Archive | Cashflow

Cash flow can-do

Cash flow can-do

There’s more to managing your cash flow than skimming through your monthly bank statements. New technology is making it easier to track your spending, putting you back in the driver’s seat.

Historically low interest rates combined with the ongoing housing affordability crisis add up to Australians being in more debt than ever before. Whether you’re repaying a mortgage or trying to get a foothold in the property market, managing your cash flow has never been so important.

It affects not only you and your family – it has the potential to affect the whole economy, according to the Governor of the Reserve Bank of Australia, Philip Lowe.

“In terms of resilience, my overall assessment is that the recent increase in household debt relative to our incomes has made the economy less resilient to future shocks,” he told a recent Economic Society of Australia meeting.

Yet according to the latest research by the Australian Securities and Investments Commission, more than one-third of Australians either don’t have a budget, or don’t stick to one.

One third of Australians don't have a budget

Tools to help manage your money

Managing your money begins with knowing where it comes from and, more significantly, where it’s going.

FinTech Australia CEO, Danielle Szetho, says the rise of cashless payments can help us by providing data that gives us valuable insights into our spending behaviour.

“From a consumer’s perspective, this means fintech companies like Moneysoft, Pocketbook, Acorns and MoneyBrilliant can access rich data streams to show customers how they are spending their money, and can help them budget accordingly,” she says.

This new wave of tools provides visual and interactive summaries of account balances and transactions from across multiple institutions. They can automate spending into categories, monitor trends over time, and project your expected future balances.

Make it easier for yourself

Below are five ways to help stay in control of your cash flow.

1. Embrace automation:

It’s increasingly quick and easy to set up automatic payments for bills and credit cards, and automatic transfers for regular savings. That means they’re taken care of every month.

2. Maximise your accounts:

Continued low interest rates mean there’s not much to be gained from money sitting in your transaction account. Using a mortgage offset account, or exploring a high interest savings account with a sweep facility to your daily account, can make the most of what’s on offer.

3. Set specific goals:

Having a tangible goal is a powerful motivator to change your financial behaviour and stick to a budget.

4. Get informed and get active:

Developing financial literacy is a lifelong journey. Keep building your knowledge and you’ll find it easier to make wise decisions. It also pays to take the time to shop around – new customers can often get big savings on anything from internet service to car insurance.

5. Small businesses may be small but their impact on the Australian economy belies their size:

The growth of the small business sector, which employs almost 5 million people, is held back by big businesses and government departments regularly paying their invoices late.

Sixty per cent of small businesses said late payments have increased over the past year while almost one in five report average payment delays of more than 60 days, according to the Australian Small Business and Family Enterprise Ombudsman (ASBFO).

The cash flow impact can be devastating with more than half of small businesses forced to borrow funds or use credit cards due to late payments to their business.

“Businesses are the most likely repeat offenders when it comes to late payments,” according to the ASBFO. “This makes sense since the practice of paying late allows a business to hold on to its money for its own use.”

The Business Council of Australia has proposed a voluntary code that would prompt its members to pay within 30 days. However, the ASBFO has made a range of stronger recommendations including that the government legislate a maximum payment time for business-to-business transactions.

Until then, technology such as new accounting platforms, mobile payment platforms and e-invoicing can provide an effective solution to encourage faster payments.


It’s not about what you earn

It's not about what you earn

I’ve had many people say to me, they think they can’t go to see a financial adviser because they don’t have $100,000 or more to invest.

My opinion is that you have to start somewhere.

We have clients who earn a lot, and we have clients who earn only a little. And what we often find is that it is the clients who earn less, that do a whole lot better.

“It’s not about what you earn. It’s what you do with what you earn, that matters.”

If you have a disciplined approach to money and a smart structure around how you manage your cash flow, what you earn doesn’t matter so much.

If you’re earning $500,000 a year, but spending $600,000, then you clearly aren’t going to be moving forward in terms of achieving your financial goals and accumulating wealth.

