Besieged by the non-stop promotion of the consumer life-style everywhere we look and everywhere we go, many people are struggling to cope with consumer debt and the pressure to live a lifestyle that is, to be honest, beyond the means of their available income. However, if you look back at how our grandparents are earlier generations lived, we are currently living in a "golden age". To quote

an article in the SMH:

"A couple of decades ago, the language of prosperity was almost like a foreign language ... Now, phrases like full employment, stock market highs and the commodities boom roll off the tongue.

Across the board, jobs are plentiful, wages are high and individual wealth continues to rise. There's no doubt this is a golden age of prosperity - possibly the best of economic times Australia has experienced.

And there's no doubt, either, that the economy is surging. The latest figures for the June quarter showed annual growth of 4.4 per cent, the highest for three years. Non-farm GDP growth, which removes the impact of the drought, was at its fastest in almost 13 years at 5.2 per cent."

At the same time, looking forward there are problems with "the limits to growth" that could quite possibly make living conditions much more difficult for our descendants. The apocalyptic prophesies of Malthus and, much more recently, the "club of Rome" turned out to be wrong (or at least premature). But the more recent concerns about climate change (whether or not they are caused by human activity) could mean we run into problems supplying food and water at reasonable cost to everyone. And the commodity boom has some chance of turning out to be a supercycle (or a "peak" in production of many commodities, not just oil) which could lead to ongoing real price increases in resources.

Therefore, there is a least some chance the our current economic situation is just about "as good as it gets". If so, we'd better make the most of this opportunity to build up of families wealth so we have some store of wealth put aside to tide us, or our kids and grandkids, over where the hard times come again. Make hay while the sun shines, for there may be some hard winters ahead for our descendants.

Copyright Enough Wealth 2007

The answer of course is personal, as it depends on what type and how much cover you decide you need. For interest I added up my main insurance costs to see how much I'm paying:
Cover $ Policy Type Premium /mo
$400,000 Death or TPD $89.84
$62,340 pa Loss of Income' $59.81''
Private Hospital $151.45'''
Car CTP $27.58
$340,000 House & Contents $82.93
-------
TOTAL COST /month $411.61
Notes:
' 2 year waiting period applies, paid until age 65
'' Premium is tax deductible
''' After government premium discount has been applied

The recent tree fall that could easily have destroyed our rental property shows the value of insurance, but I wish it was possible to buy insurance "direct" from the insurer and get the commisions rebated - most insurance policy premiums pay a large chunk of the first years premium and a considerable trailing commision to the insurance broker who "sold" you the policy.

Copyright

Enough Wealth 2007

I was enjoying a nice relaxing afternnon at home when the phone rang. The nextdoor neighbour of our rental property asked "Do you know that there's a big tree fallen on top of your house?" [our rental property]. It was news to me. So, we all jumped into the car and drove over to our property to inspect the damage. The tree was bigger than the house and had just missed landing on the house and flattening it completely. As it is, few large branches have gone through the roof, and the lounge room was full of debris.

Luckily the tennants weren't home at the time - they usually park their car where the trunk of the tree landed. As no-one was home at the time I'm a little disappointed that the tree didn't drop two metres further to the left, in which case it would have entirely demolished the house. The house is insured for aroung $385,000, which would have gone a long way towards building a nice, new house on the block. As it is, I guess that the house is probably repairable, so we'll just get the inconvenience of getting repairs done and end up with the same 50-year old house as before.

Apparently the tree fell over in a strong wind gust around 2pm this afternoon. All the heavy rain in the past month has made the ground very wet and spongy, so any strong winds are likely to make lots of tree uproot. When we got to the property at 4:30pm and saw the damage I called the local State Emergency Service (SES). The SES volunteers arrived within 15 minutes and will clear off the branches embedded in the roof and cover the gaping holes with a tarpaulin (to keep out any rain).

When we got back home at 5:30pm I called our insurance company to lodge a claim. The assessor should inspect the property tomorrow and let us know if the tenant can stay there while repairs are made, or has to move out, and the extent of the damage. Our insurance also covers loss of rent, but I've no idea what happens if the tennat decides to just give four weeks notice and move our (their 6 month lease expired last month).

I'm also not sure if the insurance will cover the cost of getting the main body of the tree removed, or just the actual house repairs. Best case we'll be out of pocket for the $100 excess. Worst case we'll also have to pay for getting the tree removed, landscaping the damaged rockery, lose some rent while the property is getting repaired, etc. etc. That's why, since no-one was home at the time, I'd have preferred the tree to land square on the house and demolish it completely.

