Monday, 21 September 2015

What blogs do I read?

Today I thought I would share with you the types of places where I get my information from.  We all read different blogs, columns and digest information differently.  We have all stumbled across great blogs while googling for something entirely different.

Today I'm going to share with you some of the awesome things that I have found on the world wide web.

Friday, 4 September 2015

Up, Up and Away

So I finally did it!  I finally got married (after posting about it for literally years) and I just wanted to let all of you know and thank the significant number of readers who contacted me to give me friendly advice about the whole process and who also emailed to wish me well.  It really meant a lot.

Today I'm off on my honeymoon which will encompass 5 countries in Europe over 5 weeks .  I've never been to Europe so I'm SUPER pumped for this.

Why haven't I been posting as often?

For regular readers you may wonder why I have not been posting frequently and basically it came back to something that I mentioned in my 2015 Annual Review.  I have a ton of posts that I could write about and indeed I actually have about 10 posts sitting in my drafts ready to go...but I have been thinking of re focussing this blog into something else.

I'm not 100% sure where I'm going to end up but it will almost certainly be blogging and definitely blogging about finance!  I'm just trying to work out what I can write about that will make a difference to other people's lives.

Hopefully a completely break over a month in Europe will help me clarify exactly what I will be doing in the future...but until then thanks once again for all the support and hopefully I'll get to tell you all about the trip when I get back!

Tuesday, 1 September 2015

August 2015 Net Worth: $639,000 (+8.0%) and Goal Tracker

This month was massive for me.  I crossed the $1 million mark in terms of assets and my net worth crossed the $600,000 mark for the first time.

One of the interesting things about updating my net worth every month is that I totally ignore the larger numbers...I'm far more interested in how I'm performing month to month...but occasionally when I cross a bit milestone like $1 million in assets...that's pretty exciting!

So how did I do it and what changed?  Well read on below for details.

Net Worth: $639,000 (+8.0%)

% Change
Net worth

This month was absolutely crazy for me.  I took a massive hit in my share portfolio as global share markets sank to their lowest levels in 4 years.  However offsetting that was a large increase in the value of my property.  I will go through this and more in my detailed explanations below.

Thursday, 20 August 2015

Deconstructing why and how we pay our taxes

Every year around this time of the year my mind turns to tax as I start to do my own taxes.  I often grumble about taxes but I also realise that taxes are a necessary evil.  Any discussion about taxes and tax policy is filled with self interest and people looking out for themselves.

It is so hard to have a neutral discussion about taxes without people feeling that they are hard done by.  Low income tax earners point to the tax breaks that high income tax earners get and high tax payers point to the proportion of the tax system that they are funding.  Neither is wrong either...the tax system is far from perfect.

So what is the answer?

I recently saw a discussion piece by Vice News on this very topic and although it is very US centric the issues it discusses have a much broader appeal.  I found it incredibly enlightening and the people on the panel were experts in their field, able to leverage off each other for one of the best discussions on a complex topic that I have ever seen.

I cannot recommend this piece highly enough...enjoy!

Thursday, 6 August 2015

I'm a high income earner...and this is why I have NO problem with the Warren Buffett Tax

A few years ago I started writing a whole heap of posts on politics.  It is something I'm really interested in but this wasn't the best venue for it so I swore off it.  My "no politics" rule is still in place but I do talk about tax quite a lot on this blog and I thought today I would focus on why I don't really have any objection to the Warren Buffet rule that politicians are currently considering.

What does the rule say?

Basically the rule says that high income earners should be paying their fair share in taxes.  In the Australian context this has been expressed as anyone earning above $300,000 should have a minimum average tax rate of 35% regardless of any deductions they may have.

Why is it called the Warren Buffet rule?  Well it was proposed by legendary investor Warren Buffet who argued that legally the tax he paid was less than his secretary which seemed crazy and not right to him.  He proposed this rule as a way of plugging a lot of loopholes at once.

This isn't actually as bad as it sounds

In Australia if you were earning $300,000 per annum and had no tax deductions you would be paying tax of approximately $117,000 which is about 39% and you would be in the top marginal tax bracket of 49% (including the medicare levy and the budget repair levy). 

