JAMES MCFALL'S LEAKY TAP SERIES

HOW TO

SAVE YOUR
MONEY

The ultimate guide to saving money that's

leaking from your savings
 Table of Contents
INTRODUCTION ............................................................................................................................................ 2

STRATEGY 1 - BUDGET & SAVE ................................................................................................................ 3

STRATEGY 2 - REDUCE TAX ....................................................................................................................... 6

CLAIMING DEDUCTIONS AND REBATES ............................................................................................ 7

CHOOSING BETWEEN TAX STRUCTURES .......................................................................................... 8

DEFERRING TAX BILLS ........................................................................................................................... 11

STRATEGY 3 - GOOD VS BAD DEBT ....................................................................................................... 12

REDUCE YOUR INTEREST RATE ........................................................................................................... 13

PAY OFF YOUR CREDIT CARDS ............................................................................................................ 13

UNDERSTAND GOOD VS BAD DEBT .................................................................................................. 14

PAY OFF YOUR DEBT FASTER ............................................................................................................... 14

USE OFFSET ACCOUNTS ....................................................................................................................... 15

STRATEGY 4 - INVESTMENT PLANNING ............................................................................................. 17

HOW TO INVEST SAVINGS AND CAPITAL .......................................................................................... 18

DEVELOP AN INVESTMENT PLAN ....................................................................................................... 19

INVESTMENT PLANNING FOR YOUR RISK PROFILE ....................................................................... 20

STRATEGY 5 - INSURANCE TO PROTECT YOUR INCOME ............................................................. 21

.
CHOOSING A LIFE INSURANCE POLICY ............................................................................................ 22

CHANGES TO LIFE INSURANCE COVERS ................................……………………….....…………..………... 23

CONCLUSION .......................................................................………..................………..………........…..………... 24

BENEFITS OF WORKING WITH YIELD …………………………….......................………….……...........………… 25

LET US HELP YOU ………………………………………….......................………….……..…...............................……… 26

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01
 Introduction
Hi! I'm James McFall, Managing Director of Yield Financial Planning. Having been in
the finance industry for over 20 years, I am privileged to have helped 100’s of people
to better plan and manage their finances, so that they can live the life they want
now; and also after they retire.

At the suggestion of a client and my team, this e-book is amongst a series I have written to pass
on some of the consistently successful financial management strategies that we advise on and
that are proven can achieve great financial outcomes.

At Yield, we believe that a good money management system is like getting your plumbing right. If
the tap you have leaks but your normal usage hasn’t changed, you’ll use more water overall, with
the excess literally going down the drain.

It’s the same for your finances, and by simply avoiding the waste, you can improve and potentially
dramatically improve your overall saving capacity. Ensuring that you and your family are secure,
just by creating a strategy around your money. All while having little or no impact on your lifestyle.

In this eBook, we look at the main ways money leaks from your savings, teach you how it can be
fixed and then saved for your benefit.

5 Ways to Stop Money Leaking From Your Savings

Reduce your Managing debt

Legally Spending Protecting your
spending with a costs by getting
reducing the tax money that income with
budget and the structure
that you pay makes money insurance
save right

After reading this guide, feel free to reach out for a discussion on
how we can help implement these strategies.

We trust you find this ebook valuable and welcome any questions
you might have.

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02
 Strategy 1 Budget and Save
How can I budget my money better? Such a common question that can help create better clarity
and accountability for where your money is going. It also gives you the best opportunity to
identify problems and prioritise what is important, and yet few people have one. Especially not
one that is fluid and measurable.

Therefore, it always begins with a budget. This will allow you to understand where your money is
going and the opportunities that exist to improve things. To fix the leaking tap as it were.

The Yield Financial Planning budget is structured like a business cash flow; if you think about it, a
household budget is like a small business. You need to make the books balance, and the way a
business does this is by recording what it earns and spends on a monthly and annual basis, then
balances how they are tracking against their bank account.

In this way, a budget should really be a monthly account of your income and expenses, not just
an annualised figure, as most basic budgets are designed. In fact, you could get a whole lot more
granular than this if you wanted to and look at it as regularly as daily, but we believe that like a
business, monthly provides sufficient accountability and control.

One benefit of breaking your budget down to monthly, is that it reflects the fact that expenses
are not incurred evenly throughout the year.