That’s why, right from the outset, it is vital to understand your spending habits – what’s coming in (gross income) and what’s going out (spending).

Beyond that simple rule of thumb, to spend less than what you earn, there are other things to consider that will have an impact on your wealth, regardless of your income:

  1. legally minimising your tax
  2. reducing your debt sooner so you pay less interest
  3. maintaining a comfortable lifestyle

We call those three things – tax, debt, and lifestyle – the “three way struggle”.

And that’s where what you do with what you earn, is important.

It starts with the basics of ensuring you live within your means. Then, you can create leverage through managing your cash flow more effectively.

Part of this simple strategy is to increase your level of net income, by legally reducing the level of tax you pay.

Your net expenditure is also important, because if you can widen the gap between what you spend and what you earn, then you create a surplus (big or small).

Then, you can use those extra funds to reduce your debt and accumulate assets (which can also produce additional passive income).

For example, if you’re paying $12,000 tax per year, and you can legally reduce that to $10,000 tax per year, then you can invest or pay down debt (maybe both) with the $2,000 difference.

While the numbers may seem small, when you repeat that over many years, it can make a big impact on reaching your financial goals.


Put your money on autopilot: How to structure your bank accounts

Put your money on autopilot - How to structure your bank accounts

Putting in place a sound financial plan is more than just crunching the numbers and looking at different scenarios to help you achieve your financial and lifestyle goals.

One of the most important things you can do is put in place simple processes so you need to think less about your money day to day.

Automating how you manage your money each week, or more specifically, the flow of your money, can help you gain control and minimise the amount of money decisions you need to make each day. Because let’s face it, when we’re busy, stressed, tired, working and raising kids, there’s only so much our minds can handle before the bad decisions start to kick in.

It’s a bit like living a healthy lifestyle. You can set some guidelines for yourself, like only having fruit and nuts for snacks, or limiting take-out to once a fortnight. You can put the basics on autopilot, like getting a weekly fresh produce delivery. And all of a sudden, living healthy becomes much, much easier.

It’s not about restricting yourself, but about setting up systems that make it easy to stick to the plan.

The same thing applies to your money.

So let’s take a look at how someone with a transaction account, mortgage and offset account, might set up an automatic flow of money.


Your wages are paid straight into your mortgage offset account. That helps reduce the interest payments on your home loan.

If you are investing, any dividends or investment income you receive are paid into either the offset account or reinvested. Which strategy is best depends on how investment markets are performing.

For example, if your mortgage repayments are at 5% interest, but the share market is paying 10% returns, then it may be better to invest. However when interest rates rise, it might be time to focus on paying down the mortgage.

Of course, that’s a simple explanation, so make sure you seek advice to make sure all your needs are taken into account when trying to determine the best path for you.

Bills (non-discretionary expenses)

Non-negotiable expenses, such as your mortgage repayments (including interest), car registration, electricity, and water are paid directly from your offset account.

Interest payments from any investment loans, such as a margin loan, are also drawn from the mortgage offset account.

Lifestyle spending (discretionary expenses)

Each week, an agreed amount is automatically transferred from your mortgage offset account into a “working account”. A working account is simply a basic transaction account.

The money in this account is used to pay for your discretionary expenses. These include things like food, clothes, entertainment and dining out. They’re things that typically involve an emotional decision. It’s also one of the areas people often have the most trouble (and temptation) with.

Think of this money as “safe to spend” money. If you don’t spend any more than what’s in your working account, you’re on the right track.


If you’re tempted by credit cards, we suggest switching to a Visa debit card attached to your working account. That means you can still purchase things online, but you are drawing from your own money, rather than credit.

And if you don’t have a mortgage, just substitute the mortgage offset account, with a high interest bearing cash account.

Remember, it’s all about strategy, actions and structure. All we want you to do is take care of the income and lifestyle spending. The plan, the structure and the systems will do the rest.


