Jellyman Investing - Personal Finance for Australians

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If you haven't researched Index Funds, I suggest you start there before investing in individual companies. Should you be brave enough and willing to do the work, you can invest in individual companies. Long term they can potentially provide significantly higher rewards. But remember. With higher reward, comes greater risk. 

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When you purchase a house you'll have to choose between Variable or Fixed. This refers to how interest rate structure of the life of your loan. Deciding which is best depends on your long-term goals. 

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The journey into first-time property ownership often presents a labyrinth of complexities, from dodging aggressive real estate agents to navigating through the myriad of mortgage options from various banks.

• Market Knowledge and Property Identification: They offer insights into the real estate market and assist in finding the right property.
• Financial Guidance and Price Negotiation: Brokers provide financial advice, suggest financing options, and handle price negotiations.
• Property Viewing and Evaluation: They arrange viewings and evaluate the property’s condition and potential issues.
• Legal and Regulatory Guidance: Brokers navigate the legal procedures and ensure compliance with property laws.
• Managing Transactions and Closing Deals: They oversee the entire transaction process, ensuring a smooth closing.

• Expertise and Experience: Brokers bring valuable knowledge and experience to the table.
• Time and Stress Reduction: They streamline the property search and reduce the stress involved in negotiations.
• Professional Network: Access to a broker’s network can be crucial in finding the right property and deals.
• Representation and Advocacy: A broker advocates for your interests throughout the process.

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I want to talk about the journey towards buying your first home. It starts by paying off debt and building your savings. It's really easy to fall off the bandwagon when it comes to getting your finances under control. 

1. Set up your automation and accounts for everyday expenses.
2. Build your 6-12 months of emergency savings.
3. Begin investing in index funds.
4. Meet with a broker to assess your financial position relative to how much you'd like to borrow.
5. Readjust your borrowing power based on rising interest rates.
6. Build an additional buffer for post-home purchase (ensures you have enough left over just in case).
7. Buy a house.

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The history of taxation is as old as civilization itself, originally designed as a means to generate capital, primarily to fund wars. In ancient times, rulers and governments imposed taxes to amass wealth, ensuring they had the resources necessary for military campaigns.

The Australian Tax System: A Progressive Approach

Today, the Australian tax system plays a pivotal role in the country’s development. It is structured to fund public services, infrastructure, healthcare, and education. But why do some individuals pay more tax than others?

The answer lies in the progressive nature of the tax system, which is designed to be equitable rather than equal. This means individuals and entities with higher incomes pay a proportionately larger amount in taxes, reflecting their greater capacity to contribute to society’s needs.

Tax Benefits: Rewarding Beneficial Endeavors

The Government learned long ago that if you want to move the country in a specific direction, they can tax activities that take away from that agenda, and incentivise the ones that align. It’s actually that simply.

When reading the tax code, you’ll actually find that a substantial amount of it, in fact most of it is laws are on how to reduce your tax by pursuing certain activities. These can include but are not limited to: 

1. Superannuation Contributions: Contributions to superannuation funds often receive favorable tax treatment. When the population ages, the costs for services especially retirement funding such as pensions becomes a heavy burden for the Government. When they see people investing and making extra contributions to take care of themselves in retirement, it’s one less person the Government has to support. They like this.
2. Education and Research: Tax deductions for certain educational expenses and research activities encourage investment in knowledge and innovation, crucial for the country’s growth. This creates new industries and potential jobs.
3. Charitable Donations: Donations to registered charities are tax-deductible, promoting philanthropy and support for non-profit sectors.
4. Investment in Renewable Energy: Tax incentives for investing in renewable energy projects align with the government’s commitment to environmental sustainability.

Tax Penalties: Discouraging Unfavored Activities

Conversely, the tax system can impose higher taxes to discourage certain activities or to manage economic disparities:

1. Luxury Car Tax: This tax is imposed on expensive vehicles, discouraging excessive spending on luxury goods while generating additional revenue.
2. Capital Gains Tax (CGT): Higher taxes on short-term capital gains discourage speculative investment and encourage long-term, stable investment behavior.
3. Sin Taxes: Higher taxes on products like tobacco and alcohol serve a dual purpose – reducing consumption of harmful products and generating revenue.
4. Progressive Income Tax: High-income earners face higher tax rates, a measure to address income inequality and ensure a fair contribution from all economic segments.

