S01_E15 - The Biggest Money Fears and What to do about them

01/14/24 • 20 min

Jellyman Investing - Personal Finance for Australians

https://www.patreon.com/Jellyman_Investing
Let's talk fear. There are a lot of things to be scared about financially. Job loss, retirement, your children, etc. The amazing thing about finance is that there's usually something we can do about it. It's rarely terminal. We just need to take the right action as soon as we can and let time do the rest.

Let's face it. The world is scary out there. Especially if we have a family that depends on us financially. Losing a job for example spells disaster and if you have got the right systems in place, you're in for a world of hurt. The great thing about this is that these issues are solvable. You just need to know how.

I'm going to go through 7 of the biggest fears I know people have when it comes to money and then talk briefly about some of the things you can do to put these fears to rest.

Running Out of Money: This is perhaps the most common fear. It encompasses worries about not having enough money to meet daily needs, cover emergencies, or maintain a desired lifestyle, especially during retirement.
Debt: Many people fear being overwhelmed by debt, whether it's from credit cards, student loans, or mortgages. The stress of managing and repaying large debts can be a significant source of anxiety.
Job Loss/Income Instability: The fear of losing a job and the resulting loss of income is a major concern. This fear is heightened in economic downturns or industries prone to layoffs.
Inflation and Rising Costs: People often worry about the decreasing purchasing power of their money due to inflation, especially when it comes to long-term goals like retirement savings.
Investment Losses: For those who invest, the fear of making poor investment choices or experiencing market downturns can be significant. This includes concerns about not knowing enough to invest wisely or losing capital due to market volatility.
Healthcare Costs: The potential for significant healthcare expenses, especially in later life or due to chronic health conditions, is a major financial fear for many.
Not Being Able to Afford Retirement: Many fear that they won't be able to save enough for retirement, or that their retirement savings won't last through their retirement years.

I'm going to go through 7 of the biggest fears I know people have when it comes to money and then talk briefly about some of the things you can do to put these fears to rest.

Running Out of Money: This is perhaps the most common fear. It encompasses worries about not having enough money to meet daily needs, cover emergencies, or maintain a desired lifestyle, especially during retirement.
Debt: Many people fear being overwhelmed by debt, whether it's from credit cards, student loans, or mortgages. The stress of managing and repaying large debts can be a significant source of anxiety.
Job Loss/Income Instability: The fear of losing a job and the resulting loss of income is a major concern. This fear is heightened in economic downturns or industries prone to layoffs.
Inflation and Rising Costs: People often worry about the decreasing purchasing power of their money due to inflation, especially when it comes to long-term goals like retirement savings.
Investment Losses: For those who invest, the fear of making poor investment choices or experiencing market downturns can be significant. This includes concerns about not knowing enough to invest wisely or losing capital due to market volatility.
Healthcare Costs: The potential for significant healthcare expenses, especially in later life or due to chronic health conditions, is a major financial fear for many.
Not Being Able to Afford Retirement: Many fear that they won't be able to save enough for retirement, or that their retirement savings won't last through their retirement years.

Previous Episode

S01_E14 - How Much Do I Need to Retire - Part 2

https://www.patreon.com/Jellyman_Investing
In the previous example, we went through some basics of retirement planning. However, there is a considerable flaw in the previous model. That is, it assumes you have to sell all your stocks at age 70 and then with discipline, not spend it all too quickly. Let's solve that problem.

The way I described it previously isn't exactly how you want to do it. But I wrote it that way so you have a basic idea. What we've done is purchase a basic Toyota Corolla. No addition, no customizations, nothing. It's completely plain.

We can now consider modifying it in the ways we need.

Investing in the way I mentioned has something we call an infinite money glitch. One of the biggest fears people have is running out of money in old age. This method will solve that.

So assume our yearly return is 10%. If we have $1M in stocks, by the end of the year, it will grow by 10%. Our stocks are now worth $1.1M. Say we sold $100k worth of stocks to live off. That leaves us with $1M once again. What happens at the end of the next year?

Well assuming it again grows by 10%, then the $1M grows again to $1.1M and on and on it goes.

This has a few assumptions though. Firstly, it assumes that you're not spending more than $100k. Secondly, it assumes we'll get 10% growth. Thirdly, it assumes to no extreme situation such as needing experimental surgery costing $500k. Fourthly, we're not accounting for inflation.

What happens if it only grows by 5% and we also solve $80k worth over the next 10 years? The stock grow to $1.05M, we'd sell $80k leave us $970k.

Say this happens again the next year. Our stock price would grow to $11.02M, we'd sell $80k leaving us with about $939k. As you can see, if this continues we'll run out of money.

So the key here is ensuring the growth on your portfolio is greater than your expenses. But done right, it's infinite money baby!

Next Episode

S01_E16 - Understanding the Tax System for Financial Independence

https://www.patreon.com/Jellyman_Investing
The history of taxation is as old as civilization itself, originally designed as a means to generate capital, primarily to fund wars. In ancient times, rulers and governments imposed taxes to amass wealth, ensuring they had the resources necessary for military campaigns.

The Australian Tax System: A Progressive Approach

Today, the Australian tax system plays a pivotal role in the country’s development. It is structured to fund public services, infrastructure, healthcare, and education. But why do some individuals pay more tax than others?

The answer lies in the progressive nature of the tax system, which is designed to be equitable rather than equal. This means individuals and entities with higher incomes pay a proportionately larger amount in taxes, reflecting their greater capacity to contribute to society’s needs.

Tax Benefits: Rewarding Beneficial Endeavors

The Government learned long ago that if you want to move the country in a specific direction, they can tax activities that take away from that agenda, and incentivise the ones that align. It’s actually that simply.

When reading the tax code, you’ll actually find that a substantial amount of it, in fact most of it is laws are on how to reduce your tax by pursuing certain activities. These can include but are not limited to:

Superannuation Contributions: Contributions to superannuation funds often receive favorable tax treatment. When the population ages, the costs for services especially retirement funding such as pensions becomes a heavy burden for the Government. When they see people investing and making extra contributions to take care of themselves in retirement, it’s one less person the Government has to support. They like this.
Education and Research: Tax deductions for certain educational expenses and research activities encourage investment in knowledge and innovation, crucial for the country’s growth. This creates new industries and potential jobs.
Charitable Donations: Donations to registered charities are tax-deductible, promoting philanthropy and support for non-profit sectors.
Investment in Renewable Energy: Tax incentives for investing in renewable energy projects align with the government’s commitment to environmental sustainability.

Tax Penalties: Discouraging Unfavored Activities

Conversely, the tax system can impose higher taxes to discourage certain activities or to manage economic disparities:

Luxury Car Tax: This tax is imposed on expensive vehicles, discouraging excessive spending on luxury goods while generating additional revenue.
Capital Gains Tax (CGT): Higher taxes on short-term capital gains discourage speculative investment and encourage long-term, stable investment behavior.
Sin Taxes: Higher taxes on products like tobacco and alcohol serve a dual purpose – reducing consumption of harmful products and generating revenue.
Progressive Income Tax: High-income earners face higher tax rates, a measure to address income inequality and ensure a fair contribution from all economic segments.

A Dynamic and Responsive System

Earning more but not aligning with Government policy simply means you’re swimming upstream. We work so hard in our jobs that climbing that corporate ladder brings more wealth as well as more stress and time away from our family. The more you earn, the more you’re taxed.

The only way to combat this is to start investing, purchasing real estate, starting a business, starting a side gig, investing in renewable energy, investing in index funds and ta