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Written by Hudson adviser Phillip McGann
There are three simple and yet vital questions that your Hudson adviser will need to know from you to get a good handle on your overall financial affairs. And if you know the answer to these questions you will be a long way down the road to financial success.
So what are they and why do so many Hudson Members I deal with daily struggle with answering them:
- How much to you earn? Seems an easy question that most of us should be able to answer but it can confuse many people. This figure will include your earned income from work. It should also include any government pensions or allowances (think Family Tax benefit). It will also include investment income such as rents or dividends and interest on Cash and Fixed Interest investments. For many it may include account based pension or annuity income.
- How much do you spend? This can be harder to work out as you can spend money in so many different ways. It can be spent as Cash – probably the hardest to keep a track of. It can be spent via Credit Card or via Direct Debit or via internet transfer. We can spend it with out knowing – via interest expense on a credit card or a loan that is capitalising. Also we spend income by salary sacrificing to Super – effectively we are deferring today’s consumption to future consumption but we are still spending today’s income to do it.
- What is your surplus income?. Basically this is the difference between the two items above. Again should be simply but for many is not easily arrived at. This surplus figure can be particularly “lumpy” or seasonal as income and expenditures for most of us fluctuate widely throughout the year. As an added complication any tax return should be included here as in effect it is a credit for tax already paid that is being returned due to tax deductions on your income. This tax return may well turn this third figure into a surplus for many
So how did you go with this simply exercise? If you cannot easily answer these basic questions than you are missing out on the fundamental ingredient of financial success: Budgeting.
To many “budgeting” is a dirty word and one that conjures up images of hours spent writing down what they spent at Woolworths over the past 12 months or how much that car service cost last Ocotober. Not much fun
But it is important and if you can come up with a system that is easy to use and not a chore the habit is a good one to get into. I firmly believe that the secret to financial success is to spend less than your earn and invest the surplus wisely over an extended period of time.
We often concentrate a lot of effort in the investments we choose – and this is vital for long term investing success – but equally as important is living with in your means and producing a consistent surplus to provide the basis for the investing.
With out budgeting success there can be no investing success. Like the old saying:
“Do not save what is left after spending, But spend what is left after saving”Warren Buffett
Hudson has made it very easy for members to get into that Budgeting habit. We have produced a easy to use Spread Sheet base Budget template that is modelled on the tried and true Hudson Budget system many of you will be familiar with.
You can go here (LINK to website) and download the budget spreadsheet and the accompanying articles explaining how it all works.
This is highly recommended for all Hudson Members.