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The secrets to boosting your financial success (Part 1)
Your financial success depends on your income and what you do with it.
This turned out to be a massive topic, so I have spilt into two parts.
In Part 1, I discuss the basics of income, tax, creating a career that inspires you and conclude with creating your life’s purpose.
Part 2 will further develop the concepts in Part 1 by looking at how to build income throughout your life. I also discuss the most magical type of income and how that leads to financial freedom.
The income basics
For those new to the world of working, a quick summary of the types of income is necessary.
Extremely important: ALWAYS check your payslips to ensure that you are getting paid what you should be paid. ALWAYS. Over the last few years, so many companies have been found to be underpaying staff. This is not acceptable.
Salary: Salary is a fixed amount of money or compensation paid to an employee by an employer in return for work performed. For example, the salary for a full time Credit Control Officer is $55,000 per year. You may be paid on a fortnightly or monthly basis. You get paid to do a job. Overtime is not paid. However, you should receive at least 4 weeks annual leave during which you will still receive income.
On a salary, your income will be fixed until you receive a pay rise.
Wages: Payment for services to a worker, usually remuneration on an hourly, daily, or weekly basis. For example, the bartender’s wage is $30 per hour.
On a wage, your income will vary depending on the number of hours you work each day or week. Under this arrangement, you should be paid for all the hours you work. You may also receive a pay rise.
Revenue: Revenue is the total amount of income generated by the sale of goods or services related to the company’s primary operations.
If you own a business, your income will depend on the number of sales you make. This can be highly variable.
How the income flows into your bank account
We’ll ignore business revenue, as the flow of money behaves very differently compared to an employee situation and is beyond the scope of these blog posts.
But just quickly – Research project – how do millionaires generate large amounts of revenue but pay very little tax?
Hint: Business income → Legitimate Expenses → Taxable business income, also called profits ($0!!!!). They don’t have income. (Trusts may also be involved).
From an employee perspective, the Government ALWAYS gets paid first. Tax is automatically taken out of your pay before it lands in your bank account.
If you have any student loans, depending on your level of income, a payment towards the loan will come out at the same time as your tax does. At the time of writing, if you earn more than $46,620 per year, you will be repaying your loan from between 1% of your income up to 10% ($136,740 and above).
For employees, the cash flows this way:
Income → Tax & student loan → Personal expenses → Anything left?
Notice the difference between businesses and employees? Speak with your accountant.
What is tax and why it is important
When you earn an income from an employer or any other source, the government will take a cut. Personal income is taxed on a sliding scale called the marginal tax rate.
For the current Australian tax rates click here.
As can you see, the more you earn the more tax you pay.
People complain about paying tax, however, paying tax means you’re making money. Which is clearly a good thing.
So, if my income was $70,000, my tax for the year:
= $5,092 + (($70,000 – $45,000) x 0.325
= $5,092 + ($25,000 x 0.325)
= $5,092 + $8,125
= $13,217
Plus a 2% Medicare levy of $1,400 ($70,000 x 2%)
Total tax = $14,617
This site does the math for you.
Depending on your income, you may be eligible for tax offsets that automatically reduce the tax you pay. Speak with your accountant.
The Medicare levy helps fund some of the costs of Australia’s public health system known as Medicare.
The company tax rate is a flat 30% on profits for large companies ($50+ million turnover) and 25% for companies under $50 million turnover.
Now, why tax is necessary.
Governments need to fund the services they provide to the community, such as education, health, defence and infrastructure such as roads.
In theory, the more tax we pay, the better our society should be. Cleaner streets, better schools and hospitals, pothole free roads and a police force to protect us.
Even though tax is good, you don’t need to pay more than you are legally required to. This is where a good accountant can help you legally minimise the tax you pay. Just to be clear, I am emphasising the word legally!
Your career – your main source of income (at least initially!)
If you do what comes naturally, you increase the chances of financial success and also attaining personal satisfaction with regards to your work life.
If you have a “job”, you will work every day until retirement. When I use the word “work”, I say it with fatigue.
Does that sound like the life you want to live?
The boiling frog
The premise of this fable is that if you put a frog into boiling water, it will jump out immediately. But if you put the frog in tepid water which is then brought to the boil, the frog will not perceive the danger and will remain in the water and perish.
Please do not replicate this experiment!
This fable applies perfectly to most people’s careers. You start off somewhat enthusiastic and over time that fades. Then eventually you are in a “job”. It’s like being on autopilot. Wake up, go to work, go home, repeat. Then one day, years down the track, you find yourself lacking motivation, lacking interest and wondering what happened.
This is one of those moments when you really want to learn from other people’s mistakes. Trust me when I say that you don’t want to find yourself in that position.
The solution:
- Discover what gets you going.
- Create a grand vision for yourself that excites you. Your burning desire.
- Devise a plan of attack.
- Go after it with ferocity and unrelenting persistence.
