I have a saying about money – it is like water – if you don’t contain it, it will slip through your fingers.
As bookkeepers we notice there are many different ways to manage money, some use one account for everything, some have multiple accounts, some pay themselves a wage and live off that, some do that but sneak drawings out of their business. Some are fantastic money managers, some are not, some are comfortable with debt, other not.
I have been reading some interesting stories by people who have become millionaires lately and there is one thing they are all saying, live within your means, spend less than you earn.
In our credit based economy, it is very easy to spend without thinking about how much we really have. This is especially true if there is good cash flow in your business. With our economy so unstable, and seeing the consequences of having too much debt be incredibly detrimental to people’s lives, I want to encourage you to live within your means.
Most of you understand the concept of good debt, bad debt, so of course good debt is beneficial because it is returning an income and is a growing asset, however having maxed out credit cards and living an expensive lifestyle will I believe eventually catch up with you.
I would encourage those of you who this is ringing some bells with to take some time to understand what you need to live on each week, have a good look at your bad debt, have a look at what you are paying yourself and the tax implications of that. Some of you may be spending $100s of thousands a year on your lifestyle, then complaining about your high tax bill.
I challenge you to live on the front foot with your money this year, go into this new financial year with an understanding of what you need to pay yourself and what the tax will be on that. I challenge you to pay yourself a wage, whether it be generous or meagre, whatever you decide, aim to live within that wage, use a separate account for your ‘non deductible’ expenses such as home loan and day to day living and have a really good look at the tax you need to pay for your lifestyle.
Many of you know about the income tax calculator I refer to. An income of $100K per year means a tax bill of nearly $25K. A company profit of $200K means a tax bill of $30K. Start to understand your finances and then you will be prepared for the tax bill that will come at end of the year. Gaining control in this way will put you in a better space to start looking at more tax deductable options.