Before you panic and think that I’m advocating you take the fun out of life – rest easy. I am merely suggesting that by adding a little structure and accountability to your personal finances, you will allow yourself the time and money to actually enjoy yourself!
When the end of financial year rolled around, were you already aware of your earnings, possible deductible expenses and savings for the year? If not, you will almost certainly benefit from some of the tips in this article.
Like a business, you should be looking to make an annual profit, which in your case can then be used to build a nest egg for retirement. So, how can you get organised to make an annual profit?
Like any good business, start with a budget that includes existing and projected earnings for the short – and long-term future, as well as all of your expenses.
If your earnings greatly outnumber your expenses – fantastic! You can now look at investing. Unfortunately for many Australians, particularly in the current economy, expenses often outweigh profits with a steadily growing debt the result. Like a business, you then face some hard decisions: can you increase your income? This is often not practical in the short-term for many individuals. Can you reduce expenses? This is a more likely option that requires careful monitoring of your daily transactions initially, until you become accustomed to your new spending habits. Or do you need to borrow? Best to be avoided.
Once your income and obvious expenses have been recorded, you can then start to look at less obvious expenses that could be used to minimise your tax. While these might not have an impact on your cash flow immediately, any money that you don’t have to pay to the ATO is money in your pocket, so the financial benefits of this process are real.
The general guidelines for whether or not you can claim a deduction are that it must have been incurred in the process of earning your income, that you were the one who actually paid the expense (and you weren’t reimbursed) and that you have a record of the transaction. There are a wide range of items that are included and excluded from being deductible expenses, for more details you can visit the ATO website.
By running your life like a business, you are far more likely to have sufficient savings for both your short- and long-term lifestyle goals – and your stress at tax time will be greatly reduced if your records are already in order!
By Jennifer Lowe