Cashflow Management
a.k.a the dreaded budget…
Even though most households don’t have a budget or don’t stick to one, we know that understanding where you spend your money and how much you spend is critical to financial success.
There is a reason most people don’t stick to budgets and it’s the same reason people don’t stick to diets. They don’t have a clearly defined, motivating goal attached to it.
A goal of ‘paying off your home loan’ isn’t specific enough so it’s easily forgotten when something more urgent or exciting comes along.
So how can you set and stick to a budget?
- Set achievable, short-term, relevant goals that can be measured (e.g. “I will pay $50 every week off my mortgage so I can go on holiday next year”).
- Start with a clear picture of what you are spending your money on right now. List all your expenses clearly (and honestly!). Make sure you include everything – bills, commitments, repayments, luxuries, subscriptions etc.
- Take advantage of the great tools that exist to help make budgeting easier and fun! Try the Money Smart template, see what budgeting tools your bank has available, or search the web for free budgeting apps.
- Once you know where you are spending and how much you spend, figure out how much you could save to get you to your goal, and find out where you could cut back.
Superannuation
Superannuation is simply described as forced savings for retirement. It is compulsory in Australia and is a long term investment with concessional tax treatments that ensures you have money available to fund your retirement.
Given superannuation is a long-term investment, compulsory for employers and has seen some bad days in the press, it may seem like something that’s not worth worrying about or something you can put off until the future.
But for most people, superannuation will eventually become one of your largest assets so it’s worth getting on top of your super and understanding how to maximise it now.
While successive governments have and will continue to change the rules regarding superannuation, it is still currently the best way to reduce the amount of tax you pay while saving for the future.
Superannuation is not the investment itself, it is the structure the investments are held in and they are taxed at a maximum rate of 15%. With the use of a Self Managed Super Fund you can invest in almost anything through the tax-effective structure of superannuation.
There are various types of superannuation contributions and strategies that we can discuss with you – including specific rates and offsets dependent on your income level – to ensure you are getting the most value out of your super.
Goal Setting
Setting clear, measurable goals is critical to financial success.
By taking the time to determine what is important to you, what you want to achieve and what is distracting or not relevant, you can map out a path to get you where you want to be both financially and personally.
When you meet with us, we will guide you through the goal setting process. While it can seem challenging, working out your goals and how you will achieve them is one of the most rewarding parts of our meeting.
Goal setting can also be very powerful when used correctly with proven cash flow and budgeting techniques.
Gearing
Gearing is the relationship between the amount of money that is owed and the value of the asset.
For example, if you borrowed $100 and combined that with $100 of your own money to purchase an asset worth $200, you would have a 50% Loan ($100) to Value ($200) Ratio (LVR).
You’ve probably heard the term ‘negative gearing’ a lot recently.
Negative gearing refers more to the cashflow relationship between the income produced by the investment and the interest cost of the loan, whereby the interest cost of the loan is greater than the income produced by the asset and this loss can be claimed as a tax deduction.
For example, if you have a property you purchased with a loan that pays you $20,000 in rental income, and the interest expense of the loan and property expenses are $25,000, you have a negatively geared property by $5,000.
However, this is a simplification and in practice, with the wider tax brackets we have in Australia now, having a negatively geared property may not give the same tax advantage it once did.