Now it doesn't sound like it would take a lot to get your tax rate down to 35%...but it actually isn't as bad as you think.  For someone earning $300,000 their minimum tax payable would be $105,000.  Under the current tax rates this means they would actually be getting taxed as if they were earning ~$276,000 which still gives you a hefty $24,000 in deductions.

But let's be honest...these measures aren't aimed at people earning $300,000.  Let's look at someone earning $1 million.  If they had no deductions they would be paying $460,000 in tax.  The proposal says that they should pay $350,000.  They are still allowed $224,000 in deductions before they hit the minimum barrier.

Aren't I disadvantaged by a proposal like this?

Honestly the reason I decided to write this piece was not because I think it is the right thing or policy (which I do) but it's because the people that need to speak in favour of proposals like this when it is a good idea are those that are earning high incomes.

Does it disadvantage me?  I pay my fair share in tax and I don't try and overly tax plan what I do.  I don't skate close to the line and I just checked my last year's tax statement and I actually did pay 35% of my income in tax (even though I earn significantly less than $300,000).  If I earn less than $300,000 and am paying 35% in tax....why is someone earning more than me entitled to pay less tax?

I'm not asking this question in a legal sense.  Of course if you can legally avoid tax you should do so!  That's the whole point of tax planning and I don't think tax planning is a bad thing. You shouldn't pay more tax than you have to.

BUT there are always going to be loopholes that people miss and that politicians don't want to fix for one reason or another.  A blanket rule helps insure that people can still pay less tax and minimise their tax but not take the system for a ride.

Why do I like the rule so much?

Why do I like the Warren Buffet rule enough to break my 'no talking about politics' rule?  Simply because it is neat, effective policy which is being slammed by those who have a very clear interest in keeping the system as it is.

Why is it neat?  Well everyone is going to have some legitimate deductions and those legitimate reductions are probably going to increase as your income goes up (for a variety of reasons).  The Warren Buffet rule doesn't get rid of deductions, in fact it doesn't really change the tax code at all.

Feel free to use all the deductions you want but there is a cap.  There is a point at which you should still be contributing to the system and a point at which people who are earning significantly less income than you shouldn't be paying more tax than you.

If the rule is designed well you could have unused deductions carrying forward into future periods.  Maybe a high income earner will never pay more than 35% and maybe that's where structuring takes us but at least they are still contributing to society and the system that we are all a part of.

Have I missed something?

Look I'm not claiming to have analysed this situation perfectly.  Maybe I've missed something.  Maybe there is something behind all the furor.  Can you see something I haven't?  Is there some reason why this isn't a good idea?

One reason I've seen touted is that high income individuals will just move overseas.  I don't buy this argument.  Tax rates are already lower in places like Hong Kong and the Middle East.  If people were going to move for tax reasons they would have already done so,.

But is there something else?  I would love to hear what you think!

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Monday, 3 August 2015

July 2015 Net Worth: $592,000 (+5.6%) and Goal Tracker

My net worth increased by ~$32,000 and although I'd love to say it was because of some incredible investing on my behalf the answer was actually far simpler than that.  I got married during the month and we asked for cash gifts to help fund our honeymoon and people were far more generous than we could have imagined.

There were other incremental positives as well.  The share market bounced back after it's atrocious month last month and I slowly started to pay off my credit card debt.  There were also other swings and roundabouts which I will go into further detail about later.

In this month's round up I also look at the goals we managed to tick off during the month and I start to track the goals that I set at last month's 2015 Annual Review.

Thursday, 30 July 2015

Why did investment loan interest rates just rise?

Recently I wrote about how this was the golden age for mortgages, how the current rate environment couldn't last and how you should think about refinancing your home loan to save you thousands of dollars.  I thought interest rates would increase at some point but I certainly didn't predict it would happen this fast.

If you're an Australian investor you may (or may not) have noticed that the interest rates on your mortgage jumped significantly last week.  That's because most of the major banks (led by ANZ and CBA) increased their investor loan variable interest rates by 0.27%.

Unlike most rate rises and falls this was not driven by a change in the Reserve Bank's cash rate nor was it driven by external costs of funding.  It was caused by the financial regulator (APRA) deciding to slow down the growth in lending to investors which have been driving a bubble in Australia.

Who does the rate change affect?