What happens when you start overspending?

What happens when you start overspending?

At Collins Financial Group, one of the things we do when creating a financial plan, is work with you and your partner to determine what is reasonable and appropriate for you, in terms of spending.

Many people hate the idea of a budget, and for most people, strict budgets don’t work.

We believe it’s important to find the right balance between spending on things that are important to you, and ensuring there’s enough money being directed to the places that will help you build wealth, and ultimately achieve your goals.

We like to think of it as cash flow management, rather than a budget.

Small amounts of overspending have a big impact

I was recently talking to a couple, Jenny and Steve*, who are in their early 50s. They earn good incomes, but regularly overspend.

They want to retire in 10 years, but they consistently overspend each week. Each time they do, no matter how small, it takes them a little further away from their retirement goal.

We call lifestyle expenditure “discretionary” spending. It’s the spending that includes things like clothes and dining out.

This is where the challenges were happening.

“If they continue to go down the path they are going down, their retirement at 60 isn’t going to happen” – Troy Collins

To get them back on track, I spoke to them about needing to focus on their longer-term goal – retirement.

Were they a little uncomfortable with the conversation to start with? Yes.

But it was worth it to help them refocus their minds and habits, and get them back on track.

Now many people will just tell you to cut back. However we take a different approach.

We look closely at the weekly spending amount allocated, and the amount that is being spent. We also look at it in the context of the whole financial plan.

In Steve and Jenny’s case, we decided that the figure allocated for them was no longer realistic for their current needs. That was why they were overspending.

So rather than continue to deviate from the plan, spend on credit cards and draw from their loan, we increased the spending budget. Yes, increased!

Of course we also ensured that by doing so, Steve and Jenny were still on track to meet their retirement goals.

In this case, it was a pretty simple adjustment. But if the numbers are a little tighter, it can mean that a little more spending now, may push retirement out a few years. Some people are happy to make that compromise.

Others, however, prefer to rein in their spending, because the retirement goal (and getting there as fast as possible) is more important to them.

Different people want different things. What’s important to each person is different, and what his or her goals are, is different. Understanding the implications of the choices we make, is important.

Now your main goal may not be retirement at the moment. But think about how your cash flow management is impacting on reaching your goals.

Maybe it’s time to adjust your plan.


* Names have been changed


The three way struggle

The three way struggle - tax, debt, lifesty

Have you heard of the “three way struggle”?

It’s an important concept to understand before you start investing.

What is it?

  1. Tax
  2. Debt
  3. Lifestyle

Whether you work for yourself or someone else, your job generates cash flow.

But what most people do, is pay themselves last.

Once your tax comes out, and debt (like your mortgage) has been paid, the left over money is what funds your lifestyle.

What we need to do is manage the first two parts – tax and debt – more effectively, so there is more left over for your lifestyle.

We need to minimise our tax liabilities (legally, of course), so we pay less tax. And we need to focus on implementing better debt reduction solutions.

It’s not about working harder to earn more income. It’s about working smarter.

How do we do it?

We create passive vehicles for generating income, by focusing on building growth assets that will generate cash flow immediately. The goal is then to accumulate more of these assets over the longer term, via purchasing growth assets such as shares and property.

We can buy these assets both on a direct basis, through direct equity trading or direct property ownership, or through managed environments such as property trusts and managed investment funds.

As result, we can generate additional passive income in a tax effective manner. And this extra cash flow can then be used to increase the speed at which we can pay down our debt.

The strategy doesn’t reduce our lifestyle. It helps improve our lifestyle in the future. That may mean a special holiday, upgrading the car or house, or educating our children.

So if we can get a handle on the three way struggle –tax, debt and lifestyle – by managing tax more effectively and managing the reduction of debt via assets that generate their own tax effective cash flow, we can minimise tax and debt and focus on what’s important to us.

If you’d like to know more, please give me a call and we can have a chat over a coffee.