|
Here is a short glossary of terms you’ll encounter when you start thinking about your financial situation. Ask your financial planner to give you more explanation on these or any others you may be unsure about.
“Wealth creation”
An umbrella term used to mean the strategies you put in place to create a better financial situation for yourself in the future – these can include superannuation, investment, property ownership and a raft of other ways to achieve your end goals, including making sure you have an appropriate level of insurance.
“Retirement planning”
As Australia’s population ages, there will be less money in public coffers to provide pensions in the future. Retirement planning takes into consideration the amount of money you will need to live the life you have in mind.
It’s not just a plan to create the wealth you will require, but also ways to manage your funds into retirement, with the right pensions or other strategies to make sure that your income is properly managed. Retirement planning can happen at any age. Starting planning for retirement early allows you to take advantage of the miracle of compound interest, where you savings earn interest on the interest!
Back to top
“Super splitting”
Legislation now allows the tax-effective savings of superannuation from one partner to be used to bolster their spouse’s super fund account. This is particularly effective for those who are approaching their Reasonable Benefit Limit (RBL) – it allows for two RBL’s in a partnership, no matter who is earning most money. Ask your financial adviser if this course of action is appropriate for you.
Back to top
“Salary sacrifice”
Part of your before-tax salary can sometimes be ‘salary sacrificed’ straight into superannuation – which means it is taxed at a beneficial rate (15%), and paid before income tax (lowering your taxable income). Many people find this a valuable way to save for retirement so ask your employer if it is available to you.
Back to top
“Tax efficiencies”
You’ll find this expression used when an investment or other wealth-creation strategy makes a difference to the way your taxable income is assessed, or stops you paying more tax than you need to.
For example salary sacrifice into super (see above) is a very tax-efficient way to save. In some cases borrowing to invest can allow your interest to be tax-deductible, and there may be other efficiencies like paying interest in advance. Your financial planner will be able to let you know of the most tax-efficient ways to save and invest.
Back to top
“Lifestyle changes”
Many people don’t realise what a difference a change in their personal circumstances can make to their financial situation. As you move through life each change brings a different set of needs which may impact your overall planning objectives, insurance needs, cash flow requirements and so on.
Think of these for a start: getting married, having children, putting the kids through school, receiving an inheritance, having a debilitating illness, losing a partner, downsizing home when children move out. Each has its own effect on your financial outlook. A professional financial adviser will take your lifestyle now into account when making your plan and you should review your financial plan whenever a major lifestyle change occurs. Back to top
*This information has been taken from the FPA's Good Advice website. | 
