. Challenge them to live on 90% and that small meagre amount WILL grow. I could show you lots of fancy graphs showing you how much $100 per month will grow in 30 years time but that’s a waste of time. We know this is a good thing.

I like simple messages. Like “Eat Less Move More” when it comes to losing weight let’s apply the same principle to our money:  Spend Less Save More! Obvious – yes. Boring – mmm a little. Useful and helpful and going to achieve results – Hell yeah!

Cashless is king

Tired of lugging around a wad of notes in your purse or wallet? A heavy collection of jangling coins in your pocket? Well, times are a-changing. The accepted mantra Cash Is King is about to be turned on its heel. Welcome to a future free of cash. Ok that is probably still way off but things are definitely moving in that direction.

Although the volume of cash transactions in most countries is still very high, cash free purchases are forecast to grow between 7% and 8% every year to well over 50% non-cash penetration by the year 2030. This is coming off a low base though - the country with the lowest percentage currently is Finland with just under half of all business transacted in cash. In Australia it’s 61%, and in most third world countries there are hardly any internet based payments at all. That seems self-evident but with rapid advances in technology forcing the cashless trend, businesses will be forced to move with the times.

Apart from debit and credit cards, your smart phone is the obvious device to conduct business in this changing environment. I’m not sure about you but I love making payments and purchases from my mobile phone, so instantly gratifying and perfect for doing admin on the run instead of wasting precious hours in a dentist’s waiting room or hanging around for the kids to finish netball practice. Instantly identifiable, as your mobile number is unique to you, and most people are loathe to change numbers as it is recorded on every class list and database in their network.

The convenience of online transacting is soon to include even phones that are not deemed “smart” - software developments in the making will enable so-called android phones to conduct business on the internet. Yes, even consumers in third world countries want the ease of paying online with mobile devices.

As investors we should be aware of these major developments or investment themes to work out what types of companies will be the growth centres of the future. In a cashless society one would expect those businesses that facilitate the movement of virtual cash to be in the pound seats. Think Visa, Mastercard, eBay, Paypal. Plus those innovative start-ups we haven’t yet heard of. And of course banks, which are likely to take a clip on each transaction that passes through. Record profits anyone?

Disclaimer: the wisewomen blog does not constitute financial advice. We recommend individuals obtain financial advice specific to their situation before making any financial investment or insurance decision.

Play Nice!

In my opinion the most gut wrenching part of divorce is sharing custody of your children. Don’t get me wrong; it’s not that spending time with both parents is bad for children (quite the opposite really) it’s the dawning realisation that some part of your children’s lives is spent without you overseeing it.

Whether or not the separation is your choosing or not, a chunk of your children’s time is not with you. You miss a holiday to a new place, a shared joke, a new memory. After 7 years, although it has dulled a little, I still feel a twist in my heart when I kiss my babies goodbye. I say babies with a wry smile as my eldest is a 6ft 5, sixteen and a half year old but come on, they’re always your babies. I’m pretty sure my ex probably has moments like this, too. It becomes part of the acceptance of your new world order. You play the cards you’re dealt (clichéd but true) and sometimes-even relish in a little breathing space and “me” time.

What distresses me is hearing about horrific custody battles over children and the damage it does to both parties involved and eventually the children. I am going out on a limb here but sometimes the worst offenders in these battles are women. I’m guessing from feeling a lack of control over the situation the lows to which some will stoop to justify their behaviour is abhorrent. Over the years I have met quite a few men who have related some pretty dire situations. Big caveat ahead – yes I know there are lots of deadbeat Dads out there who seem to display little interest in their children or shirk child maintenance. Yes I know there is two sides to a story etc. etc.

But sometimes one of the two sides just doesn’t play fair. Hell hath no fury and all that. One man I knew made sure he always had a pair of shorts by his bed so that if his daughter crawled in next to him he would hurriedly put them on, in case innocent remarks about Daddy being naked with his young child were used against him. I am not minimising at all the horror of child molestation here but I found it really sad that is what went through this father’s brain.

The vast majority of men I know love their children and want to be in their lives and play a part in raising them. And believe it or not can learn to cook, clean, wash, monitor homework, foster emotional development as well as any woman. Sometimes we just have to stand back and let them do it. Their way.

Of course, sometimes the fight is necessary. There are instances when it is better off for a child to have limited contact with a parent and court is the only way to provide guidance. Drug and alcohol abuse by a parent, violence, abuse – verbal and mental spring to mind as good reasons. But in most cases this is in the minority. Pushing people to their limits with baseless unstable accusations and then expecting them to take it on the chin or prove their worthiness as a parent are low-ball manoeuvres. In the he said-she said world of family law it’s tricky for judges to get it right all the time.

At the end of the day you don’t OWN your children. For better or worse (and don’t those words get said with new irony in the wash up of marriage or relationship failure) your child carries both of your DNA equally. Children have a right to time with both parents. Period. Get over yourself, act like an adult, book a mediation room and work out a reasonable solution. And shut your mouth about it in front of your child – it’s not something they need to hear about. One of the first lessons we teach our children is “share” and “play nicely”. If you’re not doing that yourself then you need to go back to kindergarten!

If I thought a female friend of mine was pushing the boundaries on reasonableness around access to his children I don’t have a problem with (tactfully) finding a way to tell this friend to pull their head in. And I’m pretty sure I would tell a male friend the same thing if he were not pulling his weight in the post-divorce fathering department.

With the Family Law Court an ineffectual monitor of what’s actually playing out in the battlefield of shared parenting a word in the ear from one of us might be enough of a wake up call for some. Unlikely, I know, in many cases. So often we hide behind the social nicety of keeping our noses out of people’s business that we stand by and view the slow train wreck of children watching their parents tear each other (and themselves) apart in the process.

Am I way off base here? Love to hear your thoughts.