Therefore, you should expect that some months will be stronger saving months than others and
some months you will likely even go backwards in your bank account.

Importantly though, as long as you have budgeted well and are monitoring it, you will not be
disheartened to see your bank account fluctuating month to month. In fact, you will be
completely assured that your budget is on track, because you can measure your progress against
your bank account.

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03
 With this in mind, the starting point for you is to review and record your previous years actual
expenses. This forms your budget foundation.

From here, a business will forecast the upcoming years income, and then budget for the things it
prioritises are important in the coming year and this should be no different for you.
As a next step, we suggest that once you have laid out what you spend, break it up into what you
‘need’ and what you ‘want’.

The things you ‘need’ you have identified you cannot do without, and the things you ‘want’ are
discretionary and by understanding what they are it allows you to prioritise them, to get your
desired saving outcome that you want, budgeted for and achievable.

Once your expenses are broken down this way, Percentage Breakdown
you can also review them to see if you are getting of your Expenditure
the best price.

For the items you have identified you need, start

with the most expensive and work your way down.
Can you get the same or equivalent for less?
WANTS
This is a strategy that you should be implementing 21.3%
annually, as there are normally thousands of
dollars you can save, without compromising on
getting the items you’ve identified you need.
NEEDS
Utilities are an obvious one you can budget and 78.7%
save with. Compare your energy prices for
example and if you can get the same for less, then
switch. This saving then moves over to your want
column and can either be prioritised for things that
you want that year or can go directly into your
savings for the future.
TRANSPORT &
AUTO
12%
ENTERTAINMENT
& EATING OUT HOME AND UTILITIES
12% 35%
PERSONAL & MEDICAL
6%

GROCERIES
11%
INSURANCE & FINANCE
CHILDREN 13%
11%

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 The next step is to try and look at the expenses you’ve identified that you need through a
different lens. Is there something that you can accept as an equivalent, that may not be the same,
but cheaper. In our house, an example of this was Fox Footy. We had Foxtel, primarily because
we wanted the AFL, but it was expensive. We now have Kayo for AFL and stream two different TV
channels. It is costing us less and we actually prefer the content we are getting as well.

Once you are done with your needs, then move on to your wants. Look at it through the same
lens initially. Can you get the same or equivalent for less?

You’ve now reached the point where you can

quantify what amount you want or need to save to
achieve your desired outcomes in life. Ultimately we
are all working towards achieving a point in life
where we can transition the need to work for
money, to a point that we can rely on the wealth
we’ve created to provide the income we need for
lifestyle and this comes from our savings.

Therefore, once you’ve got your budget to the point

that you are comfortable there is no leakage due to
paying too much, you can then review your budget
to determine what your saving target is. This will
then help you determine how much you are
prepared to spend on your ‘wants’ in the upcoming
year.

Year to year it will vary what these wants might look like. It could be a new couch or
bed. A holiday or a new car. Effective budgeting, where you really balance out all of
what is important to you in life, means you should be making good measured decisions
on what really matters to you, rather than being impulsive and just having to pay the
price later.

It is not to say that you shouldn’t have what you want, quite the
opposite actually. It is saying that if you have thought about it,
you will be buying the things that really give you value and help
you live your best life.

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 Reduce How
Strategy 2 Much Tax You Pay
There are several strategies that you can put in place to reduce the amount of tax you pay legally.
However, the abundance of information available on the topic can make you feel like it is too
much of a hassle or too difficult, stopping you from taking the next step.

Have you ever viewed the tax that you pay as an expense that you have some control over?
You can be assured that all successful business owners have, and it is with this mindset that you
are most likely going to identify opportunities on how to reduce tax.

Now if at this point you are already getting bored at the mere mention of tax, we do get it!
It’s a dry and complex topic, but the thing to wrap your head around is that tax is likely to be the
BIGGEST expense you have in your lifetime, and therefore the more that you pay, the more time
you will need to work to meet your money goals.

So, how to reduce tax you ask? Let's explore some of the biggest levers available to
reduce tax legally:

1 2 3

Claiming Choosing
Deferring tax bills
deductions and between the
through various
rebates you are various tax
means
entitled to structures

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06
 Claiming Deductions
and Rebates
If you are seeking the advice of an Accountant, they should be helping you navigate
your entitlements each year. However, the important point to realise is that if you don’t
claim an expense that would otherwise be deductible, you are essentially paying for
this out of your net income, rather than gross.

