Why You Don't Have To Spend 10K on A Wealth Creation Course
If you look at it from a financial perspective, the whole idea of wealth creation is increasing the value of your family’s wealth.
There are thousands of dollars you could spend on courses to go and learn about how to create wealth, and at the end of the day it comes down to a very simple formula, which is: if you want to create wealth, you need to earn more than you spend.
If you want to speed up your wealth creation journey, you need to do one of two things: You either need to earn more, or spend less.
In terms of increasing what you earn, some examples there might be: a pay rise from working, earning more profit in the business, getting more income from income producing investments, like rent from properties, dividends from shares, or interest (but I don’t think that’s going to be too relevant right now, given interest rates if you’re lucky, they’re above 1%) and then reducing your personal and business tax actually increases your net take-home wage or pay. You could also decrease expenses, like cutting off non-vital expenses.
For example, there’s usually a few culprits in the room (including me) who have Netflix, Stan, YouTube and Amazon Prime. Does anyone relate to having these subscriptions that might build up in the background? I don’t know about you but I spend more time looking at what to watch, and I’m bored with the thing rather than actually watching something on that program.
So instead of having all seven subscriptions, you might drop back to two, and if you want another one, you might have an agreement with yourself where if you want Stan, you have to cancel Netflix or something like that. That’s an example of cutting off non-vital expenses.
You could also bulk buy. Costco is doing pretty well, where you go and buy a heap of stuff in one hit, rather than drip feed it throughout the month or week.
Learn more in our next Wealth for Life workshop (next year) at https://info.inspire.business/wealthforlife
How To Protect Yourself Against Health Incidents
This is usually called “Trauma Insurance”. “Critical Illness Insurance” is another one that some of the insurers use – It’s basically heart problems, heart attacks, stroke, and all sorts of varieties of cancers. But we’ve had clients who went down to their skin clinic, got a melanoma removed, met the conditions of a payout and we said, “Hey, have you checked your insurance policy there” and he rung up and ended up getting $40,000 paid out.
I guess the purpose of trauma is to pay for medical bills and those sorts of things that pop up – it’s not just to have a win because you’re sick, but it’s often something that can be triggered easily by even a skin cancer.
Another example is my dad who had a claim when he had a heart problem – at the time, he ended up having an active policy with Suncorp and got six figures paid out to him, which was nice. He didn’t need to use that because of our public health system, but he actually lost income as a business owner and didn’t have income protection insurance, so it helped buffer that out.
Insurance is important. It can be very confusing, and you really need to understand what you’re paying for. My tip would be to make sure your insurance is structured correctly. A lot of it can be structured so it’s paid out of super as well (not all of it, but some of it) and it can also be tax deductible if it’s structured certain ways.
So if you haven’t had a review of your insurance recently, then I’d recommend you do that. We are not insurance advisers, but we recommend working with a financial planner or insurance adviser to walk you through these steps.
Learn more in our next Wealth for Life workshop (next year) at https://info.inspire.business/wealthforlife
The #1 Question To Ask At The End Of 2020
From a financial perspective, this year has been one of the most interesting things we’ve ever seen, as accountants, and probably you as a business owner. I think we’ve had some high highs and some low lows – I don’t think anyone’s been exempt from both of those things this year.
What we want to have a look is, how is our business actually performing from a profit perspective, before COVID hit and then after COVID hit?
A couple of the questions I want you to ask yourself is: are you actually making an operating profit in your business? What I mean by that is, without any stimulus measures – so no JobKeeper, no cashflow boost – are you still making a profit in your business? Because that’s going to be very, very good to know, especially to make decisions moving forward into 2021.
For some businesses, the picture might not be good.
The other question I want you to ask yourself is: does your business have financial viability moving into the next few months and in the New Year? For some, and we’ve already seen this a little bit, the answer to that is no.
I think the business owner will be better off if unfortunately they had to close the doors permanently – but hopefully that is not too many of us.
Plan your business and watching the full webinar at https://insp.red/christmascashflowwebinar
The Power of Compound Returns
This is an example of the power of compound returns.
Let say Aaron begins saving at age 20, and saves $2,000 a year for 10 years. So overall, he’s saved $20,000 into an investment that earns 8% a year. When he turns 65, that’s worth $500,000. That’s not bad.
