While the Federal Treasurer and PM put on dour faces and complain about how tough the impact of higher interest rates and inflation is having on the average Australian… they are quietly counting the dollars they’re reaping in the background.
Yes, iron ore and coal exports have been booming and the lower Australian dollar is cushioning the impact of falling commodity prices. But did you know we’re close to the top of record levels of income tax?
This graph I saw from IFM Investors puts it all in clear perspective. The jump in taxes over the last 10-15 years has been enormous… all those wage rises we’re seeing are being eaten up by Government tax.
But what makes it worse is that not only is the income you earn being diluted by tax, at the same time it’s being diverted to higher loan repayments from rising interest rates. Then whatever’s left after the tax and interest rate siphons is being diluted again by inflation.
As this IFM Investors chart shows, household disposable income is down almost 4 per cent, plus inflation on top.
So even though we may feel rich from rising house prices, our available cash to survive day-to-day is being drastically squeezed.
Quick tips to improve your cash flow
To keep your money working for you, it’s important to understand how much you’re spending each month and on what and why. Here are some quick tips to understand where your money goes and improve your cash flow.
1. Reduce your living expenses
The easiest and quickest way to increase cash flow is to take a look at your current expenses and find ways to cut them.
Track spending, draw up a budget, and see what can be reduced. You’ll be surprised.
The areas to really focus on are the big hitters: housing, food and transport costs. If you can get those three under control, you’ll literally get the most bang for your buck. The next tier to look at is insurance and energy costs. Negotiate with every supplier to get those costs down.
2. Sell (some) assets
If it comes down to it, remember you can always sell some assets to improve your cash flow. Some are much easier to liquidate and carry lower transaction costs than others. Shares and physical assets work much better than property here.
If you’re a shareholder, to improve your cash flow you might also choose to receive your dividends as income for a while. Make sure you run the numbers to see what the long-term cost of doing this will be. You may be missing out on the powerful result of compounding your returns, so think of this as a short-term cash flow solution only.
3. Find additional income
If it’s possible, bring in more income to ease the current cash crunch.
This might mean a gradual transition from full-time to part-time work for those ready to retire. Or for mortgage holders who are finding it hard to pay bills on time, picking up extra hours, asking for a pay rise or working a second job or side-hustle can help you out.
4. Consolidate your debts
Consolidating your debts can improve your cash flow in the short-term.
If you have an outstanding car loan or credit card debt, you may be able to roll it into your mortgage. The interest rate will be substantially lower, so you’ll be required to pay less for your loans each month, freeing up cash. Note, however, that you may be adding years to the life-time of your debts, which could ultimately cost you more, so run the numbers and seek financial advice to weigh up the long-term impact.
That said, as a means to free up your cash flow right now, this is a good strategy for most.
5. Rent out your assets
You can actually make money from a surprising number of assets using companies like Hire Things and Gecko. Rent out your bike, camera, tent, dresses, drones, tow bar or musical instruments – in fact, just about everything you own can potentially make you a bit of extra money to improve your cash flow.
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