DS1 is on school holiday for the next two weeks. I booked him in to a "bridge building" course which will be run next Monday and Tuesday afternoon at the NSW University by their GERRIC (Gifted Education Research Resource and Information Centre) department. The course only runs for a total of 6 hours, and costs over $100, but could be money well spent if it stimulates DS1 to do well at school. I'm not even sure if DS1 is "gifted" as such - he started independent reading when he was just turned 4 and is doing well in his reading and math as school even though he's one of the youngest in his class. But on the other hand we had an "assessment" done by a phsychologist at GERRIC when he was three (when he'd started reading), but at that age he was very shy and didn't assess as particularly exceptional. I'd get him assessed again (now that he's older and more confident with strangers), but at $500 an assessment it's too much money to waste. Anyhow, it can't hurt to expose him to a group of kids his age that are gifted - it may motivate him to excel. And if nothing else, spending a couple of afternoons designing and building model bridges sounds like fun.

Copyright

Enough Wealth 2007

I'd arranged to take a day of annual leave today, as DW is now working on Mondays and Tuesdays and we had made an appointment for DS1 to go to the Children's hospital today for a "Soy challenge" (he has quite a few severe allergies, but the latest skin-prick test indicated that he may have grown out of his allergy to soy). We had to get up earlier than usual as we were due to check in at 9am and the hospital is 1.5 hrs drive from home in peak hour. We've all had a bit of a chest "bug" for the past week, and this morning DS1 didn't have much appetite and had a slight temperature. When we arrived at the hospital they first checked his weight and temperature and found that his temp was a little bit high. After checking his breathing the Doctor said he had a bit of a wheeze, so it wasn't good to do the Soy challenge when he wasn't very well - just in case he did have a bad allergic reaction to the soy. Oh well - a three hour round trip wasted. At least they booked him into the next session at the end of July.

We stopped off at the tax office on the way home as I wanted to apply for a TFN (tax file number) for DS2. I thought that I had all the required documentation with me, but it turned out I also needed my Citizenship Certificate which was at home. As I already have a TFN and had my driver's licence with me as ID, I don't quite understand why the ATO needed to sight that extra documentation, but with the tax office rules are rules.

I intended to drop DS1 off at my parent's house for the afternoon so I could sort out some of my tax paperwork with everyone out of the house for a couple of hours. But when DS1 and I arrived my parents were concerned that DS2 (whom they'd been baby-sitting) had a temperature and was crying when he coughed. I booked a visit to our GP for later in the afternoon and went home to get the missing TFN documentation and then went back to the tax office to apply for DS2's TFN.

Then back to my parents place to collect DS2 and take him to the doctor, where he got prescribed some antibiotics (what we all have caught is probably just a virus, but after coughing for a week DS2 is quite congested and may have developed a secondary infection - his temperature was quite high).

So, I didn't get much done on my "day off", although I managed to spend around 5 hours driving over 150km to and fro all day. At least DS1 and DS2 seem a bit better tonight and are resting comfortably.

At least the day didn't cost too much. The hospital visit is covered by medicare and my hospital insurance, so it didn't cost anything out of my pocket. The doctor's visit cost $50 but I got about $35 refunded by medicare (the refund gets automatically paid into my bank account electronically the next day), and the antibiotics are on the PBS so they only cost $17.50

Enough Wealth

DS1 has now gone into business as a sole trader, busking on the weekends and he is planning on growing some potplants (buxus) from clippings in the springtime to sell at the local market. So to make it easy to fill in his tax return we went online to http://abr.gov.au and applied for an Australian Business Number. The entire process in very quick and easy, taking about 10 minutes to complete. There is no fee for applying for a business number and the 11 digit ABN was provided immeditely once we hit the "submit" button. The main benefit of DS1 being self-employed is that under the new Simpler Super rules he can contribute $1000 to his retirement fund each year and will get the $1500 government co-contribution.

Enough Wealth

Many people like to lend a helping hand if they are able, especially when it comes to close family members. But financial assistance may be ineffective if you don't fully understand the situation of the person you've helping out, and how they'll react to their new situation. When you're helping out relatives you don't want to pry into their finances, but I'd advise making the effort to make discrete enquiries, even if it seems a bit awkward.