A Dynamic and Responsive System

Earning more but not aligning with Government policy simply means you’re swimming upstream. We work so hard in our jobs that climbing that corporate ladder brings more wealth as well as more stress and time away from our family. The more you earn, the more you’re taxed.

The only way to combat this is to start investing, purchasing real estate, starting a business, starting a side gig, investing in renewable energy, investing in index funds and ta

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Let's talk fear. There are a lot of things to be scared about financially. Job loss, retirement, your children, etc. The amazing thing about finance is that there's usually something we can do about it. It's rarely terminal. We just need to take the right action as soon as we can and let time do the rest. 

Let's face it. The world is scary out there. Especially if we have a family that depends on us financially. Losing a job for example spells disaster and if you have got the right systems in place, you're in for a world of hurt. The great thing about this is that these issues are solvable. You just need to know how. 

I'm going to go through 7 of the biggest fears I know people have when it comes to money and then talk briefly about some of the things you can do to put these fears to rest.  

1. Running Out of Money: This is perhaps the most common fear. It encompasses worries about not having enough money to meet daily needs, cover emergencies, or maintain a desired lifestyle, especially during retirement.
2. Debt: Many people fear being overwhelmed by debt, whether it's from credit cards, student loans, or mortgages. The stress of managing and repaying large debts can be a significant source of anxiety.
3. Job Loss/Income Instability: The fear of losing a job and the resulting loss of income is a major concern. This fear is heightened in economic downturns or industries prone to layoffs.
4. Inflation and Rising Costs: People often worry about the decreasing purchasing power of their money due to inflation, especially when it comes to long-term goals like retirement savings.
5. Investment Losses: For those who invest, the fear of making poor investment choices or experiencing market downturns can be significant. This includes concerns about not knowing enough to invest wisely or losing capital due to market volatility.
6. Healthcare Costs: The potential for significant healthcare expenses, especially in later life or due to chronic health conditions, is a major financial fear for many.
7. Not Being Able to Afford Retirement: Many fear that they won't be able to save enough for retirement, or that their retirement savings won't last through their retirement years.

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In the previous example, we went through some basics of retirement planning. However, there is a considerable flaw in the previous model. That is, it assumes you have to sell all your stocks at age 70 and then with discipline, not spend it all too quickly. Let's solve that problem. 

The way I described it previously isn't exactly how you want to do it. But I wrote it that way so you have a basic idea. What we've done is purchase a basic Toyota Corolla. No addition, no customizations, nothing. It's completely plain. 

We can now consider modifying it in the ways we need. 

Investing in the way I mentioned has something we call an infinite money glitch. One of the biggest fears people have is running out of money in old age. This method will solve that. 

So assume our yearly return is 10%. If we have $1M in stocks, by the end of the year, it will grow by 10%. Our stocks are now worth $1.1M. Say we sold $100k worth of stocks to live off. That leaves us with $1M once again. What happens at the end of the next year? 

Well assuming it again grows by 10%, then the $1M grows again to $1.1M and on and on it goes. 

This has a few assumptions though. Firstly, it assumes that you're not spending more than $100k. Secondly, it assumes we'll get 10% growth. Thirdly, it assumes to no extreme situation such as needing experimental surgery costing $500k. Fourthly,  we're not accounting for inflation. 

What happens if it only grows by 5% and we also solve $80k worth over the next 10 years? The stock grow to $1.05M, we'd sell $80k leave us $970k. 

Say this happens again the next year. Our stock price would grow to $11.02M, we'd sell $80k leaving us with about $939k. As you can see, if this continues we'll run out of money. 

So the key here is ensuring the growth on your portfolio is greater than your expenses. But done right, it's infinite money baby!

