OK full disclosure: I am not a fan of “stuff” (and for the record, shoes are NOT stuff).
So I’m not the type to buy unnecessary stuff anyway and I am triggered by comments about buying because it’s tax deductible. I’m mainly looking at you my self employed people, but also anyone who’s claiming any expenses on their tax & using this as an excuse….BUT it isn’t hard to extend this to everyone who might be buying stuff they don’t need. If you’re not self employed or claiming “tax deductions” feel free to skip to the #
For those who are buying because it’s 'tax deductible':
If you spend the dollar you get the tax back on the dollar spent – nothing more. Depending on your tax rate, this may be 24 cents in the dollar (based on average income rates as you will see below).
Spend a dollar on unnecessary crap and you get 24 cents back*.
If you don’t spend the dollar you keep 76 cents of it (after tax)*
*adjust for your personal tax bracket, and not advice by any means – purely to start you thinking
If you genuinely need it, this is all irrelevant.
Here’s the # (welcome back to our PAYG employees)
The flip side of this is have you ever thought how hard it is to earn the money you just spent on ‘stuff’?
Based on an average Sydney income of, say, $80,000 and allowing for the tax scaling (which is another topic for another day – are you aware if you earn a little more and it puts you into the next tax bracket it doesn’t make ALL of your income taxed at the higher rate, so go ahead and take that opportunity)
Based on $19,000 and change tax payable on $80,000 you’re sitting on just under 24% average tax rate.
Which means you have to earn $1.24 for every dollar that you spend. Instantly that stuff becomes nearly a quarter more expensive than the price tag.
A $100 item, in this example, takes you 3.2 hours of your working life to earn.
To reiterate, you have to work for 3.2 hours of every week to spend $100 on dinner on a Friday night.
Or, nearly 2 hours work to take the family to the movies ($6.50 for m&m’s is outrageous in my opinion)
A trolley full of crap at a department store: $200 spent = $248 earnt = 6.5 hours worked.
Wow that’s some kind of doom and gloom, sorry.
Back to the definition of ‘stuff’ for this purpose. Can we add cool tech to the NOT stuff column with shoes? Well it’s on mine anyway; and you’re welcome to have your own NOT stuff list, because after all life is for living and you work hard, you do deserve to enjoy the spoils, but do it wisely and with conscious thought & I am happy.
Don’t buy stuff that fills your cupboards or gets thrown out; do buy things that bring you great joy or experience or enhance your life.
What has any of this to do with mortgages, well two points:
1 – Money not spent on stuff could make a serious difference in your mortgage, at the end of the day we ARE about helping you save interest. This is a bit of a no-brainer.
Also, If you’re not paying credit card interest for unnecessary stuff, you’ve got more money for the good bits, or paying extra off your loan (how about we compromise and you save the ‘more money’ in your loan until you find the ‘good bits’ you are keen to spend it on, every bit helps!)
2 - I am often asked for tips on budgeting, or evaluations on peoples living and spending habits; not my area but I can offer some of the data the lenders use – and here’s a clear budget answer. Don’t buy (unnecessary) stuff & your budget will improve automatically.
When I think about this topic two quotes come to mind,
“Wealth is not about what you make; but what you keep”
And if you’ll allow me to adapt a quote you often hear in the gym, that being “you can’t out train a bad diet” – “You can’t out-earn a bad budget”.
So what can you do:
Dare I say avoid the sales? The sales are only good if you needed the item anyway and in that case go for it!
Unsubscribe from the sales newsletters – both reduces the unnecessary clutter of information in your life and the impulse to buy stuff
Consciously choose a goal and work towards it, rationalizes your purchases with ease
Research purchases thoroughly to ensure you get the right fit and features.
Choose quality over quantity.
Ok my age is showing, feel free to call me a fuddy duddy; I’m now more inclined to buy the best quality I can afford of any stuff I need on the basis that it typically has the best warranty, will last the longest and have the best feature set. I would rather buy the one item than have to research and replace a cheaper version time and again, seriously who has time for that kind of legwork – let alone the cost of replacing ‘stuff’?