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Strategies to Achieve Financial Happiness

Financial happiness is a state of contentment that comes from making smart money decisions. It involves having control of your finances and being able to meet all of your financial goals. Achieving financial happiness requires a commitment to follow responsible money management practices and set realistic goals. This article will discuss several strategies that can be employed to help you achieve financial happiness, including budgeting, debt management, saving, and investment.

Saving Strategies

Financial happiness is a goal that everyone should strive for. It can be achieved through wise money management and the use of effective saving strategies. One of the best ways to achieve financial happiness is to create realistic goals and plans.

Start by making a budget outlining how much income you make, and where that money will go each month. This includes expenses such as rent, utilities, transportation costs, entertainment, groceries, and any other necessary spending items. The key is to ensure your spending is within your means and to save as much as possible. Additionally, it’s important to track your spending habits so you can stay on top of them and make sure they are in line with the budget you established. Once these basics are taken care of more advanced saving strategies can be implemented.

To help you with your budget, please check out our HOUSEHOLD BUDGET & EXPENSE TRACKING file under the client resources tab on our website.

Investing Wisely

Investing Wisely is a key factor in achieving financial freedom. Many people believe that investing their money is the best way to increase their wealth, but they often don’t understand how to go about it. In order to be successful when investing your money, it is important to take into consideration factors such as risk tolerance, asset allocation and diversification.

The first step towards Investing Wisely is understanding your own risk tolerance; this will help you decide what types of investments are right for you and which ones should be avoided. After determining your risk tolerance, you need to create an appropriate asset allocation mix that best fits your investment goals and timeline. To ensure maximum diversification, it is recommended that investors consider different assets classes such as stocks, bonds and mutual funds. Additionally, consulting with a financial advisor can provide valuable insight on strategy options based on individual circumstances.

For your investments, you also need to consider long-term tax planning strategies. By choosing the right ownership structure from the very beginning, it will help you to maximize tax savings on investments. Reinvesting the tax savings will bring you more profit in the future. It will give you a snowball effect and help your wealth to grow more quickly. For more details on long-term tax planning with different ownership structures, please refer to this online session: How Should You Own Your Assets And Investments.  

Making Smart Purchases

Making smart purchases is an essential part of maintaining financial stability and security. A smart purchase means that you are making a conscious decision to purchase something based on careful thought, research and analysis. Taking the time to make sure that what you’re buying is worth your money can save you a lot of unnecessary stress in the long run.

The most important step in making smart purchases is to plan ahead. To do this, it’s important to set a budget and stick with it. This helps to ensure that you don’t overspend on items or services that aren’t necessary for your needs. It’s also essential to take the time to compare prices among different retailers before settling on something so that you get the most bang for your buck.

Debt Reduction Plans

Debt Reduction Plans are a way to help individuals and families who have fallen behind on their debt obligations. These plans can be an extremely effective tool for getting out of debt. Through Debt Reduction Plans, consumers are able to negotiate with creditors in order to reduce their overall debt burden. This process includes developing a payment plan that is tailored to the individual’s needs and negotiating reduced payments or balances with creditors. With this approach, participants can expect to see drastic reductions in their amount owed as well as a decrease in monthly payments. The goal of Debt Reduction Plans is to get people back on track financially so they can begin saving money for retirement or other long-term goals instead of struggling just to stay afloat every month.

At Impact Taxation & Financial Services, we can show you how you can maximize your after-tax income, and also help you to prepare cash flow forecasts on different scenarios so that you can apply various tactics to speed up debt repayment.

In conclusion, financial happiness is achievable and doesn’t require a dramatic lifestyle change. Small steps like tracking your spending, setting financial goals, automating savings efforts, and investing in yourself are all excellent ways to begin the journey. Remember that financial success doesn’t happen overnight, it’s a long-term process that requires dedication and consistency. Along the way, be sure to stay mindful of your progress and celebrate the wins when you hit a milestone.

Get in touch with Impact Taxation and Financial Services today to learn how you can live a happier, and more financially secure life.

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    10 things you should consider before buying a property

    Are you considering buying a property? Do you know you could miss opportunities to save thousands, or tens of thousands of dollars if you don’t plan well before the purchase?