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Retirement Planning is not as hard as you think. With so many online calculators to help you, it doesn't take long to get some basic figures. 

To perform the calculation, we need some basic figures. You can put your values in if you'd like. If you'd also like to see this in writing, be sure to check out my Patreon where I'll have an article with the same title. Here we go. 

We need to start with some basic figures. Do not get bogged down with trying to get this specific because no matter what you do, it'll never be specific. Not only is it a waste of time, but the accuracy is not actually needed. As you'll see, we'll very quickly be able to make adjustments as our life changes. 

First start by determining your age, your target retirement age and when you think you'll die. This gives you how many years you have left to retire, then how many years of life where you'll need money to live off. A few assumptions though. 

Assuming your house is paid off by this time greatly reduces monthly expenses. But also keep in mind that you'll be older with more medical bills and possibly some dependents. Hopefully you'll have no debt by then. 

Lets plug in some values. Assume my age is 35, retirement target is 70 and I'll die at age 90. that gives me 35 years of good investment time and 20 years of survival. Now because we can never get these values perfect, we can add a margin of safety. That means simply beefing up the figures. Instead of dying at 90, we'll die at age 100. Instead of age 35 to invest, we increase to 40. By making these conservative changes, it adds room for the unexpected. For now, we'll keep the figures the same. 

Assume our monthly expenses at age 70 is $5k. That means, for a given year, our total yearly expenses are $60k. If we plan to live for 20 years, then it's simply $60k times 20 giving us: $1.2M. 

Wow. So far so good. Now you might be saying, why on earth do I need to worry about this if I have Superannuation or a retirement fund? Doesn't that take care of me? 

My answer is…'hopefully'. What we learned from the COVID pandemic and many world changing events of the past, is that we never know what the future is going to look like. Placing all our bets on super is putting all our eggs in one basket. Superannuation is also just a company. Its made up of people. People who can make mistakes, charge incorrect fees, make bad investment decisions and more. 

By taking our retirement in our own hands, we can treat Super as a back up retirement fund. How great is that? Two retirement plans!

I'll also add, that should your investment plan for retirement work really well, it can also lead to early retirement. An added bonus. 

With our retirement fund calculated we can one of many investment calculators to determine  how much to invest. 

https://www.calculator.net/investment-calculator.html

(Be sure to check my patreon for links)

According to the website, its approximately $350 a month at 10% annual return will give around $1.2M. 

Now should interest rates be better then you wont need to invest as much. For example, if interest rates are 12% then youll only need to invest $200. I leave it to you to play with the numbers. But this at least gives you as baseline of what needs to be done. 

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Right after COVID-19 broke out, the stock markets crashed. Not unexpected. Superannuation funds are tied to the stock market. When you provide money to these organizations, they invest that money for you as conservatively or aggressively as you'd like. But even they are susceptible to market crashes. If you happen to retire at COVID's worst, you may have lost a third if not more of your retirement fund. That's hundreds of thousands of dollars. There's a better way. 

Introduction

We've all heard about superannuation, that nest egg we're counting on for our golden years. But let's stir things up a bit - should we be relying entirely on superannuation for retirement? With the market's ups and downs, I've got some intriguing points to discuss. So, settle in, and let's get into the nitty-gritty.

Remembering the Global Financial Crisis

Before we jump in, let's take a quick trip down memory lane to the Global Financial Crisis (GFC) of 2007-2008. That was a real game-changer for many people's retirement plans. Superannuation funds took a massive hit, and it was a stark reminder that financial markets can be unpredictable and even unforgiving. If you were planning to retire around that time, your superannuation balance might have seen some dark days. This historical example is precisely why putting all your retirement eggs in the superannuation basket might not be the best strategy.

The COVID-19 Wake-Up Call - A Deeper Dive

Fast forward to the more recent COVID-19 pandemic, and we saw a similar story. The market took a nosedive, and superannuation balances suffered. It just goes to show how external factors, beyond our control, can significantly impact our retirement plans. Life is unpredictable, and so are the markets.

