Death, Divorce, Debt and Downsizing are considered the ‘4 D’s of real estate’ and are often triggers for selling a home. . . but they are also important when it comes to your financial decision making.
Financial mistakes made now could affect your long-term financial security.
Find out why you need to consider death, divorce, debt and downsizing when planning for your financial future.
Death
The impact of an unexpected event, death or critical illness on you or your family could be devastating, not only emotionally, but financially. ‘Reduced income’ is the top cause of mortgage repayment difficulty in Australia [1]. If you needed time away from work due to an illness or injury, were impacted by a disaster, or unexpectedly passed away, what would that mean for your family and financial circumstances?
If you haven’t thought about how you would support your family if you or your partner were unable to work, you need to put a plan in place. Personal insurances (such as Life Insurance, Income Protection Insurance, Trauma Insurance and Total and Permanent Disability (TPD) Insurance) should be an important part of safeguarding your lifestyle. There are many complexities associated with personal insurances, so it’s important to seek professional advice to implement appropriate levels of cover for your individual circumstances.
Divorce
While finances are often one of the leading causes of divorce, divorce can also significantly affect your financial security. With 1 in 3 marriages ending in divorce [2], understanding and mitigating the potential financial consequences of divorce is important. Key considerations include:
• Understanding the financial implications of asset distributions following divorce to address your short-term and long-term financial needs;
• Understanding financial outcomes of divorce through scenarios for alternative settlement arrangements to achieve optimal financial benefit for both parties;
• Planning, including cashflow and asset needs, for moving from one lifestyle to two separate lifestyles;
• Understanding how debt and superannuation are managed as part of a settlement; and
• Creating a financial strategy to make the most of your divorce settlement and manage payments such as alimony, child support, short-term expenses and longer term financial goals.
Debt
Australia’s ratio of personal debt compared to income is amongst the highest in the world, with mortgages making up more than 55% of all personal debt. The ratio of household debt to income has more than doubled between 1995 and 2015, going from 104% to 212%, which means if the average person earns $80,000 net, they are spending $169,900 per year[3].
If debt is taking hold, it’s important to put strategies in place to help you manage your debt as part of future proofing your financial situation. Strategies may include:
1. Make a plan: Simple steps such as understanding your expenses, refinancing your home loan, increasing the frequency of mortgage payments and safeguarding your income through personal insurances can make a big difference to debt levels and your stress levels.
2. Prioritise your debts: Options may include paying off debt with the highest interest rates first, consolidating debts into your home loan or using offset accounts to save on interest.
3. Use debt to get ahead: Appropriate long-term financial strategies may include using debt to purchase assets such as shares or an investment property which will appreciate in value, or identifying (in collaboration with your accountant) more tax effective ways to structure debt.
Downsizing
If you are planning to fund your retirement through downsizing your home, it’s important that you understand the financial implications and the downsizing contribution rules. A major consideration is that selling your family home may affect your available pension payments (full Age Pension or Part Pension) as your family home is exempt from the Pension Assets Test (whereas superannuation and other assets are included). There may be more appropriate ways for you to fund your retirement than downsizing and you should seek advice.
Seeking financial advice is a positive step forward. An experienced professional can help you avoid unnecessary financial difficulty and set strategies to help you achieve your financial goals.
If you would like to know more about financial strategies that may help you create financial independence, I encourage you to contact us now on 07 3720 1299 or email admin@wealthfundamentals.com.au
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances. This information is based on our understanding of legislation at the time of writing. Such legislation may be subject to change. This publication cannot be reproduced in any form without the express written consent of the author.
[1} https://www.genworth.com.au/media/1109/genworth-international-mortgage-trends-report-2011.pdf
[2] https://mccrindle.com.au/insights/blog/fast-facts-marriages-australia/
[3] https://www.finder.com.au/australias-personal-debt-reported-as-highest-in-the-world