We are not financial advisers. You should consider seeking independent legal,
financial, taxation or other advice to check how the website information relates to your unique
circumstances. We are not liable for any loss caused, whether due to negligence or otherwise arising
from the use of, or reliance on, the information provided directly or indirectly, by use of this
website.
The point of this page is to show you a useful way of thinking about your personal
finances. Everyone's situation is different and you will need to take that into account. The
information here represents nothing more than opinions.
In your cash flow table, each income generator should be it's own category and
within that category should be a subcategory for the income itself plus subcategories for all the kinds
of expenditure incurred as a direct result of that income generation. If you have a 9-5 job that pays a
wage, the expenditure typically associated with that may include commuting costs, tax return costs,
clothes for any special clothes required, equipment, subscriptions, etc.
If you have multiple
income streams, then having a category for each of the streams will allow you to clearly see if each of
the streams is generating cash or costing cash. It's not uncommon for people to turn hobbies into
incomes, have second jobs, or investment properties. All of these should be categories independantly.
One advantage of categorising income streams is that when you are completing your
tax return then all of your expenses that maybe tax deductible are all in one place. You can then cross
check this with your receipts and check with your accountant to if the costs are tax deductible or not.
This is a great way to ensure that all your tax deductions are captured, and you are accurately and
lawfully minimising your tax bill.
The tax return is is your money that you
have overpaid in tax. You should make sure you get everything you are entitled to.
The late and
great Kerry Packer famously said, “I don’t know anybody that doesn’t minimise their tax … Of course I’m
minimising my tax, and if anybody in this country doesn’t minimise their tax they want their head read.
As a government I can tell you you’re not spending it that well that we should be donating extra”.
If you want to watch the video on our YouTube channel
click here.
When thinking about spending money, I find it useful to think about which of the
following types of expenditure I am making. Being clear on the type often guides the decision of how
much I am willing to spend on something. Everyone's situation is different, the point of this is
not to provide financial advice but to get you thinking about your personal finances and how you can
leverage them to enhance your life.
If you come up with something better than the one below,
let me know and I will publish it.
The cost of living refers to the expenses required to maintain your standard of
living. This includes housing, utilities, food, transportation, healthcare and the interest
on loan repayments. Understanding your cost of living is vital as it forms
the foundation of your financial planning. It is important to track these expenses accurately to ensure
that you are not overspending and that you can meet your basic needs comfortably.
Your aim should
be to reduce your cost of living expenses as much as possible.
This is where the fun is, and everyone needs fun and laughter. Fun money is the
portion of your income that you allocate to enable you to do the things you enjoy. This can include
dining out, hobbies, vacations, and other activities that bring you joy. Allocating a specific amount
for fun money is important for maintaining a balanced lifestyle, as it allows you to enjoy life while
still being responsible with your finances.
Life is for living and not being miserable, It's
important to think about how you are spending this money, it's very easy to fritter it away on
extra coffees at work, another round at the bar, but maybe upgrading your car or going on holiday would
be more enjoyable? You can't do everything so think carefully about how you are spending in this
area.
Your aim should be to set a limit on how much fun money you spend and stick to it. You
will have lots of reasons to spend this money.
Rainy day savings are funds set aside for unexpected expenses or emergencies. This
could include medical emergencies, car repairs, or job loss. Financial experts recommend having at least
three to six months' worth of living expenses saved in an easily accessible account. This safety
net provides peace of mind and financial security, allowing you to navigate unforeseen circumstances
without falling into debt.
You can expect the unexpected, it will happen, you
just will not know what or when. It's important to keep cash aside for this, or a combination of
cash and available credit. Cash is better but may not be possible if your money is locked into long term
investments.
Your aim should be to have between 3 and 6 months of living expenses in readily
availible cash.
An investment appreciates in value or generates an
income.
Long term investments are crucial for building wealth over time. This category
includes retirement accounts, stocks, bonds, and real estate including your own home.
Investing early and consistently can lead to significant growth due to inflation and the power of
compound interest.
It is important to educate yourself on various investment options and to
consider your risk tolerance and financial goals when making investment decisions. This is a fancy way
of saying stick to mainstream investments (S&P 500). Lots of people have lost a lot of money
listening to idiots with amazing ideas.
Unless you believe in fairies and that someone will come
to "save you" you should put enough money here to fund your retirement. When it's time
for you to retire, the government may not be as generous as you imagine.
If you are a sports
player earning great money, you should put your money here until this bucket is filled before giving it
the big "I am.....". Once you have you retirement money locked away, sure go for it, throw
money around like an idiot all you want.
The reason of thinking about the type of expense is to get you actively thinking
about your finances in terms of opportunities. If you take an opportunity now, you may be reducing the
opportunities that are available to you in the future.
For example, if I want a car that I will
use for commuting and taking the family out and about, for $30,000 I could get a decent car, but for
$45,000 I could get the one I want. I would I think of that as $30,000 cost of living, $15,000 fun
money. Am I willing to reduce my fun money by $15,000 over the amount of time I plan on keeping the car?
Or would I prefer a few good holidays? It’s my money, my choices.
If I was going to finance
car, am I willing to increase my cost of living and rainy day fund accordingly due to the increased
repayments? Do I want to increase my rainy day fund first and then buy the car? This way I think about
the car and it’s benefits to myself and my family, and detriment to our finances rather than listening
to the sales person stroking my ego.