As an example, my grandfather changed jobs shortly before he was due to retire (in order to move back to the region his wife and he had lived when they were young). Unfortunately this meant that he didn't qualify for a pension from the company he had worked at for over thirty years, and instead had to rely on the government old age pension. As my grandparents didn't own their own home, my father decided to buy a house for them to live in, thinking that this would substantially boost their living standard in retirement. Later on, one of my grandparents had to move into a nursing home for several years while other other one continued to live in the house my father had bought them. It was only after my grandparents had both passed away that my father found out that the nursing home fees would have been paid for by the government if my grandparents had no substantial assets. However, because of my father's generosity they had managed to save a substantial portion of their government pension for many years (without telling anyone), apparently hoping to leave something to their kids and grandchildren. This had meant that they were required to pay the nursing home fees themselves, until all their savings had been used up. So, due to a lack of communication my grandparents hadn't gained any benefit from my father's financial help (if they'd spent part of their pension on rent they wouldn't have had to pay the nursing home fees), and the end result was simply that my father's money was tied up in a country house that didn't appreciate at all in value, when it could have been more effectively invested elsewhere.

Enough Wealth

The 70,000km service was done (needed new front brake pads) and the faulty alternator replaced with a reconditioned one. All up, the bill came to A$818. I hope that this alternator lasts until we get rid of this car when it reaches 150,000km or 2013, whichever comes last. By that time DS2 will be ready to go on camping trips etc. and the Festiva will be getting too small to transport two adults and two teenage boys. We'll probably replace it with a used Subaru Forester. Hopefully we can get one in good condition, with low kms, a couple of years old for around 60% of the new car cost.

Enough Wealth

The paperwork from eSuperFund confirming the establishment of our Self-Managed Superannuation Fund (SMSF) arrived today. Overall the process has been very quick and efficient. The initial online application only took five minutes to complete and gave a false sense of simplicity - when the actual "paperwork" to create the SMSF arrived it was a very thick package with FIFTY of the little, yellow "sign here" stickers attached! Anyhow, the paperwork has now been processed by the ATO (Australian Tax Office) and everything is now in place. In total we received:
* A TFN (Tax File Number) for the new fund from the ATO
* An ABN (Australian Business Number) for the new fund
* A "V2 Plus" Bank Account with the ANZ (to handle all deposits into the fund)
* A Share Trading account with E*Trade for the fund
* A second ANZ Bank account to hold funds to settlement of SMSF share trades

The next step is to visit the local ANZ Bank branch and present passport, drivers licence etc. for myself and DW (the trustees of the SMSF) to complete the 100 point identity check required for any new bank account. At the same time I'll get a CRN (Customer Registration Number) and "telecode" from ANZ so we can register online for online access to the ANZ Bank accounts.

This should all be in place by next week, at which time I can do the paperwork required to transfer funds out of our current Employer-sponsored Superannuation fund (run by Westpac/BT) and into the new SMSF. DW has around $50K in her account, so we'll transfer the entire amount and arrange for future SGL (Superannuation Guarantee Levy) amounts to be paid from our employer into the new account. This will mean she loses the current life insurance cover we have via the BT Super Fund, but she only had a nominal amount of cover anyhow. I have a $400K policy through the BT Super Fund, so I'll probably transfer the majority of my balance into the new SMSF, but leave a small amount there to maintain my life insurance cover. I'll also let my future employer SGL deposits go into the 'old' BT account to cover the ongoing insurance premiums. I can always withdraw the remainder of the balance if I change jobs or have a large balance build up in that account. I wouldn't want to do too many transfers out of the BT Fund though, as they charge $35 for each withdrawal! There will also be the ongoing annual member fee if I keep my BT Super account open (around $55 pa), but at least I'll be avoiding the fairly high fund management fee of around 1.25% (even after our employer's fee rebate has been applied). Overall, with a combined Super balance of around $350K in the SMSF we'll save around $3,500 each year in management fees, even after deducting the $600 pa management, audit and reporting fee charged by eSuperFund on our SMSF.

In the future we will probably add any future savings into the SMSF as the tax benefits are considerable, especially under the new "Simpler Super" changes that apply from 1 July. With a maximum annual contribution limit of $400K ($50K each of pre-tax contributions (SGL and salary sacrifice), and $150K each of post-tax contributions) we would be able to put all our future investments into the SMSF if we want to (the only significant draw back of this strategy is that we can't get money back out of superannuation until we reach 60).

Enough Wealth