Budgeting

The Chinese “Curse” is “may you live in interesting times” and the coming year promises to be just as interesting as last year. In Australia, a change of government is a strong possibility which opens up the possibility of significant changes to franking credits, negative gearing, and capital gains tax. On the international scene, the big question is will the current volatility continue.

What can an ordinary person do when it seems that the year is going to be dominated by events outside one’s control? Simple, you focus on doing those things that you can control. For starters you can start doing a mini-budget so you won’t spend 2019 living in fear of bills arriving. Add up your recurring expenses such as rates, school fees, loan repayments, electricity, and car registration and bank a pro-rata sum each payday into a special bank account.

For example, if they come to $26 000 a year, and you are paid fortnightly, bank $1000 each pay. This will ensure that the money to pay these bills is always available and waiting to be spent. While you are at it, start a holiday account, and a Christmas account, and pay an appropriate sum there as well.

If you are still paying off your home remind yourself of the enormous savings that can come from making extra payments. Suppose you owe $300 000, at 5% and are paying it back over 30 years at $1610 a month. Just investing $200 a month into your loan will cut the term by six years, and save you $70,000 in interest.

Those of you with your home paid off should be talking to a financial adviser about investing the equivalent of the mortgage payments into a share trust. That $1610 a month payment I mentioned before would grow to over $1.6 million in just 25 years if the trust averaged 9% per annum (income and growth combined).

Here’s to a wonderful Christmas and a healthy and prosperous 2019.