Depending on your tax rate, this could mean you are essentially paying nearly twice what you
should be!

Tax Payable* Tax Payable*

Taxable Income
Residents Non-Residents

>$18,200 NIL 32.5%

$18,201 - $45,000 NIL + 19% 32.5%

$145,001 - $120,000 $5,092 + 32.5% 32.5%

$120,001 - $180,000 $29,467 + 37% $39,000 + 37%

$180,000+ $51,667 + 35% $61,200+ 45%

Take a look at the personal marginal tax rate table above, which will give you a guide on how
much tax you are currently paying and therefore what you could be claiming back from the
government, with legitimate tax deductions.

So with this in mind, it is important to ensure that you take some ownership of the discussion
too.

As a basic rule of thumb, expenses incurred for

income producing purposes should be tax
deductible. So whether it is expenses relating to
running a business; an investment like property or
shares; or even home office expenses as a result
of COVID-19, you should be ensuring your
Accountant is aware of it and helping you to
understand all of the deductions and rebates you
could be entitled to.

Speaking as a Financial Planner, we help clients

develop their strategy with foresight, considerate
of deductions and rebates and often work
collaboratively with Accountants to help develop
the strategy.

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 Choosing Between
Various Tax Structures

One of the most important things to understand about effective tax planning is structuring.
Different structures attract different tax rates and therefore by simply channelling money
through the right structure you can greatly improve your end tax cost.

Let's first look at the simplest and most familiar – YOU! All of us as individuals are a tax structure
in the eyes of the ATO and rules apply in the way we are taxed, which we outlined above. This
means that all the income that you earn in your name is taxed according to rules that apply to
individuals and can be up to 47%, which in anyone’s language is a lot!

Now in reality it is only 5% of the population that are in the highest marginal tax bracket, however,
for everyone else there are still events that can push you up, like realising a capital gain, and it is
therefore relevant to almost everyone to at least consider how they can reduce their tax bill. By
doing so successfully, you are keeping more money in your pocket, rather than the governments.

Some of the most common tax structures that exist include:

1 Superannuation Super tax-effective retirement structure

2 Companies Wide usage beyond starting a business

3 Trusts One of the most flexible tax planning tools

4 Individuals Financial dependants on lower tax brackets

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08
 Superannuation

When it comes to your retirement, there is simply no better place for your money than
superannuation. It is a legal tax haven in Australia. Once you are over 60 years of age, everything
you earn on investments you hold inside your super is tax free. Anything you withdraw, is entirely
tax free.

Super has tax concessions going into super too, which for most of us means we only pay 15%
contributions tax, rather than our personal marginal tax rate of up to 47%. It’s simply a must
consider structure for retirement planning.

Companies

When you think of a company, your mind probably immediately moves to a business. It’s true that
many businesses use a company structure to operate their business from, but companies can
have a lot of other uses. Particularly when it comes to tax planning.

The two main tax planning benefits that companies are good for include:
The maximum tax rate is 30%
Companies have franking credits, which means that when a dividend is paid out of the
company, it has a tax credit

Trusts often distribute to a company and the company can then be used as an investment
vehicle. We always consider companies as part of our asset structuring advice, particularly when
viewed as part of a retirement plan.

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 Trusts

Trusts, like companies, have multiple uses and can make a lot of sense when asking how to
reduce tax, especially for business owners. There are various types of trusts, and they are
especially flexible in helping to address specific tax concerns. For this reason, it is almost
certain that you should be seeking advice on whether a trust is suitable for your needs.

The most commonly used private trust is a family trust. As the name suggests, family trusts are
broadly used as an income distribution vehicle to family members. The main benefit is that the
trustees (typically the parents who are also beneficiaries) have complete discretion over where
income and capital gains are distributed. This means the trustees can choose where it is most
tax effective to distribute income in any particular financial year in order to reduce the amount
of tax you pay.

What’s more, beneficiaries are not limited to being

individuals either. You can have a company as a beneficiary
for example, meaning that trusts and companies often form
part of a bigger tax structuring plan.

Trusts are not for everyone, but when they work, they can
make a big difference to the amount of tax that you pay.

Individuals

We’ve already explored how we are taxed as individuals, but

I circle back to again to remind you that the simplest tax
structuring decision is to ask yourself if owning an asset in a low income partners name for
instance works. For example, an investment property owned in a non-working spouses name,
may mean that all of the rental income is tax free year to year and could mean there is a lot less
capital gains tax to pay when you come to sell it.

