Archive for November, 2012

A Massive Income

Monday, November 19th, 2012

I attended a reunion on the weekend, not with former schoolmates, but with people I used to work with. It had been 13 years since I had seen most of my old colleagues and the department we were in closed down in 2001. When it closed around 40 people lost their jobs without any warning in one of those meetings that every worker dreads. People came to work that morning, went about their normal jobs, then were called to an out of the blue meeting around morning tea. By lunch everyone was unemployed.

I have been lucky enough to have never been at the receiving end when the axe has fallen. Somehow I have managed to avoid it by leaving an organisation before cutbacks, or joining after the situation has turned around and hiring has begun again.

From talking to those who have experienced it, redundancy is something that certainly leaves its mark. The feelings of anger towards the bosses can take years to subside and the joy of working in an environment where you love the job you are doing and those you do it with may be difficult to replicate with a new employer. On the other hand, some people thrive after losing their jobs and look back at the incident as something that spurred them on to better things.

In a normal career (if there is still such a thing these days) you start at the bottom and slowly work your way up. Every year your skills, experience and complexity of your job increases, along with responsibilities and usually a pay rise. It is natural to picture the final years of your working life as the ones where you will be earning the most. And looking back at what you were paid in the early years of your career inevitably raises the question “How did I get by on such a small amount of money?!”

Sitting around the table at the reunion, the topic of what we were all paid came up. There were no huge surprises to discover that the people we all thought were on decent wickets reported earning the highest amounts of money. I was the second lowest wage earner present, on between $25,000 – 27,000 over the three years I spent there. The guy we all knew was earning the most didn’t actually reveal his salary but he did say that it was a lot more then than he earns now. In fact he said that he earned more money at a commercial radio station in the 80’s than at any other time in his life.

It’s a story that emphasises just how important saving is. If, by way of good fortune or hard work, you find yourself suddenly earning more money than you thought was possible at that stage in your life, don’t piss it up the wall. Rather than moving to a bigger house with a better view (and bigger mortgage), rather than upgrading your wardrobe, car and appliances, rather than holidaying in five star resorts, just picture yourself in ten years earning a fraction of your current income.

Would future you look back with regret for wasting an opportunity or be glad you had set yourself up for the unknown road ahead?


Saturday, November 3rd, 2012

Recently a number of colleagues have entered into lease agreements for cars. Basically, leasing a car involves making monthly payments for the term of the lease. According to the paperwork that you sign before you enter into one, the payments are a combination of an amount for petrol, servicing, tyres and the lease itself. When it’s salary sacrificed, the payment comes out of your pay before tax and therefore carries some tax advantages. Because of the tax advantages, these things are easy for the lease companies to sell, and you may find that you have a colleague who tells you how good their lease has been and encourages you to get one too.

Now for the bad points. When you lease a car you don’t own it. You have the option of buying it for a pre-determined sum at the end of the lease, but if you choose not to take that up you have no transport. When you look into it you may find the arrangement includes a $300 annual fee, over a grand’s worth of insurance in case you lose your job, and an interest component connected to the lease itself. And you need to purchase the vehicle from a dealership.

Depending on your marginal tax rate (and if you can salary sacrifice the payments) these leases may work for you. However, I would always argue that you’d be better off buying a car outright after saving up the funds. Even if it means that you purchase second hand and privately (i.e. not from a dealer who will add several thousand to the price). If your mortgage is an offset account and you draw down on your savings to purchase the car, then increase your mortgage repayments by the amount you would otherwise be paying in lease payments and you will be better off. The interest rate on the mortgage would be lower than that attached to the lease, and the discipline of extra mortgage repayments would make paying your mortgage off in a short time easier.

If you are considering a lease for a vehicle, before you sign up get someone who is independent of the deal to check it out for you. See an accountant and pay them a couple of bucks before you sign up for a five year lease that would potentially see you worse off. Even if your workmate is adamant that leasing is great, unless that colleague is an accountant independent of the deal, check it out.




On a completely separate note, our blog received a review on the website of this week. We were pleasantly surprised to learn that someone actually reads this stuff! And hey, getting a mention as a favourite blog in the same breath as David Koch’s is pretty cool. Not sure about the pants I’m portrayed wearing in the cartoon though…