In terms of finance, 2021 turned out to be a much better year than many people had feared.
Interest rates stayed down, while property and share markets boomed. And 2022 is shaping up well, as border restrictions come down, international travel resumes and economic activity speeds up.
But there are three issues troubling me:
The first is the growing pressure on households.
Petrol prices are at their highest in living memory and show no sign of dropping, there are critical shortages of staff and materials, and logistic problems appear to be driving up the price of most household goods and building materials.
To make it worse, many households will become carried away with the excitement of re-uniting with their loved ones and spend up big.
The hangover will start in January when the school fees and credit card bills come in and may get worse later in the year if interest rates start rising.
The second is the rise in "buy now pay later" schemes.
Anybody who uses them is mortgaging their future. If you can't live on your present income, how will you possibly survive if future incomes are reduced by loan repayments?
These "buy now pay later" schemes might sound great but, there are heavy penalties if you get behind. Once you get trapped in debt, it's very hard to get out of it.
Of particular concern are organisations like Beforepay - which let you "get access to your wages instantly."
One of their advertisements shows a couple dining out in an expensive restaurant with the guy opting for something cheap because he is broke; Beforepay shows him how to order lobster immediately to impress his date. Their website says: "there's no interest or hidden fees. Just a 5 per cent fixed transaction fee and flexible repayments with instalments across four pay cycles." I reckon that's an interest rate of around 36 per cent.
The other worrying feature of 2021 has been the growing percentage of Australians, especially younger ones, trading cryptocurrencies. There have even been headlines about young people trading in an attempt to get a house deposit.
It's irrational of course, but maybe it's similar behaviour to that which happened in Ireland during their property boom which started in 2000.
We visited Dublin then and had the pleasure of a meeting with the then ambassador Senator John Herron. He told us to take note of all the new cars in the streets. Due to the housing boom young people could not afford a house and were buying new cars instead.
So maybe the thinking among the young has become "I may as well take a punt - I've got nothing to lose." But as the old saying goes, there is no such thing as a free lunch.
A key problem with trading is that it is essentially gambling, and it's highly addictive. Psychologists claim the hit you get from a successful share trade is remarkably similar to the hit from injecting drugs.
Charlie Munger, Warren Buffett's business partner, summed it up perfectly when he said: "in the modern world people are trying to teach you to come in and trade actively in stocks. Well I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin."
To make it worse crypto provides a fertile field for scammers. I play Words with Friends for relaxation and am now finding more and more invitations to play from very attractive young women who live in Texas and who can't wait to start a conversation about bitcoin. Many people will fall for it.
My wish for you all is to have a very Merry Christmas and a happy and healthy New Year. Just don't spoil it by living beyond your means or getting involved in scams.
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Noel answers your money questions
I am looking at selling my home and moving into a community where I will be buying a share in a company held by a class trust, which will basically be my new residence.
Would this effect my pension and effect capital gains after I have lived in this new dwelling and sell it? Would it be considered an asset or my residence?
Andrew Biviano of the Alteris Financial Group says that when the new property is sold, any capital gain made by a person selling the ownership share would generally be disregarded if the property was their main residence for the period and the shareholding included the right to occupy the property.
There may also be other rules and conditions in the contract so it's important to seek specialist tax and legal advice to identify what they are and how they may affect your situation.
Similarly, for social security purposes, a person would be considered a homeowner and the share ownership in the new property would generally be exempt under the Assets Test if it is their principal place of residence. Importantly, if the property is in a retirement village, the purchase price needs to be over the extra allowable amount limit, currently $216,500, for them to be considered a homeowner and for the property to be exempt.
Where this is not the case, a person would be assessed as a non-homeowner and the value would count. There are various lifestyle and financial considerations when changing homes. Tax and social security rules may change in the future. Seeking specialist financial advice can help clarify how the change could impact your situation and the options available.
I am 45 and currently paying off my mortgage at a variable interest rate of 2.72 per cent. I have $221,000 to pay off over 29 years. At this stage I am paying extra repayments, which would pay it off in 15 years.
Should I continue to pay extra into my mortgage now while interest rates are low or am I better to put that extra money into super now? I feel that investing the extra money in super seems to be the best strategy but I don't want to have the loan in my older years.
I certainly agree with your goal of having resources available to pay off your mortgage by the time you retire. But this can be done by speeding up the repayments or by focusing on building up your superannuation so there will be adequate funds in your superannuation to pay the mortgage off when you retire.
A good superannuation fund should be doing 8 per cent per annum, and your interest rate should be no more than 3.5 per cent if we take potential rate rises into account. A further benefit of making tax deductible contributions to super is that they come from pre-tax dollars, whereas money used to pay your mortgage off comes of after-tax dollars.
The cream on the cake is that if you get to retirement age with a large superannuation balance, and a mortgage, a better option then may well be to simply withdraw enough money from your superannuation each year to pay the mortgage payments, and let the superannuation keep on growing.
I am a retiree who receives about half of an Australian aged pension. The balance of my income is derived from part foreign pension, a small super balance and part deemed earnings on the money I have in shares. I'd like to know if, as a pensioner, there is a specific income level at which CGT cuts in on profits from a share sale, or if every dollar profit attracts a tax liability regardless of income level.
Capital gains tax is calculated by adding the gain to your taxable income in the year the sales contract is executed, whether or not you are on an age pension is irrelevant. There is no specific level at which CGT cuts in, but if you are a retiree there may be a range of tax offsets available to you that would reduce or even eliminate any CGT payable.
- Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. firstname.lastname@example.org