The Truth About Money

1. The Truth About Money The Truth About Money Peter ScullyFounder and Deputy ChairmanSAIPrivate APTEA Congress September 2004

2. Effective financial management Your financial affairs are effectivewhen: you live in the home of your choice; you entertain and relax in a manner that pleases you; you are vocationally blessed; you raise your family according to your wishes; and you are in control of your financial affairs. “The only reliable path to wealth is to ensure that your affairs are managed both efficiently & effectively”

3. The Truth About Money Efficient financial management “The only reliable path to wealth is to ensure that your affairs are managed both efficiently & effectively” • Your financial affairs are efficient when you know that: • you are not paying unnecessary tax; • your capital is producing an adequate return; • your selection of investments suit your own lifestyle, as well as the expected future economic climate.

4. The Truth About Money Lifestyle • :

5. Return on Capital Personal Exertion Capital Income Financial Resources Invest Save (Develop Wealth) Spend Your financial resources Category A Consumables Category B Capital Expenditure Category C Luxuries

6. Full nest II 6-12 yr old Permanent empty nest Full nest I 0-6 yr old 33% Family lifecycle stages Full nest III 12-25 yr old Early aged Middleaged Elderly Couple living alone Couple with children 40% 75 +/- 5 years 85 +/- 5 years 20 Years 60 years

7. 700,000 60,000 1st Child Starts 2nd Child Starts Secondary School University 56,639 600,000 50,000 51,451 50,844 500,000 46,004 44,647 44,648 1st Child Starts Secondary School 40,000 400,000 Cumulative Cost Annual Cost 33,973 33,863 33,956 30,000 300,000 20,000 22,113 22,113 200,000 2nd Child Born 19,898 19,435 17,184 17,124 16,928 10,000 13,118 13,200 100,000 10,123 8,265 8,265 3,687 4,268 - 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 Age of older parent Increased cost of living - full nest II & III Estimated annual costs of raising 2 children from birth until they leave home at 20 Data Source: NATSEM/AMP Income & Wealth Report October 2002

8. The Truth About Money How do we measure wealth? “We are only truly wealthy when we are sure that our financial resources are sufficient to fund our desired standard of living for the rest of our lives”

9. The Truth About Money Factors which affectfinancial decisions • Taxation • Inflation • Interest rates

10. The Truth About Money Types of capital Consumables Domestic Housing, recreational property Business Inside superannuation Investible Outside superannuation Your investible capital is that capital not needed in your business or for your lifestyle

11. The Truth About Money Taxation

12. The Truth About Money Income $50,000 $75,000 $100,000 Tax $8,093 $15,968 $23,843 Capital $41,907 $59,032 $76,157 Use Essential cost of living Elected expenses Luxuries and/or development of personal wealth The first dilemma For Income Splitting Couple • We use our “low tax” income to fund “essentials” • If we want $1 to fund luxuries we must earn $1.77 or $1.94 • If we want $1 to develop wealth, we must earn $1.77 or $1.94 • If we want $1 to reduce debt, we must earn $1.77 or $1.94 May 2004

13. % Cost of Combined Combined Living Tax Combined Tax Tax $60,000 $28,759 47.93% $16,414 27.36% $7,360 $10,824 $8,612 18.04% 12.27% 14.35% $11,900 $80,000 $49,594 59.49% $25,610 32.01% $20,022 $14,432 25.03% 14.88% 18.04% $100,000 $66,429 66.43% $38,800 38.80% $18,040 $29,220 29.22% 18.04% 23.63% $23,632 $120,000 $85,264 71.05% $57,518 47.93% $27,240 $38,415 27.36% 22.70% 32.01% $32,828 $150,000 $41,035 $113,516 75.68% $85,770 57.18% $58,200 $46,624 38.80% 31.08% 27.36% $200,000 $132,858 66.43% $64,025 $160,603 80.30% $105,111 $77,600 52.56% 38.80% 32.01% Tax cost of your cost of livingUsing 1 July 2004 tax rates One Adult Taxpayer Two Adult Taxpayers Three Adult Taxpayers Four Adult Taxpayers Five Adult Taxpayers Combined Single Tax % % % % Tax 19/5/2004

14. The Truth About Money The three steps ofefficient tax planning • Exploit income splitting to maximum effect. • Exploit any Government incentive scheme that does not involve investment risk. • Explore other tax assisted investments that are economically sound, which complement the primary purpose of investment.

15. The Truth About Money Decision theory As a priority always direct income subject to unnecessary tax into superannuation • Only three exceptions • Personal business investment • Non-deductible debt • Positive gearing

16. The Truth About Money Investments

17. The Truth About Money Risk management for an individual • Expertise • Diversification • Time

18. The Truth About Money Asset sectoral allocation For base freedom of choice • 40% Property • 35% Shares • 23% Fixed Interest • 2% Cash For wealth and fun • 70% Business • 20% Property • 10% Fixed Interest

19. The Truth About Money Pecking order of investment

20. The Truth About Money Age 100+ 90 80 70 60 50 40 30 20 10 0 Males Females Post-warbabyboomers First echo Second echo? 200 100 150 200 ‘000s 150 100 50 ‘000s 50 0 0 Age structure of population June 2003 Source: Population by Age and Sex, Australian States and Territories, June 2003 (ABS cat.no. 3201.0)

21. Impact of inflation on interest rates Underlying inflation Nominal long term risk free Real return Nil 2% 4% 6% 8% 2% 4% - 4.5% 7% - 7.5% 9.5% - 10% 12.5% - 13.5% 2% 2% - 2.5% 3% - 3.5% 3.5% - 4% 4.5% - 5.5% Mathematical relationship due to exposure to risk of change

22. Domestic government’s view of economy International opinion of economy worse than average better than average overheated recessed +ve -ve -ve +ve Balance Balance Impact of economic/politicalFactors on inflation

23. The Truth About Money Demand pull Export Oil prices Exchange rate of Australian Dollar Import Cost push pressures Wage increases above productivity Raw material prices Understanding causes of inflation changes

24. Overseas Real GDP index Source: Reserve Bank of Australia Bulletin August 2004

25. Overseas consumer prices index Source: Reserve Bank of Australia Bulletin August 2004

26. Overseas unemployment % Source: Reserve Bank of Australia Bulletin August 2004

27. Global population growth(a) Source: Australian Social Trends 2004 ABS cat. 4102.0

28. Global population projections (a) Source: Australian Social Trends 2004 ABS cat. 4102.0

29. PRICE VALUE Supply & demand normal Changes caused by Nature Legislation Technology Socio-economics E X T R A O R D I N A R Y + + - - People’s perception People’s analysis Price vs value Source: SAIPrivate applied research

30. The Truth About Money The Truth About Money Prepared & presented by: Peter Scully Founder and Deputy Chairman SAIPrivate Investments Limited ACN 053 674 070 Holder of Australian Financial Services Licence no: 241051 Level 28, 1 Spring Street MELBOURNE VICTORIA 3000 Phone: (03) 9911 6000 Fax: (03) 9911 6111 DISCLAIMER: This advice has been prepared without taking account of your objectives, financial situation or needs. Because of that, before acting on the advice, you should consider the appropriateness of that advice, having regard to your objectives, financial situation and needs. In order for a personal recommendation to be made a one on one consultation should be sought through our firm or through your existing financial advisor so a full needs analysis can be undertaken with full access to your personal information. This information may not be used or reproduced without the prior consent of SAIPrivate Investments Limited.