10 tips for 2013

Gosh, time flies when your savings are shrinking. It's amazing how quickly 2013 has crept up, but think of it this way: it's still only halfway through the financial year.

Besides, there will be a lot of changes in the new year, some that we know about and no doubt others we don't.

So here are 10 top tips for the New Year from an old hand.

1. A super plan

This will be a big year for super … on second thoughts, make that a small year, because the most you can salary sacrifice is $25,000.

The Cooper report's showcase reform, the low-fee MySuper option that your boss must put you in if you can't be bothered choosing a fund, officially starts on July 1.

Only it won't. If you're already in the default super fund, which is to say you expect to be in the same job on July 1, your compulsory contributions won't go into MySuper until January 1, 2014.

Since you won't be transferred to the new MySuper fully until July 1, 2017 - nothing happens quickly in the convoluted world of super - you'll have two funds and two lots of fees to pay.

That'll teach you for not taking an interest. Anyway, look on the bright side, which is that lower fees make a huge difference over time, which could be 40 years away.

Even before MySuper starts, there are cheap, perfectly good funds around. BT has one, and check out any industry fund. While on the subject of super, and this will only take a sec, there are other ways of getting in than salary sacrificing.

The co-contribution scheme is a doozy. If you or your partner have at least a part-time job and earn up to $31,920 a year, the government will contribute a dollar for every one you put in, up to $1000.

The government will contribute as far as $61,920, suitably reduced. Even voluntary contributions - not a tax break in sight - can pay. Their income will be taxed at only 15 per cent and not at all when you start a pension. Ah, something to look forward to.

Clarification:

The government has announced changes that, if passed by Parliament, will apply to all contributions made from  July 1, 2012:

The maximum co-contribution entitlement will be $500.
The matching rate to be reduced to 50%.
The lower income threshold will remain $31,920.
The higher income threshold will be reduced to $46,920.

2. Repay debt

It's great you're getting your debt down, but there's no point paying more off the mortgage only to run up a credit-card balance. In the debt stakes, always pay off whatever has the highest interest rate, and that probably won't be the mortgage.

Nor is there any gain from saving more when you could be paying off more of the mortgage. Why not do both? The trick is an offset account attached to your mortgage. Money parked there is like paying off the mortgage, and is tax free, but you can get it back in an emergency.

''Use it as emergency cash only,'' a partner at HLB Mann Judd, Jonathan Philpot, says. ''I like the forced saving discipline of paying down the mortgage every six months.'' If you don't have an offset account, a redraw facility will do, though there may be extra fees.

Then there are the credit-card Christmas specials, which let you transfer your balance with no interest charged. Six months not paying interest (as long as you don't use the card) is a great way to get stuck into the debt.

3. Savings

As rates drop, you need to squeeze the most out of your savings. Online at-call accounts are still offering the best rates. If you have reasonable savings, though, perhaps put some in a term deposit as a hedge against falling rates. A cocktail of maturities is best so you still have some flexibility, and they should average out so you're not left on a low rate for years.

But don't forget, the best way to save is the mortgage offset account - it's a higher rate, tax free.

4. Shares

You should review your shareholdings every year, and may as well do it now so you don't forget.

Re-balancing is what advisers call selling some of one stock and buying more of another if they've moved out of kilter.

So if one stock has shot up, you take some profits by selling some of your holding and buying more of one that hasn't moved or even dropped, as long as you're still happy it will be a good investment.

With brokerage so low, you can afford to buy or sell in dribs and drabs and you're not trying to time the market, which is impossible.

5. Pay yourself

Expenses expand to fit the income available. Or exceed it. So the best hope you have of saving is to treat it as an expense as well. Then you have no choice, do you?

A rule of thumb is to whisk as close to 10 per cent as you can of each pay into a savings account - without starving or reverting to the credit card.

Just to be sure, set up a direct debit so you never get your mitts on it.

6. Budget

This brings me to your expenses. Promise, I'll be brief.

The good news is that once you know where your money's going, budgeting isn't so painful.

Frankly, you'll be surprised how much you're frittering away.

But the only way you're going to find out is by keeping a record of everything spent for two weeks - there has to be an app somewhere to help.

Then you'll see how few changes you really need to make the budget stretch further.

7. Check the mortgage

Unless you're paying at least 0.5 per cent less than a bank's advertised home-loan rate, you’re being ripped off.

The banks are offering discounts for the asking and there are loans out there charging less than 6 per cent – check out canstar.com.au or ask a mortgage broker.

Should you fix?

Yes, some of it, especially if you can fix at or below what you’re already paying. To have more certainty of fixing it all, you’ll need to weigh up the likelihood of more cuts next year and the loss of flexibility against the fact this is about as low as fixed rates will go.

It’s in the lender’s interest, so to speak, to offer the best dealwhen rates are falling, not rising. I’ll leave it to you.

8.Get advice

Or you could ask a professional. There’s less chance you’ll be flogged a fund you don’t need after July 1 when commissions paid to financial advisers are banned. Then by law they’ll have to act in your best interests, though there’s no rule against dud advice.

Big dealer groups such as banks will still push their own products,warns the managing director of Sentinel Wealth, Justin Hooper.

‘‘Successful people surround themselves with good advisers, and the value of good financial advice is so high that it’s worth putting in the effort to find one who will be fully aligned with your interests,’’ he says.

Near retirement you need to get advice anyway – the super and Centrelink rules are so complicated, having an expert negotiate your way through them will be well worth the money.

9.Tax

Start collecting those receipts and thinking about the tax implications of your investments.

Hiding in bank savings accounts or term deposits isn’t getting you ahead in real terms.What inflation doesn’t take out, tax will.

The two best government-sanctioned ways of avoiding tax are super and franked dividends from shares.

If you’re saving to buy your first home, an even better option is the First Home Saver Account scheme (although offered by credit unions and building societies, they’re every bit as safe as banks), where the government gives you $1020 if you save $6000.

Also, the interest is taxed at a flat 17 per cent. However, conditions apply, as they say on TV.

The higher tax-free threshold this year of $18,200 (or $20,542 with the low income offset) also offers income splitting opportunities for a couple; all the better if one partner isn’t earning anything.

10. Diversify

Don’t put all your eggs in one basket. But howmany baskets should you have? Just because you have a few different stocks doesn’t mean you’re diversified.

Same goes for owning a home and having an investment property. Remember, the whole point of diversification is financial safety.

The bigger picture is how much you should have in the sharemarket, or any other asset, to begin with.

That depends onwhere you’re at in life – young and starting out, you can afford to take risks and should pile into growth assets such as shares or property.

Close to retirement, you need more cash and conservative investments such as bonds.

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