When I think about my family finances, I do not get caught up in the emotional traps that others seem to. Perhaps because I believe that managing money has, at its base, simple accounting and mathematic principles. If you can understand what the words “income” and “expenses” mean, then you can probably manage a budget, if you don’t let emotions get the best of you.
Some simply look at their income and unwittingly imagine that their entire salary is theirs to spend. Unfortunately, only a part of your gross salary is ever yours to spend. The rest goes in income tax, accounting fees, interest on loans, and all those fixed expenses. Justifying your shiny new car because of your high income/hard work is an example of letting your desires run away with you. (I wrote more about this trap in ‘How to Kick Bad Spending Habits’).
Thinking only of income, the person also has little feeling of control. This is because many believe that their income is unlikely to change dramatically in the current year. And they are probably right to some extent, although it can always go down!
In contrast, when you look at your variable expenses (and some of your fixed expenses that have not been updated in a while) you do have some control. If family is in agreement, you might be able to cut back in some areas so that you might save towards a joint goal. For example I cancelled the gym membership so I could work out at home and save for a trip overseas. In things like an Internet and phone bundle account, these are coming down all the time and you can search competitor deals then ring up and winkle your way into a better deal.
Honesty with our Taxes has Upside
Some money issues are just not worth arguing over. If one spouse wants to ensure their taxes are done legitimately and put all of their income down, then he or she can. If the second spouse is going to lie on his or her tax return, then the ATO may well find out because the first spouse put down a 50% share of an asset held in both names.
Also, this choice has nothing to do with your accountant, because in Australia we have the sole responsibility for the veracity of our tax return.
Fear over declaring income and paying taxes is so common, yet unnecessary. If property, by the time all the expenses incurred against that income is included, the actual taxable income is quite often a mere drop in the ocean. And if negative gearing on a high income, all these detailed income and expenses helps to return some of taxes paid back to you. Nice! (Plus, a positive income looks good when lending in future).
If shares, any income (yield) is offset by the franked nature of most dividends, thus giving a lower income earner a nice tax credit. While any capital gains tax can be reduced to 50% by holding the shares for one year and one day, and then it is at the taxpayer’s marginal rate, so it may work out to be nothing to quibble over. (If you make a capital loss on shares one year, then your accountant will tick the box ‘defer capital loss to future years’).
Conclusion
Income is important yes, but so is expenses! If you keep an eye on your family finances and monthly budget with a budget tool like BudgetPulse, Mint app, or Quicken Money, then you will become a master of your financial destiny… rather than a victim of your emotions. (I also include a family financial planning prompter in the back of the ebook below).
Read How to Control Your Financial Destiny ebook, by Jennifer Lancaster.
