Previous update here.
Hey guys! I’m pretty excited to share this post.
Last month was epic, truth be told. I’ve written before that I’m intending to start a small business, and it’s becoming a reality faster than I anticipated. During August I spoke with two accountants and a lawyer for advice on how to structure the business and manage the finances early on, came to an agreement with the other parties involved in the business and organised to view premises to operate from. This is all very exciting. On the financial side of things, I decided to take out a loan to fund the business operations for the first year (I suppose it could be affectionately known as ‘The Great Big Loan’).
So let’s talk about the elephant in the room. An important question to address is will this acquisition of debt hinder or help my path to financial independence? There are two main risks associated with it; that the business fails or, that I can’t meet repayments. I rate the chances of the business failing at less than 1/20. I’ll be guided by someone who set up a similar business successfully and has almost 10 years of experience running it, and have a few other professionals supporting me who have taken a similar path themselves. A quick aside is that I met all these professionals at University – they either taught me or introduced me to professionals who were already in the workforce. This is one of the benefits of doing some extra education – and it doesn’t have to be tertiary – but you can meet people who might just be interested in helping you along in your career.
Regarding not meeting repayments, there is a reasonable chance (80%) I’ll break even during the first year (touch wood) and will be able to pay the loan back within 3 years. This means I’ll pay between $3,000-$5,000 over that period in interest/charges to start my business now, rather than in 2-3 years. That seems like a fair deal to me.
Ultimately, this loan is going towards an asset, that should provide my main income for the next 20-30 years until, with a bit of luck – and work – my investments will take over.
Quick Summary: Cash increased with the receipt of my Tax Refund, and a positive Australian share market buoyed my Super balance by a couple per cent (50% of its holdings are Australian equities). This is the first time my assets have breached $60,000AUD which I’m really pleased about. Credit card debts were paid, although a substantial amount remains. A lot of my spending this month was planned spending on professional registration fees and advice. My other liabilities remained steady . The result of all this was that my net worth just nudged over $6,000. I’ll do a little victory dance now because as of next month, it’s quite likely going to be very negative following The Great Big Loan.
Cash: $14,104 increased 16.63%
Superannuation: $34,276 increased 2.72%
Other Assets: $11,985 down 1.20%
Total Assets: $60,365 up 4.82%
Credit Cards : ($819) decreased 54.41%
Student Loans: ($31,539) steady
Other Liabilities: ($21,999) steady
Total Liabilities: ($55,334) decreased 1.77%%
Net Worth: $6,009 up 166.07%
How was your August?
As always, thanks for following along!
- Cash consists of online savings accounts. I moved away from carrying cash in Q1 2015 and make 95% of my transactions electronically, for more accurate and up to date record keeping. I have a small transaction account holding around a tenth of my cash funds with the balance held in an ’emergency fund’ and a smaller account for rent savings/payments, both in modest interest bearing accounts (2-3%p.a.).
- Superannuation is the Government mandated retirement savings system in Australia
- Other Assets consists of one car at market value, depreciating monthly.
- Student Loans consist of the HECS/HELP debt provided by the Australian Government, indexed to inflation. The loan repayments are based on taxable income, with repayments required from taxable incomes of $54,126p.a. or more in 2015.
- Other Liabilities consist of two loans which are interest free and don’t require repayment until I finish my Masters degree.