How to control your spending
By far the most common financial trap is uncontrolled spending and impulse buying, particularly on credit cards. Usually, this is caused by the pressures of Christmas present shopping or the relaxed atmosphere of family holidays.
The financial damage done by the overuse use of credit cards can literally destroy a family's financial stability for years to come as they battle to pay off very expensive debts that they could have avoided in the first place.
The good news is that credit cards can be used sensibly and even to your advantage. The key to this is to have a basic understanding of their terms and conditions (including interest rates). If you discipline yourself to use a credit card as a 'convenience card' and pay it all off in one lump sum within the specified time, you can literally borrow interest- free from your card provider. However, failure to pay off the card in one lump sum will usually lead to high levels of interest being charged on the card, sometimes in excess of 20%.
Better still, don't use credit cards at all. Save a small amount each pay day for presents and holidays, and consider buying Christmas gifts at 'Sale' times throughout the year. And consider using a Debit Card, which limits your spending to the amount of money in your bank account. Now there's a novel idea!
Another common financial trap is to sign up to a superficially attractive 'interest free' deal on furniture, electrical and white goods, and then fail to meet the repayment schedule that starts sometime in the new year. Depending on the small print (which most people don't read), failure to make a repayment even by one day can immediately trigger interest rates at a similar level to those incurred on credit cards.
The best way to avoid these traps is to exercise financial discipline. This can be achieved by planning and budgeting your personal finances as early as possible. Work out exactly how much you can afford to spend on gifts and holidays, and ask yourself whether you'll be able to repay the debt immediately; or will you be stuck with it for the next twelve months or more?
This strategy is not hard work, but most people don't do it, and are forced to learn the hard way. It's your choice!
For more information on budgeting and personal finances go to www.adfconsumer.gov.au and complete the Online Budget Planner.
Group Captain Robert M.C. Brown BEc FCA
Don't be taken in
As ADF members you're probably very good at judging people's character and spotting false claims. All Australians need to keep in mind that there are people out there who will mislead and deceive you in an attempt to get your money. That's why we established the ‘Pie In The Sky’ awards, to name and shame the scams.
The 2010 Pie In The Sky award goes to the Little Super Fund and its trustee, Mr Gerard Karl Little.
How the scam operated
Mr Little promoted his scheme initially through advertising in suburban newspapers, using phrases like 'Cash in your superannuation'. Little would help people 'roll' over their super into the Little Super Fund.
Over a four year period Mr Little skimmed over $680,000 worth of super savings from 121 different people. That's about 25% per super account, illegally pocketed by Mr Little.
Super is for your retirement
Super is not something that can be accessed prior to your retirement except in very limited circumstances. Generally you can only qualify to draw on your super when you permanently retire and reach the minimum age set by law.
If you're like most members of the ADF, you're probably a member of a military super fund. But it still pays to know what's happening in the world of superannuation as you may have family members with their own super or you may contribute to an additional super fund, or even a self-managed super fund.
Who do scammers target?
Scammers often target people in financial strife such as retrenched workers, or people with a lot of debts. If you know anyone who's mentioned accessing their super early or if you're worried someone might be involved in a scam you should suggest that they get professional advice before signing any documents.
It's understandable that people may be attracted to early access of super promotions, particularly in hard times when people find it difficult to meet financial commitments, but going down this path just creates more problems for people, not fewer.
Victims are convinced by these promoters that accessing super is a solution to their money problems. The reality is the promoters are looking for a way to scam people out of their super savings. Cheating people out of their hard earned super is not just wrong, it's illegal and the penalties are severe.
About Pie In The Sky
The Pie In The Sky award is awarded to the most outrageous, far-fetched or insidious financial scam. Anyone can nominate a scam for the Pie In The Sky award.
Past winners have included an advanced fee fraud scam that asked people to help a Togo barrister access $17 million from the estate of a man who was killed in the 2006 Boxing Day Tsunami and the Mercorella Ponzi scheme where South Australian investors lost $76 million.
Spotting financial scams
There are some simple ways to spot scams and avoid painful losses. Always beware of investments that offer very high rates of return. If you are offered an investment that sounds too good to be true, then it probably isn't true.
Scams are usually presented as 'time-critical' but they're really just trying to take your money before you have a chance to check the offer properly. And scams often offer a 'guarantee' on your returns. With money and investments, a guarantee is only as reliable as the person or company offering it.
We tend to trust people we know. Sometimes these people can innocently be used to sell dangerous schemes, including scams. It's called affinity fraud. Information and friendly advice can be helpful, but be extra cautious with tips about specific investment opportunities. You may need advice from a licensed adviser.
The best way to avoid being scammed is to stay informed and be prepared. You can check a business offering a financial product or a financial adviser by searching ASIC's online registers to see if they are licensed, as required by law (www.asic.gov.au)
Keep up to date with scams because new ones are invented all the time. The best place to go is www.scamwatch.gov.au. This website, managed by the ACCC, has lots of details about many different types of scams.
If you know of a scam you want to nominate for the next Pie In The Sky awards, send an email to email@example.com. There is a $100 prize for those who nominate scams that win an award.
For more information about financial scams, go to ASIC's consumer website, FIDO at www.fido.gov.au or call on 1300 300 630. E-mail ASIC with topics that interest you at ADFcolumn@asic.gov.au.
Tony D'Aloisio BA LLB (Hons),
Chairman, Australian Securities and Investments Commission
Fringe Benefits Tax is a mystery to most people. The main misconception is that employees pay it. They don’t. Employers do. If you’d like to learn more about FBT, go to our website at www.adfconsumer.gov.au and watch the film explaining it in a brief and simple way.
Helping your colleagues with their Personal Finances
Sometime in your career, you may be asked by a work colleague for some advice about his or her personal financial affairs.
Doing so can be risky, but it can be done properly and legally. In response to a request from Navy's Sailors Leadership and Management Faculty, the Council has developed a DVD-based training program to assist leaders who are confronted with this problem.
We've had some very positive feedback about the program including "the simplicity of the presentation and the high quality of the accompanying instructional video was refreshing to see from a training professional perspective".
You can view the film at www.adfconsumer.gov.au. If you'd like the Council to present the program at your unit, please contact us through our website and we'd be pleased to arrange it.
During Career Personal Finances Programs
The Council presents many personal financial education programs throughout Australia to ADF units in all three services.
These programs of about one hour cover budgeting, risk, investment, tax and superannuation. They are completely independent and purely educational.
If you'd like one of our well qualified speakers to present a Personal Finances program at your location (preferred min. 40 people), please contact us via www.adfconsumer.gov.au.
PERSONAL INSURANCE FOR ADF MEMBERS
For ADF members, insurance provides optional extra cover (that is, in addition to statutory entitlements under the Military Rehabilitation and Compensation Scheme and the Military Superannuation schemes) for those people who depend on you financially should you die or become disabled.
Insurance should be considered as part of your life's financial planning, and not just at deployment time. Some ADF members have decided that, due to their particular circumstances, they require extra cover. A good way of working out whether you need extra personal insurance is to have a look at what you would be entitled to under the Military Rehabilitation and Compensation Scheme and your Military Superannuation scheme, and then work out what your dependants would need, each year, to maintain their current lifestyle. If there is a gap, you might want to consider additional insurance. There are some important considerations for ADF members regarding personal insurance, which you can read about here.