As August rolls around and the weather begins to warm up, our thoughts are with the nation’s farmers. Many are battling a prolonged drought and wishing for rain.
On the domestic front, the corporate earnings season is approaching at a time when Australian shares are trading at 10-year highs. The lower Australian dollar, down 5 per cent this year to US74c in late July, should help boost companies with offshore earnings.
Inflation remains benign with an annual growth rate of 2.1 per cent in the June quarter, up from 1.9 per cent in March. Prices of petrol, health and tobacco rose strongly while prices fell for domestic travel, cars and vegetables. The unemployment rate was unchanged at 5.4 per cent in June but wage rises barely kept pace with inflation. Consumers felt the pressure in their hip pocket, with the weekly ANZ-Roy Morgan consumer confidence rating dipping 2.1 per cent to 118.9 in late July.
Falling house prices may also be weighing on sentiment, with the CoreLogic national Home Value Index falling 0.8 per cent in the year to June. Home prices fell in Sydney, Darwin and Perth, dragging down the national average.
In the US, June quarter corporate earnings reported so far have exceeded expectations, up 4.1 per cent on an annual basis despite ongoing global trade tensions. The IMF left its global growth forecast unchanged at 3.9 per cent for 2018 and 2019 which, if realised, would be the fastest growth in 7 years.
With 86% of Australians saying they don’t know what they spent last month, it’s fair to say we aren’t great budgeters.i But in many cases, the problem isn’t writing a budget per se so much as it is sticking to it over the long term. The good news is with a few simple tricks you could change your spending habits for good and start realising your dreams sooner.
Many budgets get derailed because they simply aim to achieve too much. If your goals are too lofty, your budget is much more likely to fail and you may give up on budgeting all together. Aim instead to set achievable goals that have incremental rewards. This way you’re more likely to stay on track.
You also want to be real about what you can live without. Think deeply about what gives you true pleasure on a day-to-day level. Maybe you need that morning latte because it’s an important part of your daily ritual. Those impromptu online purchases made from your i-pad at 2am on the other hand might need to go.
When going about making your budget, ensure that you are being honest about your expenses. Budgeting does not simply mean tallying the costs of the rent and monthly bills. You have to incorporate every single thing you spend money on, including the costs that don’t come around too regularly (like visits to the doctor or car registration). In this respect, some months your outlay may be a lot higher than others – heating a cold old house in winter can make your energy bills skyrocket. The trick to good budgeting therefore is to be as detailed as possible as to when certain costs come around and have both a long and short-term view. This means breaking your annual income into twelve months then borrowing money from low overhead months and putting it into high over-head months to stop you from dipping into your savings.
Check in and check in often
It’s not enough to write a budget at the start of the year, put it in a drawer and hope all goes to plan. Budgets that stick, need to be stuck to. Set aside one night a month to review how you’re going. You’re not going to get it right the first time. But you might just find after a few months the difference between your predicted costs and actual costs shrinks.
Another good habit to get into is regularly checking your bank account. Leaving it too long between glances can make it a scary thing to do. And though there is truth to the saying ‘ignorance is bliss’, the bliss will most definitely wear off when your card declines and you have to dip into your savings. Reviewing your account regularly will help keep your spending in check.
Now that you’ve got the hang of checking your banking app regularly, you may want to delve deeper into the world of tech to help your budget stick. Your bank probably already has an online portal that portions your monthly spending into neat categories like ‘rent’ and ‘eating out’. But there are also budgeting specific alternatives online which might liven up the notoriously tedious and time-consuming task of budgeting. Apps like Mint, Mvelopes and YNAB (You need a budget) make it a breeze and, dare I say it, kind of fun.
Sometimes life doesn’t go to plan. That much is a given. So, it’s important to have some money set aside for those little emergencies. Say your washing machine breaks or you need to get interstate to visit a sick relative. Events like these needn’t undo all your hard work. In addition to having your regular long-term savings account, set up a different one that you make regular contributions towards for rainy days.
Remember why you’re doing it
The reason you’ve made a budget is so you can start reaching your goals sooner. And, with the help of modern technology, plus a little discipline, sticking to your budget is easier than ever.
If you’re still having trouble, you might just need someone to talk to. Come have a chat with us about your dreams. We can help you make a plan to reach them.
Millennials are often accused of living for the present and wasting their money on smashed avocado. So it may come as a surprise that younger Australians are at the vanguard of a growing movement committed to the old-fashioned virtues of thrift and saving, but with a modern twist.
Whereas the mantra of the Baby Boomers in the 1960s was ‘turn on, tune in, drop out’, their adult children also want to leave the rat race, but they want to do it with a substantial nest egg to allow them to pursue their dream lifestyle. The new mantra is ‘Financial Independence, Retire Early’, or FIRE for short.
The FIRE Brigade
The fundamentals of the movement come down to three lifestyle changes – living frugally, increasing income and investing the surplus – that they believe will help them achieve FIRE.
The godmother of the FIRE movement is Vicki Robin, the author of Your Money or Your Life. Robin suggested to her readers that they consider the ‘hours of life energy’ a purchase entailed. For example, a person earning $60,000 a year who is contemplating buying a $30,000 car should ask themselves whether owning the vehicle is a reasonable trade-off for six months of their life.
