Welcome to Finance & Fury!
Today’s we’ll be looking at how to start, once you’ve set your financial goals. This is the starting point for anyone looking to get a plan in place.
We have talked about goals in past episodes, but we haven’t really gone into much depth. Goals and Reality – Setting goals and then making it a realitySo, where do you start? If you have your financial goals in place that’s a great start.
It is about having a strong foundation for the plan and covering the basics. What are the basics to start a plan? We will look in depth at each one of these and what to do with them Budget Debt Management Personal Balance sheet The Foundation Building Blocks Budget: Cashflow is King Cashflow Components - Income, Taxes, Net Cashflow Gross income - What you get from employment or investments Taxes (what is taken out) - Based on marginal tax rates which progresses in brackets Tax Free Threshold - the first $18,200 at 0%, then the next tax bracket is 19%, etc Then, you need to add on the Medicare levy which is currently 2% Net Income/Cash flow – which is gross income minus taxes Net cash flow uses Daily living expenses (essentials) – Housing, food, utilities, etc Discretionary spending – Everything else on top Savings/Investment (what you have left to put towards your goals) Previous episode - Pay Yourself First; “Why work your whole life, just to have nothing left over?” Debt Management Bad debts - Personal Debts or non-investment assets that have debt attached to them. Avoid at all cost – it’s selling yourself down the river Uses cash flow – To repay loan Works like a negative investment – Costs you interest, up to 21% Don’t get into too much bad debt – for example: Credit cards and personal loans $10,000 of a personal loan If you have personal debts make a priority to get rid of it Good debt – Plan and manage Negative gearing – Can be good for high growth investments Goes against the budget metrics – Only as good as getting your marginal tax rates back Balance Sheet Starting point – Types of assets Lifestyle – Ones used for personal use – Personal Home, Cars, etc The ones that Bad Debts are attached to Investment – Assets for investments: Shares, Property, managed funds, etc. Good debts are attached to investment assets This should be a main focus Targets for investment advice Fill in the gap – The Rule of 20 allows you to determine roughly what you’d need in the future This is where you can keep track of your goals Here is an excel sheet for you to use This is the starting point Now you need to make a plan, and then implement it Get a budget in place – Increase what you’re putting towards your goals Stay out of personal debt – pay off debts based on level of interest. The higher the interest costs the more important it is to pay this off quickly. Use a balance sheet in order to keep track of your progress towards your goals.