Quit work early

If you want to retire early, make sure you plan ahead and consider the following tips:

Step 1 - Control your spending

This is the most important step of all.  Nearly everyone overspends and this is usually not intentional - because money often just slips between the cracks.

Here is another way of looking at it:  Let's say you have $100,000 invested returning 6% or $6,000 a year and you manage to reduce your spending by $96 a week.  The result is the same as increasing your investment return to 11% or $11,000 a year!

Step 2 - Save more

Save more money in superannuation and start saving aggressively outside of super. Use non-super investments to fund your lifestyle before you are allowed to draw on superannuation savings.

If your super can be paid out at age 60 but you want to retire at 50, aim to save enough in non-super investments to support your lifestyle for 10 years. After that, use your superannuation.

Why? Because you pay less tax on superannuation investments and this means your capital will grow more quickly within super.

Step 3 - Invest sensibly

Invest sensibly. An sensible super strategy will free up cash for non-super investments. Many super funds now offer growth investment options that tend to produce better long-term returns than conservative investments, albeit with a higher degree of volatility.

Outside of super, invest in growth assets like property and shares that historically have produced higher returns than cash or fixed interest. Remember that you need to hold growth assets for around 10 years or more to benefit from the long-term returns these assets can generate.

Be prepared to accept the risks associated with your investment strategies. The balance of these investments is likely to fluctuate - both up and down.

Step 4 - Plan income streams

Work out how you want to receive income in retirement. Account-based pensions are a good option and are essentially tax-free from age 60. Early retirees may not be able to commence an account-based pension which requires access to unrestricted non-preserved monies. An investment in a portfolio that includes fully franked shares and property trusts would help to minimise tax in the accumulation phase.

Step 5 - Calculate income needs

Calculate how much annual income you will need in retirement to set a final savings target. Be realistic - you may not need to match your pre-retirement income once you quit work. This is most likely to apply if you have paid off all your debts and have no dependants. If you have no mortgage repayments and any children have left home, your income requirements are likely to shrink.

Step 6 - Talk to a financial coach

Use a financial coach to design a savings strategy that suits your individual circumstances and risk profile.

Partly sourced from Strategy Steps

Make sure you declare your income if you sell online.

The Australian Taxation Office (ATO) is analysing sales by individuals and businesses who have sold more than $20,000 in goods and services on the online selling sites, eBay and The Trading Post since 2007.

If you are running a business through online selling sites, or you have an existing business and are making additional sales through these sites, then you need to include this income in your activity statement and/or tax return. A business that sells via the internet is taxable in just the same way as if it sold via a shop-front, or mail order or telephone. An individual who has a hobby and sells a few items on-line (for more than $20,000), is no different than if selling that item via a newspaper advertisement.

The online selling sites are required to provide the computerised transactions direct to the ATO – without the consent of the seller or the buyer! Businesses and individuals that are under reporting or not reporting income generated from these sources will be detected.

Anyone who may have understated their taxable income in error over the last three years due to online sales is encouraged to make a voluntary disclosure. If mistakes have occurred it will be far cheaper to correct them before requested to by the ATO.

All the data collected is in accordance with the Federal Privacy Commissioner’s guidelines on data matching in Commonwealth administration, with taxpayers confidentiality protected at all times.

To report any undeclared income individuals can:

• Make a voluntary disclosure in writing, electronically or by phone. There are also other methods available in specific circumstances. More information is available on the ATO website.
• Lodge an amended tax assessment by completing the Request for amendment of income tax return for individuals which is available from the ATO website, www.ato.gov.au

If you need to lodge a revised activity statement you can call the ATO on 13 28 66 to obtain a revised activity statement form. If you are a registered user revised activity statements are also available from the ATO Business Portal.

The importance of boundaries around money

So what are boundaries?

Boundaries are the limits or invisible lines you place around yourself for protection. They are the limits of what you can and will do, as well as the limits of what you will and will not accept from others. They are the filters to stop people from infringing upon you with behavior you feel is unacceptable.

In a sense, boundaries are used to set you apart from others and give you a unique identity. They help define who you are and who you are not, by how far you will go and how far you will let people come in.

What are some examples of boundaries?

1. Physical
Examples: not allowing someone to stand too close, not allowing physical abuse, not allowing people to touch you without permission

2. Emotional
Examples: not allowing someone to intimidate you with their anger or fear, not allowing anyone to hurt you intentionally

3. Mental
Examples: not allowing someone to lie to you, not allowing someone to be passive/aggressive to you, not allowing people to use belittling and demeaning language to you or about you

4. Sexual
Examples: not allowing inappropriate touching, not allowing unwanted sexual advances, not allowing sexual innuendoes in your presence

5. Spiritual/religious
Examples: not allowing someone to talk disparagingly about your beliefs, not allowing others to force their religious beliefs upon you

6. Creative
Examples: showing your creative works only to people who will be
supportive, not allowing other people into your physical creative space such as a studio, not allowing people to intrude during your creative time

7. Financial
Examples: not loaning money to friends and relatives, not borrowing
money from friends and relatives, setting limits on the amount you charge on your credit cards

This all means that if you don't have boundaries or your boundaries are weak, then youwill not be in control of your money.

You and your credit card

Here's an interesting situation:

• You owe $3,500 on your credit card - this is the average Australian credit card balance
• You spend $1,000 on your card during the month
• You pay $1,052 off your card at the end of the month
• The interest rate is 18% (fairly normal)

• How much interest will you have paid over 5 years?

• How much will you still owe on your card in 5 years from now?

See the answers at the end of the blog.

The answers are:

• You will have paid $3,150 in interest

• And you will still owe $3,500 on your credit card in 5 years

Is it better to pay off your credit card or put the money into your mortgage? 

Please feel free to post a comment.............