Episode 32

The Foundation Building Blocks of your Financial Future: Budget, Debt Management, and your Balance Sheet

Welcome to Finance & Fury!

Today’s we’ll be looking at how to start, once you’ve set your financial goals. This is the starting point for anyone looking to get a plan in place.

  1. We have talked about goals in past episodes, but we haven’t really gone into much depth.
  2. Goals and Reality – Setting goals and then making it a reality

So, where do you start? If you have your financial goals in place that’s a great start.

  1. It is about having a strong foundation for the plan and covering the basics.
  2. What are the basics to start a plan? We will look in depth at each one of these and what to do with them
    • Budget
    • Debt Management
    • Personal Balance sheet

The Foundation Building Blocks

  1. Budget: Cashflow is King
    • Cashflow Components – Income, Taxes, Net Cashflow
      • Gross income – What you get from employment or investments
      • Taxes (what is taken out) – Based on marginal tax rates which progresses in brackets
        • Tax Free Threshold – the first $18,200 at 0%, then the next tax bracket is 19%, etc
        • Then, you need to add on the Medicare levy which is currently 2%
      • Net Income/Cash flow – which is gross income minus taxes
    • Net cash flow uses
  2. Debt Management
    • Bad debts – Personal Debts or non-investment assets that have debt attached to them.
    • Avoid at all cost – it’s selling yourself down the river
      • Uses cash flow – To repay loan
      • Works like a negative investment – Costs you interest, up to 21%
    • Don’t get into too much bad debt – for example: Credit cards and personal loans
      • $10,000 of a personal loan
    • If you have personal debts make a priority to get rid of it
    • Good debt – Plan and manage
      • Negative gearing – Can be good for high growth investments
      • Goes against the budget metrics – Only as good as getting your marginal tax rates back
  3. Balance Sheet
    • Starting point – Types of assets
      • Lifestyle – Ones used for personal use – Personal Home, Cars, etc
        • The ones that Bad Debts are attached to
      • Investment – Assets for investments: Shares, Property, managed funds, etc.
        • Good debts are attached to investment assets
        • This should be a main focus
    • Targets for investment advice
      • Fill in the gap – The Rule of 20 allows you to determine roughly what you’d need in the future
      • This is where you can keep track of your goals

This is the starting point

Now you need to make a plan, and then implement it

  1. Get a budget in place – Increase what you’re putting towards your goals
  2. Stay out of personal debt – pay off debts based on level of interest. The higher the interest costs the more important it is to pay this off quickly.
  3. Use a balance sheet in order to keep track of your progress towards your goals.

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