Bob begins saving at age 30, 10 years later than Aaron does, and saves $2,000 a year for 35 years. So he’s saved three and a half times (in terms of dollar value) more than Aaron has and he ends up with less than Aaron does at the end of that just by waiting 10 years.
Then we’ve got an example of Carl, who waits another 10 years and puts away $50,000 over 25 years. He ends up with visually what looks like half as much as Bob does.
The idea here is: the earlier you start, the more you end up with, because of compound investing those compound returns.
This is just another example of the exact same concept. You’ve got your age here, your annual savings and your 8% investment return. This forecasts the total value when you turn 65 years old.
So if you start at age 20, you end up with $2,000,000. If you start at age 25 you end up with $1,400,000. So waiting five years to save cost you $700,000. It’s a big difference.
The Learn more in our next Wealth for Life workshop (next year) at https://info.inspire.business/wealthforlife
A Quick Overview Of The Federal Budget Update
Scott Morrison said, “the results of the dip in the economy globally are 45 times worse than the GFC.” That’s an incredible dip compared to something that shook up the Australian economy a few years ago. What they’ve encouraged is more spending, especially for businesses.
They’ve done extensive stuff with what they’re calling the “job maker program”, driving jobs, and also hopefully increasing confidence in the market in general.
This budget is good for young people, business owners. Anyone still working is going to get probably up to $2,000 in their pockets, which is pretty fantastic.
There’s nothing directly for investors or self funded retirees, but the indirect effects of the higher spending, driving jobs and confidence, if you’re invested in the share market, there should be an indirect return in uplift in the market value of our share market.
Watch the full webinar at https://insp.red/federalbudgetwebinar
4 Types Of Investments To Grow Your Wealth
In terms of investment, I’ve learned about and looked into a whole heap of different things from Bitcoin to silver bars – and different clients like different things. I’ve worked with a whole range of different tastes: shares, managed funds, index funds, property, commercial property, all sorts of different stuff.
It can be super overwhelming to start, so I want to give you a bit of a framework that makes it a lot simpler to actually get your head around how you might want to invest. Broadly speaking, I think that there’s kind of two categories of investments:
One is investing in businesses, and the other is investing in properties.
In terms of the elements of those businesses or property, you’ve got passive investments, where you don’t need to have input for them to keep ticking along. You also have active investments – an example of an active business investment for me personally, is Inspire. I’m actively working in it, growing the value, growing the profit – that’s the goal with my active business investment.
A passive business investment is like shares. So a share in the Commonwealth Bank, is actually owning a percentage of their business. Even if you own one share, you’ll still get a very small percentage of their profit or a very small dollar amount of their profit, paid to you each year. So CBA, all the banks, Woolies, Coles, stuff you buy on the Australian Stock Exchange – that’s what I’d consider to be a passive investment in a business, something you don’t have to work in.
If we look at property, a passive property investment would be a rental property or investment property. Some people do take a bit of an active role in renovations, or maybe they manage it themselves instead of appointing an agent, but normally it just ticks along without you having to go and show up every day and say hi to the tenant. Versus an active property investment, which is more development. For example, you might buy a block of land or a house and then swap it with townhouses, or split a block, a big block like a line down the middle and put two houses on it – there are all sorts of different options there. But that to me is an active property investment.
Learn more in our next Wealth for Life workshop (next year) at https://hubs.ly/H0CrFFW0
Is Debt A Dirty Word?
Good debt is usually referred to as “tax deductible debt”, and bad debt is referred to as “non-tax deductible debt”.
Some examples of bad debt is: the mortgage on your own home (if you’re not claiming any tax deduction on it) or personal loans/credit cards for personal expenses, that sort of thing.
Good debt is: investment property debt, business debt, that sort of stuff, where we can claim it.
If set up right, usually when you go and get a mortgage the bank will give you a 30-year loan and you’ve got 30 years to pay it off, principal and interest. But if you leverage and set up a debt recycling strategy (this is Stevie and I’s example) we can take a 30-year loan, and if set up right, we can pay off our own home in 8.4 years.
So it’s a fraction of the time by setting it up correctly.