Another example of where thinking about which

individual’s name an investment should be in,
may relate to age and what the persons
employment intentions are for the future.

Effective tax planning between individuals is

ultimately the simplest way to manage tax and
can make a big difference to the end tax
outcome if thought through from the outset.

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 Deferring Tax Bills
Through Various Means

One of the complexities of tax is that there are various ways to defer paying tax, which
should always be a consideration in effective tax planning.

For a start, if you can defer paying tax, it usually gives a full year before that tax is payable, given
we typically do our personal tax returns annually. What this means is that each year you can
defer a tax bill, your money is working for you, rather than the government.

The simplest example of tax deferral is holding off

the sale of an asset you have a capital gain on to a
future financial year.

While making investment decisions based on tax

alone is usually not the best idea – if it is the
difference between realising the gain in May or June
one year or pushing it out to July or August, it may
well make sense. That money that would otherwise
be paid out could be working for you, sitting against
your home loan for the year instead.

Just to build on this simple example, by deferring the sale to a new financial year, you can also
consider with some foresight how the individual’s personal income may differ in the following
year. Is it going to be lower? Is it possible to influence this
and make it lower?

Tax deferral is a big topic and there are many

ways that it should be considered as part of a
comprehensive tax strategy, but the key
takeaway for you today is that legal tax
deferral is a big part of effective tax planning.

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 Strategy 3 Good vs Bad Debt
Debt is usually a large component of people's financial situation, and if it isn't, it usually means
they may have taken the steps to minimise its impact. This does not necessarily mean paying
down as much as possible as soon as you can. There is a range of financial strategies you could
implement to manage this and help you distinguish the difference between good debt vs bad
debt.

If you own a home in Australia or investment property, it is almost certain that you’ve had to take
on a large amount of debt to get it.

Debt is a way that we make what we want now, achievable sooner. However, it has a trade-off;
needing to service the debt and then ultimately to pay it off.

In our experience, poor debt reduction strategies are amongst the most common examples of
cash flow leakage that we see everyday. Fortunately, they are also one of the easiest things to fix.
Simply by using your money more efficiently you can speed up how quickly you reduce your debt
and then in turn improve your cash flow. Meaning more money in your pocket instead of the
banks!

This portion of our eBook will outline the five best debt reduction strategies, and how you can
implement them, as well as helping you differentiate between good debt vs bad debt.

Top 5 Debt Reduction Strategies

1 2 3

Understand
Reduce your Pay off your
good versus
interest rate credit cards
bad debt

4 5

Make use of
Pay off your
offset
debt faster
accounts

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12
 Reduce Your Interest
Rate

To start with the most obvious first, if you are paying a higher interest rate than you need
to be, you are slowing down your ability to repay your loan sooner.

This is not rocket science and everyone knows it, but the reality is that because a review of your
lending can be quite onerous, the natural tendency is to put it off. However, given how expensive
your debt interest costs amount to be, it should absolutely be a priority. One exercise you should
go through is to equate what an annualised interest cost saving would take for you to earn.

Let's look at a quick example:

Say you have a $500,000 loan, paid down over the standard 25 year period, that is 4% per
annum. If you could get this same loan for 3% interest, then after a year, you would have saved
$2,500.

If you translate this back to what net income you earn, how long has it taken you to earn this
amount? 1 week? 2 weeks?

Valuing an interest saving in the context of what you earn, is a great way of quantifying the value
of your time it takes to regularly review it.

Reviewing your loans annually is what we would typically recommend and often moving your
lending is not what is needed. Sometimes simply contacting your bank and requesting a
reduction in rate is all it takes to move the dial on your interest rate. If you weigh up the value of
your time spent reviewing it each year, it usually makes sense.

Pay Off Your Credit

Cards
It always surprises me how many people fall into the
trap of paying off their credit cards slowly, while they
have money available elsewhere.

Money either sitting against another loan accruing lower interest, or

earning a very low rate of interest in a bank account is even worse,
because the interest you earn is then taxable income. As a rule, it
pays to reduce your debt with the highest interest rate first, and
credit cards are usually the worst!

Wherever possible you should pay off your credit card in full every
month. Used with this discipline, credit cards actually offer a
valuable 28-day interest free period, where your funds can be
working elsewhere in the meantime.

