Setting financial goals as a couple

Step one: what are your financial pain points?

When you start making plans, chances are you’ll both come across financial pain points. In other words, the areas that need some attention and possible alterations. These might include:

  • post-wedding or honeymoon debts
  • different earning capacities
  • different savings goals
  • different spending habits
  • disagreements you’ve had in the past
  • different ideas about couples bank accounts.

While it’s normal to have pain points like these, it’s important to recognise them for what they are and work on solutions.

Step two: separate individual goals from couple goals

While you’ll both have personal savings goals, it’s a good idea to talk about what these are and why they’re important to you.

This will help you work on them, without compromising the goals you have as a couple. Examples of couple goals include:

  • buying a home together
  • renovating your home
  • buying an investment property
  • travelling overseas

Step three: create an action plan

With a better grip on your financial pain points and the goals you both want to achieve, it will be easier to start making practical plans.

Setting out a clear timeline can help you visualise your goals, and importantly, make sure you’re staying realistic about how and when you’ll achieve them.

It could be worth talking to a financial planner. We can help you set up the timelines and look at ways of boosting your goals.

Keeping motivated is important, but this often takes incentive. You could set up a separate bank account, that has good interest rates and bonuses. You might also want to consider a term deposit. These savings products offer fixed, competitive interest rates and you can choose a term to suit your needs.

You may also consider whether you want a joint account when opening a new savings account as a couple.

When you hit your milestones, there’s no harm in rewarding yourself. A nice dinner or weekend away can remind you that your couple goals are worth achieving.

Using an online budget planner will help you find out where you can save money, as well as how much. MoneySmart’s savings goals calculator is also a great tool to keep you on track.

Step four: get things moving

You may have already opened up a savings account, but have you thought about applying for a personal loan?

With the right repayment plan in place, personal loans can help you achieve those bigger financial goals, such as paying for the costs of starting a family, moving overseas, or even paying off the engagement ring.

If you’re looking at property instead, it’s best to start the conversation with your lender soon, so you can figure out how much you can afford and where you want to live.

When you apply for a home loan. you’ll want to be prepared. Banks and lenders take into consideration a lot of factors before they decide to approve applications. But the more organised you are, the easier it will be to get things moving.

Source: NAB
Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/family/get-married/budgeting-couple
National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.
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Tax and the super after-life

Many people assume there is no tax payable on super benefits received after someone passes away, but that’s not always the case.

Whether or not tax is paid on a super death benefit depends on the beneficiary’s relationship with the deceased. Although some beneficiaries receive their money tax-free, others can find themselves paying significant amounts of tax on the funds they receive.

Dependant for tax purposes

The key point in understanding who will be required to pay tax on a super death benefit is whether or not the beneficiary is considered a death benefit dependant for tax purposes.

Although you are permitted to nominate a wide range of people as dependants under super law, the definition for tax purposes is different and narrower.

A death benefit dependant for tax purposes is limited to the deceased’s spouse, de facto, or former spouse or de facto; their child under age 18; any person with whom they had an interdependency relationship; and any other person financially dependent on them just before their death.

A common trap in this area is nominating financially independent adult children as death benefit beneficiaries, as this is permitted under super law. Under tax law, however, they are not defined as dependants for tax purposes and so are required to pay tax on the taxable component of any death benefit they receive.

Tax on lump sum death benefits

When it comes to paying a death benefit, your dependants for tax purposes are free to choose whether they want to receive your super death benefit as a lump sum or as an income stream.

If a beneficiary decides to take their benefit as a lump sum, the benefit will be free of any tax, provided they are considered a death benefit dependant under tax law.

If they are not considered a death benefit dependant for tax purposes, they must take the benefit as a lump sum. These lump sums are taxed at a maximum rate of 15 per cent plus the Medicare levy on the taxed element (which is super that has already had tax paid on it within the fund).

In addition, any untaxed elements of the taxable component in the lump sum will be taxed at a maximum rate of 30 per cent plus the Medicare levy.

If the benefit is paid to the estate, it is paid as a pre-tax lump sum and the estate is responsible for paying any necessary tax depending on the dependant status of the end-beneficiaries.

Death benefit income streams and tax

Some tax dependants prefer to take their death benefit as an income stream (or pension).

Death benefit income streams are tax-free if either the deceased or the beneficiary are aged 60 or older at the time the income stream payments are made.

Otherwise, beneficiaries will generally pay some tax on the death benefit income stream until they reach age 60, after which age the payments are tax-free.

For beneficiaries under age 60, there is no tax on the tax-free component of the death benefit income stream, but the taxable component is included in their assessable income with a 15 per cent tax offset.

Death benefits and the transfer balance cap

The transfer balance cap (TBC) rules also come into play when it comes to super death benefits.

These rules limit the amount of super savings you can transfer into the retirement or pension phase.

Tax penalties apply if amounts in excess of the beneficiary’s TBC are transferred into the retirement phase as an income stream.

The rules governing this area are very complex, so you should always seek professional advice before deciding on a death benefit nomination, as it can make a big difference in how much tax your beneficiaries will pay when they receive their death benefit payment.

If you would like more information about tax and super death benefits, call our office today.

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