    Below are a few key considerations:

    1. How should you set up your loan structure? If you don’t have a loan offset account for a rental property, after you make extra payments directly to the loan account, you can only claim interest deduction on the remaining balance of the loan. For tax purposes, this deductible balance can’t be changed even if you redraw the overpaid amount later. A good loan structure could also help you to stabilize interest rate and speed up loan repayment by combining a standard variable loan (with an offset account) and a fix rates account.

    2. Timing of renovation. You might want to do a renovation right after you have bought the rental property. But do you know for any genuine repair & maintenance included in the renovation, you can claim an outright deduction against the rental income when the property is available for rental? If the work is done before the date when the property is available for rental, you can only claim the deduction against future capital gain when the property is sold. Depend on when you are going to sell, it could take years or up to decades before you can claim the deduction.

    3. How should you split ownership? You might want to share the property ownership with a family member. For tax purposes, the percentage of ownership is based on the legal title, regardless of who is paying more on the mortgage. If the property will give you a tax profit, you might want to allocate more
    ownership to the low-income earner to utilize the lower marginal tax rate. If it is giving you a tax loss, you might want to allocate more ownership to the high-income earner to utilize the loss. The goal is for the family to pay minimum tax together.

    4. Should you use a family trust to purchase the property? There are many pros and cons related to a family trust. The advantages include tax savings on rental profit or capital gain, asset protection and succession planning on family wealth. However, family trust can’t distribute losses. All losses are trapped in the trust to be used to offset future trust profit. Therefore, you can’t utilize any rental loss in a trust to offset other income such as salary & wages. Family trusts also attract high accounting fees on initial setup and annual fees on financial statements and tax returns. State governments also charge much higher land tax on family trusts.

    5. Will the income level change in future years for different owners? You might want to forecast the possible income for different owners to understand total tax payment / savings related to the property. This could also impact on your decision making on point 3 and 4 above.

    6. Understand when you can treat your property as main residence to receive an exemption on capital gains tax. When eligible, even if you have received rental income, you could still treat your rental property as main residence and receive the exemption. To be eligible, you will need to treat it as your main residence at the beginning. Please check out this ATO link: Treating former home as main residence.

    7. Decide whether you need to purchase a depreciation report. Most taxpayers don’t know that the depreciation on the building will need to be added back to calculate capital gains tax when the property is sold. When the property is held for more than 12 months, after applying the capital gains tax discount of 50%, it will effectively cut the tax rate by half at the time of sales. This makes depreciation deductions desirable for high income earners. However, for low-income earners it might not be ideal to claim depreciation as a rental deduction since they could be paying more on capital gains tax in the future. It could get more complicated if the property is under joint ownership between high and low income earners.

    8. You might want to consider Centrelink payments for future or existing owners. Most Centrelink payments are income and asset tested. Before attaching a rental property to a family member who is receiving, or plan to receive government benefits, you might want to check the testing thresholds first to see if the Centrelink payment will be impacted. This is also applicable when you are making distributions from a family trust to different family members.

    9. Have you considered using your SMSF (selfmanaged super fund) to make the purchase of a rental property? There are a lot of tax saving opportunities with a SMSF since the income tax rate is only 15%. And the capital gains tax rate is effectively only 10% after factoring in the 1/3 discount. The major downside with a SMSF is normally you can’t get the money out until you retire or on compassionate grounds (SMSF does have more flexibilities compared to normal retail super fund. But the choices are still very limited). It could be expensive to set up and operate a SMSF too. There are also strict legal requirements on the trustees. Penalties on incompliance could be severe. Tax law around SMSF is very complicated too. You will need to find a good tax accountant specialized in SMSF to help you to understand the structure, also do a cost-benefit analysis before setting it up.

    10. Consider internal ownership changes. For your existing rental properties, you can also consider whether you should transfer the ownership between family members, or between different business structures (this is not applicable for SMSF). You might want to do this when the income level changes with family members, or rental property changes between tax profit and loss. Before the change, you need to consider the cost of transfer including capital gains tax, stamp duty, conveyancer fees, etc. Again, a cost-benefit analysis is a must before the change.

    Last but not the least, did you combine all the above strategies and compare your choices? If you haven’t yet, how would you know that you have picked the best strategy to minimize your taxes? We can help you to factor in all considerations, compare different scenarios, also present you with a Property Prepurchase Report with all our findings to help you to make a decision. Contact us today to book in a consultation with an experienced tax accountant!

    IMPORTANT INFORMATION
    This is general advice only and does not consider your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant.

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