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 Understand Good vs
Bad Debt

Allocating good debt vs bad debt is a simple way of describing the purpose of what the
debt is for. Broadly, if the purpose of the debt is for an income producing venture, such as
an investment into shares, property, or a business, it will be tax deductible and therefore
is considered good debt. This is debt you are taking on with the intention of creating
wealth that exceeds your borrowing costs.

Bad debt on the other hand, is broadly for lifestyle assets. Interest is not tax deductible and the
assets you may buy with bad debt will not produce income and may not appreciate over time.
Examples could include a family home, car or consumable items like clothing.

The nuances between good debt vs bad debt is crucial and is one of the key aspects of smart
debt reduction planning.

Broadly, it makes sense to focus on reducing your non-deductible debt with the highest interest
rate first, before focusing on debt with lower interest rates or on your good debt.
One loan structuring option we always consider is to structure good debt on an interest only
basis. This preserves the tax deductible debt and in turn increases cash flow to reduce bad debt
faster.

This structuring strategy always needs to be weighed up against the prevailing bank policy and
interest rates being offered to determine its suitability.

Pay Off Your Debt

Faster
Debt reduction offers a risk-free rate of return, equal to the interest rate you pay. It
therefore provides an attractive alternative to putting money into the bank. Your net
cost of borrowing should always be the measuring stick when weighing up an
alternative investment choice. IE: the alternative needs to deliver a risk adjusted return that is
warranted and suits your situation and objectives.

I should also say that sometimes it may be better to pay off your debt slower, when comparing
debt reduction against other investment choices. But the point here is that for the surplus cash
you do have, that is not being directed to more productive places, you should ideally find ways to
pay off or offset your debt faster.

You should also be trying to increase your regular

repayments.

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14
 Let's say you negotiate the 1% interest rate reduction we looked at before, and manage to keep
your mortgage payments the same.

The outcome would be:

Minimum monthly @ 4% is $2,639 per month.
Minimum monthly @ 3% is $2,371 per month.

Assuming you take the loan out over 25 years at a

3% interest rate, but make repayments of $2,639
per month, the result would be that you would pay
the loan out in 21 years, 6 months or 3 ½ years
faster and save almost $33,000 in interest.

To think like a business owner, you should be looking

at your debt reduction in terms of your ‘return on
investment’ or ROI.

The longer you take to pay off your debt, the more expensive it will be for you overall and simply
by using your money more effectively in the first place, you can make it stretch further for your
benefit, to speed up the time it will take for your assets to support your income need, rather
than you needing to work for it.

Use Offset Accounts

Offset accounts are the most valuable tool you have to aid your debt reduction. Used
well, you can manage all of your banking needs through offset accounts and with good
loan structuring, you can have all of your capital and cash flow working against your
loan.

This will maximise your risk free rate of return on your money and in turn accelerate your ability
to repay your loan.

Offset accounts can vary in functionality, but the good ones operate just like regular bank
accounts.

For instance, a common bad habit we see is people saving money in a standalone bank account
for things like holiday’s, instead of parking it against a loan. It can feel easier psychologically to
separate it, but if you have your debt set up properly, you should be able to achieve both.

This is also dependent on how you park your cash against your loan type or facility to save for a
holiday.

For example, if your savings go into your loan account and then you redraw on your loan, it is no
longer tax deductible if it is an investment loan. Alternatively, if you park it in an offset account
and then draw your holiday savings from that, the balance of the loan will remain deductible.

PAGE
15
 They allow you to manage your day to day cash flow needs, as you normally would. You can link a
debit card and a credit card. You can pay your online expenses or manage your bills with direct
debit as you normally would.

The difference is, instead of earning a bank interest rate, that is then taxable income in your
hands, they offset the loan they are set up against. This means that your net rate of return on
your savings is equal to your borrowing cost. This almost always means you are better off, when
compared to putting money in a bank account.

In this way, offset accounts are useful when you have bad debt, like a home loan. But where they
become even more powerful as a structuring tool is when they are used against good debt.

This is because, while money is accruing in an offset account, it is having the same impact as
repaying your loan. But the difference is, if you then need to fund a ‘bad’ debt expense, such as
buying a car, the purpose of the funds that the loan was initially for is unchanged.

