Lifestyle priorities and your spending, are they advantageous and true to what you want to achieve?

Lifestyle priorities and your spending, are they advantageous and true to what you want to achieve?

Our Lifestyle Priority Planner document is so named to remind the user of budgeted spending on expenses and other items to be in line with desired lifestyle priorities.

It is important to have fun in life and living expenses should include holidays, special events, and entertainment. These items as well as food, shelter, health, and wealth accumulation need to be planned and catered for monthly.

We recommend that a separate bank account be set aside saving for holidays, Christmas or special celebrations with regular monthly amounts set up for periodic payments going in. This is similar to the ‘old fashioned Christmas club account’. Setting money aside on a regular basis gradually builds up before you know it and is there when you wish to use it. An account with a different bank that is not on a street corner means it is ‘out of sight and out of mind’ and therefore, easier to forget about until funds are needed.

Often when examining clients’ financial affairs, we note extra payments being made for various loans or items without careful consideration. Extra payments off investment loans when there is still a home mortgage are not usually the best option for tax and long-term benefit. The priority should be to pay out the non–tax deductible home loan BEFORE an investment loan.

Extra payments to various expenses should be a planned conscious decision according to the most tax effective and productive options for the individual/s. An example is when a couple knows they are to be relocated for work (say in 12 months’ time) and intend to rent out their home upon relocation, but they keep paying larger amounts off their home loan, this could be to their disadvantage. Once the current home becomes a rental and investment property the rental income becomes taxable and can be reduced by the interests, council, water rates and expenses of the previous home. There is also the potential for the 6-year exemption for capital gains tax for this previous home based on relocation for work. This tax planning is important as to how a budget or Lifestyle Priority Planner is structured. We want our clients to get ahead and make the most of their income and assets. This requires a knowledge of the tax rules and money management skills.

We have come across situations where clients have elected to pay off an investment property loan before reducing a home loan or a personal loan. This is a back to front decision and not the most tax effective. The key point is to carefully plan how money is allocated monthly and NOT assume a tax rule applies to you without professional advice first. People have been surprised by a $100,000 tax bill because they did not seek advice before they made a decision and signed off.

Please call us for more information in this regard.