Robin's book came out during the pre-GFC consumption frenzy and failed to have much impact. However, over the last decade or so, increasing numbers of individuals and couples in their twenties and thirties have embraced its core message about stepping off the consumerist treadmill.
FIRE blogs, websites and books are largely devoted to money-saving tips such as trade your car for a bike, be content with fewer, cheaper items of clothing and forget about eating smashed avocado on toast at cafes. FIRE enthusiasts are also highly motivated to increase their income by working smarter, studying or starting a side business. When it comes to investing surplus income, they are also actively engaged with a preference for income-producing assets such as property and bonds and dividend paying stocks.
Fuelling the FIRE
It’s not clear what has drawn so many Millennials to the idea of achieving financial independence earlier in life than their parents. It’s possible that the GFC had the same kind of impact on them as the Great Depression had on their grandparents. It’s also conceivable Millennials have less interest in flaunting status symbols than preceding generations. Or it could simply be the case that Millennials value freedom and autonomy and want to escape the rat race asap.
Being Millenials, technology is central to spreading the FIRE message. The favoured online hangout of Australian FIRE fans appears to be the Reddit, sub fiaustralia, which has 8,400 subscribers. There are even Australian FIRE celebrities, such as ‘Aussie Firebug’. While remaining anonymous, Firebug has revealed he’s in his mid-twenties and determined to achieve financial independence by no later than his mid-thirties. He defines this as: “Having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses.”
While its adherents skew towards the young, people of any age can embrace the FIRE philosophy. Many older Australians with modest super balances are doing much the same things as FIRE devotees, albeit out of the fear of having to keep working past retirement age rather than the hope of quitting their job in their thirties.
A timeless approach
Despite its recent arrival, the FIRE philosophy is essentially a modern makeover of some timeless financial wisdom. Work hard, spend less than you earn and invest the surplus in assets that will grow your wealth and produce income when you retire.
It could be argued that 26 years without a recession and access to easy credit has made many Australians too relaxed about living within their means. If that’s the case, the FIRE movement could be the spark we all need.
If you’re interested in building wealth to enjoy a financially independent future, give us a call.
To encourage innovation and new small businesses, the government offers a range of valuable tax incentives and concessions designed to help start-ups. There are even tax deductions for expenses you incur before you start trading.
Here’s a roundup of some of the tax concessions on offer:
Most new businesses face some hefty start-up expenses to get their big idea up and running, so an immediate tax deduction can be a real help. For example, expenses incurred when you receive advice about the proposed structure or operation of a new business can be fully claimed in the same financial year.
Payments to government agencies for fees or charges relating to establishing the business can also claimed. These include costs such as fees for creating a company and stamp duty on assets transferred into the business.
Simplified depreciation rules
Another valuable tax benefit is the instant asset write-off, which allows start ups to immediately deduct the business portion of assets purchased between 1 July 2016 to 30 June 2018.
The deduction is available for each asset costing less than $20,000, whether new or second-hand. It’s claimed through the business tax return in the year the asset is first used or installed.
Paying next year’s bills
In some cases you can also claim an immediate deduction for pre-paid expenses.
This tax concession allows you to claim a deduction in the current financial year if you pay for costs such as the following year’s insurance policy premium, utility bill or professional subscriptions.
Incentive for research expenses
Start-ups with a significant research and development (R&D) component may be eligible for the R&D Tax Incentive. This is not just for tech companies or inventions; the main criteria is whether the business is doing something different or new to the market.
If a business qualifies, the R&D concession provides a 43.5 per cent refundable tax offset. This means even if your start-up is operating at a loss, the tax benefit will be refunded to you as cash.
Early stage investors
Raising capital can be a hurdle when you are just starting out. Fortunately, there are also tax breaks to encourage investment in innovative start-ups. From 1 July 2016, anyone investing in new shares of a qualifying early stage innovation company (ESIC) is eligible for a tax incentive.
Eligible investors qualify for a non-refundable carry forward tax offset equal to 20 per cent of the value of their investment, with an annual cap of $200,000. A 10 year capital gains tax exemption is also available.
Company tax breaks
The government’s new tax concessions for small business entities with an aggregated annual turnover under $10 million are also a welcome boost. Qualifying businesses enjoy the new lower company tax rate of 27.5 per cent, which will be extended to companies with turnovers under $50 million in 2018/19.
In addition, the turnover threshold for small business fringe benefits tax (FBT) concessions has been increased to $10 million. This means qualifying small business employers can provide employees with FBT-exempt car parking, provided it is not in a commercial car park. They can also give employees multiple FBT-exempt portable electronic devices, including laptops, tablets, calculators and mobile phones, provided they are work-related.
Offset your tax bill
Another concession is the small business income tax offset (or unincorporated small business tax discount), which is available to sole traders, partnerships and trusts.
The 8 per cent offset (in 2016/17) applies to businesses with a turnover of less than $5 million and has an annual limit of $1,000.
Streamlining SG payments
To help reduce red tape, the Small Business Superannuation Clearing House allows start-ups to pay employee Super Guarantee contributions in a single electronic payment. Businesses with 19 or fewer employees and turnovers under $10 million can access the service.
Contact us if you’d like more information about how your business can benefit from government incentives and concessions.