In other words, if the debt that was being offset was ‘good’ debt originally, then it doesn’t matter
that the cost you are incurring is now for a ‘bad’ debt, because the purpose of the funds is
unchanged.

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 Strategy 4 Investment Planning
It is highly likely that the biggest financial asset you will have in your lifetime is the income you
earn from your employment.

To illustrate this, if you entered the full time workforce at 22, earning a start wage of $40,000 and
received just a 5% increase annually, you will earn $5,719,734 by the time you are 65.

It is therefore what you do with your earning capacity, while you are earning it, that will determine
how long and how hard you have to work to achieve your desired lifestyle now and in retirement
with your investment plan.

In this eBook, we have already explored strategies to budget and save; minimise tax; and pay
down debt faster. What we have therefore shown you previously, are investment planning
opportunities to free up some of your cashflow and capital, which you can invest towards your
ideal lifestyle in the future.

Your Work-Life Summarised

Entering the Receiving a Total earnings

workforce at 5% wage by 65 years
22 years old: increase old:
$40,000 p.a annually $5,719,734

Successful business owners will endeavour to break down their short-term working capital
requirements, from their long-term investment planning requirements. An example of this is
purchasing equipment, to support business growth and create an investment return for the
future.

For you, this is akin to identifying what you need to retain as a float, to cover your more
immediate lifestyle needs, along with some reserves for short-term savings goals like holidays.
Then to invest what you have left over, into investment planning opportunities where you can
create wealth effectively.

The reality for most people, however, is that they are not adequately educated on the investment
planning opportunities that exist and this naturally lends itself to fear of making a mistake. This
investment planning inertia is what leads to most people either having less accrued wealth to rely
on in retirement or being forced to work longer or harder to make it up.

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17
 How To Invest Savings
and Capital
When you are considering your investment planning strategies, it is important to define
what capital you have available for investment planning and what ongoing saving
capacity you have available for future investment too.

I would suggest you start by defining the accrued capital you have to work with, which
will either be:

Money you have saved in a bank account

Investments you own currently
Equity available in your home or other property you may own
Investments you can make that can be used as collateral for an investment loan, such as a
property or shares.

By planning for investment of your available capital first, you will give yourself an opportunity to
make a larger investment to start with. This in turn can result in more compound growth over
time.

Compound growth is very important when it comes to investment planning and to illustrate this
simply, let’s assume a prospective investment return of 7.2% p.a. over a 10 year period. I use this
particular rate of return and time period, because it is the factor that doubles money.

This means if you were to invest $10,000, you would have an investment return of $10,000, giving
you a total of $20,000.

Time is therefore one of the most valuable commodities to effective investment planning. Like a
business owner that makes an investment plan for the future, a successful investor will think
about investment planning in years, rather than days or months.

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18
 How To Develop an
Investment Plan

Once you have defined your initial investment planning strategy, you should assess and
review how you use your surplus saving capacity as part of your larger investment plan.

How you choose to use this, will depend on a number of factors, including:

How much debt do you have?

Your personal risk profile
How well diversified you are
How long you have to invest for and in particular how close to retirement you are

Each of these factors will help you determine if you should be contributing your surplus into an
ongoing investment planning strategy, where you essentially top up your existing investment
plan, focus on debt consolidation, or a combination of these things.

The benefit of contributing regularly to an investment is that it removes a lot of market timing
risk. Regular investment planning by its definition will mean that you are investing at low points in
your chosen investments, as well as while they are growing, smoothing out your overall
investment return and volatility.

Regular investment planning also means that your savings will benefit from compound growth as
well. A great example of watching how this ongoing saving positively results in compound growth
is to track your super performance over a long period of time. What this should show you is the
overall upwards momentum of growth, getting exponentially larger as the balance has grown.

What Are The Best

Options?

Firstly, you should identify what you are comfortable investing into. Usually this means
you are either a share market or a property person.

At Yield, we are big advocates for understanding what your current investment plan is. No matter
how scripted or unscripted it is right now. By defining your current investment plan, it
demonstrates how you feel comfortable using your money and forms a baseline for you to build
wealth from.

With this said, the best approach to developing your investment plan overall is to diversify.
Especially over the longer term, as you begin to rely on your investment portfolio and
management to fund your retirement income needs.

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19
 Investment Planning
For Your Risk Profile

True investment planning success is achieved when your investment plans are working
for you. The aim is to support the lifestyle you love to lead now and that you want for
yourself in the future.