Follow your passion?
Do what you love and you’ll never work a day in your life!
This is a phrase I’ve heard many times from many different sources. In my opinion, this phrase needs to be interpreted very carefully.
In essence, I agree that if you do what you love to do or are passionate about, it doesn’t feel like “work”. Sure, not everyday will be sunshine and lollipops, but on average you will be inspired by what you do. And that is really what you want. Imagine getting out of bed everyday full of energy and raring to go.
My mistake. A long time ago, I can’t remember how I came to this conclusion, but I thought – I like exercise and do it all of the time, I like the environment of fitness centres, I should become a personal trainer.
The things that never crossed my mind and which are THE most important aspects of being a personal trainer, was dealing with people all day, everyday and wanting to help them on their fitness journey.
Being an introvert, I find talking with people all the time really, really hard work, and I don’t like general chit chat. I’m generally quiet and reserved. Add to that, dealing with the psychology of losing weight or whatever their goal and it was too much for me.
So,
#1 Fully understand what you are potentially getting into. Know the job/career and know yourself.
#2 Is that want you really want?
Often your passion and the reality of turning it into a career are not aligned with what you really want. The end result for my time as a personal trainer was that I was technically good at being a PT but struggled with the personal relationship building. I can honestly say that I never gave 100% to becoming the best PT possible because of my personal limitations. This yielded a poor income result.
Internally directed passion vs externally directed passion
With regards to passion and career, I define an internally directed passion as making a career out of an activity that you enjoy doing (for example, a hobby). It is inwardly directed, meaning you like it for what it does for you. For example, you love knitting, mosaics or fitness and you want to turn that into a business or career. You are taking your hobby and trying to make money from it.
There is nothing wrong with that. You just need to be careful with regards to how to make that shift from hobby to income generator. You run the risk of losing interest in your hobby because of the difficulties in building a career or business around your hobby. If you get enjoyment out of knitting a jumper for someone, would you get the same enjoyment from knitting 100 jumpers a month? If you enjoy baking cakes, do you want to make 1,000’s of them? AND run a business.
My interest in fitness was about my health and fitness. When I turned that outwards, I discovered that I was only passionate about my health and fitness – not others.
Sometimes a hobby should stay a hobby and you retain the joy of it.
But that’s not to say it can’t work out for you.
Now an externally directed passion is obviously directed outwards and you are not the focus of your passion. For example, you love to help people, build businesses, work with animals, solve problems, manage projects.
FIT Wealth is focused on you, not me. I want you to succeed. I want you to dodge all the mistakes and missteps I have made. If I can make a business/career out of creating successful people, then fantastic. It benefits you and me. We’ll see!
From an externally directed passion perspective, doing what you love will continue to present new opportunities and drive inspiration.
Got the skills to compete?
Another important consideration is what skills do you have with regards to your passion. If your passion is yoga and you want to quit your job and start a yoga business, you need to remember that you will be up against existing yoga teachers that may have 5, 10, 20 years of education and professional experience.
If you’re young, you have time to catch up, but if you’re 40 or 50 how do you compete for market share and earn a sufficient income?
What if you were able to use your existing skills and combine that with your passion?
- If you can combine an internally directed passion, such as personal fitness, with an externally directed passion such as a strong desire to help people by improving their health and fitness, you will enhance your chances of success.
- Or, even better, you can use your existing skill set and combine that with either an internally or externally directed passion.
For example, you are a financial planner (skill set) but feel you aren’t helping people that really need your help (externally directed passion). You could do pro bono work for a subset of clients. This way you can still service existing wealthier clients, but also take on some clients in desperate need of financial assistance. Or become a financial counsellor.
If you have strong technology skills but are really passionate about art. You could look into graphic design, logo creation, etc.
You may need to think creatively or laterally. You may need to do some research. You may even need to create a new industry.
But ideally, you don’t want to have to start from scratch only to find out that turning your hobby into a career isn’t as great as you thought it might be.
Follow your purpose
Most businesses have a mission statement. A purpose for existing.
Why can’t you?
I want to create successful people (whatever success means to you). That’s the FIT Wealth mission statement.
Your burning desire can be the start of your mission statement. From this you set goals and take action towards fulfilling your purpose.
If it’s a strong enough desire, then you will always spring out of bed ready for the day because you know you will be able to have a positive impact on the world by doing something that has significant meaning to you.
Does that sound like an awesome way to live life?
I’m working on it. I hope you are too.
We’ve briefly touched on the basics of income, discussed tax and why it’s important and tried to build your career into a life’s purpose.
Let’s have a break.
You should go back to some of the older blog posts, especially the one about building your burning desire and work through them to create your plan of attack.
In Part 2, we get to the even more exciting topics. Including enhancing your value to the world and the most magical type of income.
Up next …..
The secrets to boosting your financial success (Part 2).
Take action in your life.
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