Learn more in our next Wealth for Life workshop (next year) at https://info.inspire.business/wealthforlife
Intellectual Property & The Immediate Asset Write Off
Can intellectual property qualify as an eligible asset write off?
My answer to that is no – it’s more so physical depreciating assets.
Some examples that do qualify are: computer equipment or furniture, if you’re an office space business, manufacturing plant equipment for other types of businesses, or buses and vehicles that aren’t caught under the car limit.
Watch the full webinar at https://insp.red/federalbudgetwebinar
The 5 Bank Accounts You Need To Stay In Control Of Your Finance
Instead of envelopes, opt for different bank accounts, that’s the idea here.
The idea is that your income comes into one central account, and then it spreads out into each of the other “buckets”, or the other accounts based on what its purpose is. You can preset this so that it’s automatic transfers. This will help you decipher what money is allocated for booking holidays, or putting food on the table, that sort of thing.
One of the first accounts I recommend you create is a “slush fund”.
Set one up for you, and a separate one for your spouse – It’s important that they are separate, not the same. This is for you to spend as you wish with no judgment from the other person, that’s your play money. For example, Stevie loves to buy essential oils, and I might want to go and have a pint with a mate, and she might not value alcohol as much as I might.
The next one is entertainment.
From my perspective on this one, this is for stuff you do with you and your spouse, or with your kids as well, as a family. So it’s the family day trips where you might all go to the movies, or go out for dinner somewhere, or date night.
The next one here is travel.
Let’s say you’ve got an annual budget – Stevie and I’s is about $10,000 a year, so we send $200 a week into a travel account. When that starts to build up, we then go and book a holiday. That’s our trigger to say, “hey, there’s a few grand in there, let’s go and do something with it.” So you’re actually making sure you take time out and spending some time away from business and normal life and that sort of thing.
Now irregular bills.
This is for stuff like car rego, insurance, rates, or childcare (depending on how often you pay that). But anything that is not weekly, for example: monthly, quarterly, fortnightly, annually. You do want to add all that stuff up and make sure that you’ve got enough buffer there so that if the council rates and the water bill hit in the same week, you’ve got some money set aside there.
Lastly, we want to also be putting some money away for wealth creation.
Usually this will be the family offset account if you’ve got a mortgage, but it’s for having money set aside to invest. You might consider investing to be simply paying down debt, which is actually a smart thing to do, right? Or regularly investing into shares, or property, but you want a certain amount a week that’s allocated for that.
Learn more in our next Wealth for Life workshop (next year) at https://info.inspire.business/wealthforlife
The 3 Different Tax Rates For Super Explained
There’s a couple of different tax rates for Super.
The two main differences, or “zones” of superannuation, is when you’re accumulating your balance – that’s throughout the majority of your life when you’re contributing to Super, building it up, and then you reach a point where you might retire or start drawing a pension.
As long as you meet certain conditions, your tax rate literally turns to Cayman Islands and you’re paying 0% tax on your profit, which is pretty cool. So we can access 0% tax rates in Super if the conditions are right. So I’m not going to say this is all you have to do and there’s details with this, but if you’re retired and over 60, generally your Super balance will be tax free on the profit that it earns.
The other thing that the government brought in a couple of years ago, was actually that 0% tax rate is limited to $1,600,000 per member.
Now the $1,600,000 cap for the 0% tax rate, that’s when the pension is created. So there’s actually quite some complexity there with your pension balance and switching it to pension mode under that $1,600,000 cap.
Broadly speaking, lets say a husband and wife have got $3,000,000 in their fund, and they’re about 50/50 or up to $3,000,000 in the fund, you can assume that maybe most of that profit that will be earned or the investment income will be tax-free – assuming they’re over 60 and retired.
Now I’ve also added a tax rate here on the right hand side here which is “non-compliance”. I’ve never seen this happen but I’ve heard it’s a possibility – if you do the wrong thing intentionally, there’s a 97% tax in penalties, and it’s not of your income, it’s actually of the funds assets.
So if you’ve got $1,000,000 in Super and it might earn $50,000 a year in income, they’re going to take, not 90% of that $50,000, they take 90% of your million dollars, if you intentionally do the wrong thing.
So the penalties are huge if you disregard the rules.
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