If you overextend yourself or invest outside of your risk profile, you can very quickly find yourself
in a position where you are essentially working for your investment strategy, instead of it working
for you.

We see this too often, particularly amongst property investors that borrow heavily. Even if over
time your investment plan eventually works out, in hindsight, investors in this position have often
told us that the ends do not justify the means.

Investing within your risk profile is therefore as much about finding lifestyle balance as it is about
finding a comfort level with volatility that the investments may have along the way.

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 Insurance to Protect
Strategy 5 your Income
We often insure things in which we value, whether it be our cars, home, contents, or even our
pets. But nothing is more important to insure than your life and your ability to work and generate
an income.

When we are younger, we often believe that we’ll live forever or that we’ll never be in a position
where we cannot work, but the reality we often don’t realise until we are older, is that life is finite
and so is our health.

Life insurance is designed to hedge against the very real risks to your financial future and provide
a safety net for both yourself and your loved ones that rely on you.

The most common forms of life insurance include:

Death Insurance – Which provides a lump sum in the event of your death;
Total Permanent Disability (TPD) Insurance – Which provides a lump sum in the event
that you are Disabled to a point where you will likely never work again
Trauma Insurance – Which provides a lump sum in the instance where a specified medical
event occurs such as having a stroke or heart attack; and
Income Protection or Salary Continuance Insurance – Which provides an ongoing
benefit to replace a portion of your pre-disability income in the event you are unable to work
due to injury or illness.

Most people require life insurance in some way or another, however, the level of cover will be
dependent on your personal circumstances.

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 Choosing a Life
Insurance Policy

There are a number of different ways in which you can purchase life insurance which
includes going direct to the insurer, through your Superannuation fund, through an
employer, or by going to a financial advisor.

When choosing a policy, it is important to understand that not all contracts are born
equal, and as a result selection requires consideration of the terms of the contract
and weighing the cost of the product against similar quality policies. However,
despite the cost, it will always be more cost-effective to pay for the cover you need,
than to not have cover and need it.

When applying for life insurance you have the

choice between:

Stepped Premiums – These premiums

increase as you get older, with the
premiums being more cost effective at a
younger age and gradually becoming
more costly as you grow older.

Level Premiums – These premiums are not linked to your age and as a result don’t increase
as much over time when compared to stepped premiums. The trade-off for the “Level”
benefit is that at the begin more expensive than their stepped counterparts. These premiums
will gradually become more cost-effective the longer you hold the cover.

Hybrid/Blended Premiums – These premiums begin increasing as you get older, similar to
that of stepped premiums. However, after a certain number of times, the premiums will
revert to a fixed premium (Similar to level premiums) which don’t increase until a certain age
(Typically 60).

A further layer of complexity that arises when acquiring life insurance is the ownership structure.
Depending on the type of life insurance cover you apply for, you can own it either within the
Superannuation environment, personally, both personally, and via superannuation which is
known as a super-link arrangement and even through a company. As with the different types of
insurance, there is a multitude of ways you can structure life insurance which can impact the cost
of the premium and on your personal cashflow.

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 Changes to Life
Insurance Covers

Going forward we can expect a lot of change in the life insurance space, which specifically
relates to the new business Income Protection cover.

The Life insurance regulator, APRA has made a point to ensure that insurers improve the
profitability and sustainability of Income Protection products, due to their historic and ongoing
losses.

The most recent change has been the removal of Agreed value contracts from the market.
Agreed value income protection was where the level of cover was “Agreed” upon application,
regardless of whether your income reduces overtime. This means the only alternative is an
Indemnity Value contract which determines the benefit amount at the time of claim typically
based on your income over the last 2 to 3 financial years leading up to claim.