Exploring Index Funds - Your Financial Sidekick

With all this unpredictability, what can we do? Well, one smart move is getting friendly with index funds. Think of them as a cool, easy-going buddy for your investment portfolio. They're kind of like a cross-section of the market, giving you a slice of everything without the hassle of picking individual stocks. What's great about index funds is their simplicity and cost-effectiveness. They often come with lower fees than actively managed funds and are a great way to diversify your investments.

Superannuation: A Closer Look

Now, back to superannuation. Remember, these funds are managed by companies, and like all companies, they can have their ups and downs. They also charge fees for managing your money, which can add up over time. Plus, the performance of these funds can vary. It's kind of like a rollercoaster ride – exciting but not always fun.

 Broadening the Horizon - More Investment Avenues

But it's not all about stocks and bonds. Consider real estate for potential rental income and value appreciation. Exchange-traded funds (ETFs) are another option, trading like stocks but diversified like index funds. And don't forget international investments, which can expose you to different economies and growth opportunities.

Crafting Your Unique Retirement Playlist

So, how do we mix all these elements for a great retirement plan? Start with superannuation as your base track. Then, layer in different investment styles - index funds for broad market exposure, bonds for stability, real estate for income, and maybe some international investments for a bit of adventure. The goal is to create a diversified portfolio that matches your financial goals and risk tolerance. And just like any good playlist, your investment mix needs regular reviews and updates.

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The traditional route to financial security has been through a stable 9-5 job. That's what our parents did and that's usually what they tell us. Climbing the corporate ladder has been ingrained in us since early childhood and schooling and was thought to be the pathway to wealth. 

However, this path is no longer true in my opinion. While ascending in a career can lead to higher salaries, it also brings with higher taxes and greater responsibilities. This reality paints a sad picture: a regular job, while providing the illusion of stability, is unlikely to lead you to significant wealth.One of the reasons a 9-5 doesn't provide lasting wealth is rooted in how tax systems are structured. In many countries, the tax system is designed to incentivize certain behaviors and penalize others. Those who earn a salary are taxed on their income, often progressively, meaning the more you earn, the higher the percentage of tax you pay. 

On the other hand, the tax system rewards those who invest, buy real estate, create jobs, create business and provide opportunities for others - i.e. producers. These individuals benefit from various tax breaks, deductions, and incentives. For example, owning a business can offer deductions for expenses, while investing in real estate might provide depreciation benefits and lower capital gains taxes.

At the heart of this disparity is the difference between being a consumer and a producer. The 9-5 job often falls into the consumer category. People in this bracket typically work, earn, and spend. Their financial growth is linear and limited by the amount they can earn and save after taxes and expenses. These are usually the people the Government has to support in old age. 

Producers, however, approach wealth creation differently. They focus on creating value, be it through businesses, investments, or real estate. Their income is not just a function of time spent working but is tied to the value they create and the assets they build. This approach can lead to exponential wealth growth, especially when combined with the advantages of compound growth and smart investment strategies.

To move towards wealth, the key is to shift from a mindset of consumption to one of creation. This doesn't necessarily mean quitting your 9-5 job immediately. Instead, it's about gradually building assets that can generate income beyond your regular salary. This could be through side businesses, real estate investments, stock market investments, or any avenue that allows your money to work for you.

Not only will a 9-5 not make you rich, but it also creates a very serious bottle neck; a single point of failure if you will. If you only have your job as a source of income, then no doubt your entire lifestyle is linked to that job. Lose the job, lose the lifestyle. This can bring incredible amounts of stress for yourself and your family.

Ensuring you have investments and other sources of income, albeit small, is enough to provide you some buffer should the worst happen. My personal experience is that these extra streams of income, also make you a better performer at work because you're not scared to lose your job. You take more risk, you're bolder in your approach and you're willing to try things that could fail. 

However, if you're scared to lose your job, you'll act conservatively, with caution and strive towards maintaining the status quo. Not exactly a recipe for a high performer. 

So I advise you to stop blaming the Government. Stop blaming corporations. Start thinking about how you can create value because when you do, you'll be well on your way to enjoying the tax breaks and opportunities that the rich do.