The other changes expected to take place in the near future are as follows:

Benefits to be based on the last 12 months income - From 01/10/2021, Indemnity

benefits will only be based on annual earnings of the last 12 months prior to the date of the
disability. This is different from current market offerings which typically allow you the option
of proving income over the previous 2 to 3 years. This will likely most affect self-employed
individuals whose income fluctuates year-to-year.
Limiting income protection benefits in the first 6 months – From 01/10/2021, insurers
will be required to ensure that benefits provided in the first 6 months of claim do not exceed
90% of pre-disability income. After the 6-month period, benefits will be limited to 70% of pre-
disability earnings.
Reducing the risk of longer benefit periods – In order to encourage the insured to return
back to work sooner, as of 01/10/2021, insurers will be required to reduce the risk of long-
term benefit periods. This will manifest itself in the form of stricter disability definitions.
Guaranteed renewability to be limited to 5 years – From 01/10/2022, The guaranteed
renewability to new business income protection policies will be limited to 5 years, whereas
currently you are guaranteed renewability for the life of the contract (assuming premiums are
paid). At the end of the 5 years, policy owners will have the option to renew their policy
without undergoing medical underwriting but will be subject to financial and occupational
underwriting.

Considering the upcoming changes and the fact that they only apply to new business income
protection policies, if you don’t yet have an Income Protection policy and want to avoid all these
new rules, you might want to consider applying for cover as soon as possible.

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 Conclusion
We hope you have found this a worthwhile read. At Yield Financial Planning our
mission is; To personalise financial solutions that add real value to our clients lives and
everything we do is driven towards this goal.

If you would like to discuss this decision with us directly, we’d welcome the opportunity to talk,
otherwise please feel free to read our related content, and if you subscribe to our email
communication, we will keep you regularly updated with related news and education.

Next Steps

If you would like to seek advice on anything we've discussed above, it's time to speak to a
Financial Planner. After all, even if you were to self-diagnose a medical issue on Google, it would
still be wise to consult an expert to make sure you are resolving it as effectively as possible.

At Yield, we bring a combination of knowledge, experience and tools, to assist you in developing a
financial plan that is highly personalised and will recommend the appropriate combination of
these strategies and much more, to give you the confidence, clarity and direction you will value
for making the most out of your finances.

Book in a 30-min phone consultation with one of our Financial Planners for a
confidential initial assessment. This consultation will help us get a high-level view of
1 your current position in conjunction with your goals and will help us identify
possibilities worth exploring to help you get there.

Once we have identified that there are some solid possibilities & strategies that are
worth exploring, we can take the next step of having a meeting in person. This allows
2 us to have a detailed discussion on all scenario’s and strategies that are available and
can be applied to your situation.

As a value add to you, we will provide you with our exclusive ‘Good Fortune Guide’. A
3 relatable guide designed to give you real clarity about how you can influence financial
outcomes in your life positively.

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 Benefits of Working with Yield
On reviewing your position with you, we will identify if a further meeting will be valuable
for you and give you a preliminary understanding on how we can help.
All of this starts with a 30-min phone consultation with our financial planner.

We asked over 25 of our clients what they value in

working with Yield, and this is what they told us:

We are serious about enabling our clients’ ambitions and goals. We don’t settle for
satisfactory we have high standards because we know our clients do too. We recruit
outstanding people for our business, and we continually challenge ourselves to be
exceptional. Our attention to detail and plain English approach means all of our clients can
understand the full detail of their Strategic Plan.

We are not afraid to challenge our clients. We earn our clients’ trust and respect by speaking
to them openly and honestly.

Educating our clients is paramount. We want our clients to feel empowered and truly
understand the decisions they make for their future and why we have created their specific
financial plan for them.

We are available and approachable. Our clients feel confident to contact us anytime if they
have questions or if something changes in their situation.

We are proactive. Our clients feel confident to live their lives knowing that YFP will contact
them if something changes that affects their strategy.

Our advice is fee for service so our clients understand exactly what they are paying and what
they are paying for.

We are not aligned to any financial institution or bank. All of our advice is given in the best
interest of our client; no one else.

Clients have an enjoyable experience working with us; because of the way we communicate
and do business. They appreciate our openness and honesty and leave feeling confident
about their future.

Our clients enjoy peace of mind that their investments have been accurately identified and
are being proactively managed on their behalf.

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 Let us Help You
Using our services is about more than balancing
your cheque book

It's about leveraging opportunities that enable you to live the lifestyle that you want. We
understand that the correct advice for one person may be completely different for another. We
design our strategies to suit your individual requirements that take into account your goals, age
and stage of life. Whether it's buying your first home, affording the best healthcare and education
for your children, going on that dream holiday, or retiring comfortably - we get it; and we want to
help you get there.

Yield Financial Planners will challenge your thinking and provide advice to support you in making
well informed choices that are within your risk comfort. This is the value of quality, consultative
and values based advice.

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