Tax Brackets 2021 – How Will You Spend the Extra?

Taxable Income brackets 2020Tax on each dollar of income bracketTaxable Income Brackets 2021Tax on each dollar of Income in bracket
$0- $18,2000$0- $18,2000
$18, 201 – $37,00019c$18,201 – $45,00019c
$37,001- $90,00032.5c$45,001-$120,00032.5c
$90,001- $180,00037c$120,001-$180,00037c
Income ExamplesTotal Tax Payable 2020Income ExamplesTotal Tax Payable 2021
$70,000$14, 334$70,000$13, 327
$120,000$31, 933$120,000$29, 577
$200,000$63, 134$200,000$60, 778
Excluding Medicare levy and assuming no salary sacrificing

Tax Brackets 2021 – Saving You up to $2,356

The 2020 budget announced the Australian government were keeping their word following the 2018 Personal income tax plan. Phase 2 came into effect this year, and will be back dated from July 2020.

The 2021 tax brackets changes mean an increase in net pay of between $1000 and $2356. This is already being recieved in your PAYG pay deposits. Have you noticed and captured it?

Your ATO pay rise equates between $40 – $90 per fortnight extra. This may not seem a lot of money, but over the year is enough to pay for an interstate holiday, or start investing in the stock market.

This extra cash is so easily lost in your account, and accidentally consumed by a slight increase in discretionary spending that doesn’t add much lifestyle benefit.

I am not going to lecture and tell you have to save or invest this. It just depends on your goals and progress with your financial plan so far. If you are on track and will use -this money to make you (+/- your family) happier spend away.

If you are still need to get investing, this could be an easy way to start. It’s money you will never miss if it’s automatically invested. Perhaps you can add a little more each year? You could be amazed how fast it will grow into a significant amount. When you feel you are making progress, delayed gratification starts feeling easier, and far less burdensome.

High Income Earners Benefit Most 2021 Tax Brackets Changes

The more you earn (up to $180,000), the more tax you will save. I’m not sure if that’s fair, but the government are counting $180,000 as middle (rather than high) income earners. The low income tax offset was increased from $445- $700

Mid- high income earners stand to benefit even further if the intended “Phase 3” tax cuts come into effect in 2024. The government may decide they need the tax income more than the economy needs stimulation provided by tax cuts.

Your Tax Return May be Bigger

Talk about a great starter fund for investing. The backdated nature of the tax cuts means PAYG employees may have paid more tax than needed. Readers may recieve a larger tax return this year. What it means for your tax return. Make sure you are prepared for financial year end

Changes in Superannuation Too

There have also been changes to superannuation this year. The concessional contribution has increased from $25,000 to $27,500, in line with inflation. A concessional contribution is money you can put into superannuation and only pay 15% income tax, instead of your marginal rate.

The non-concessional contribution limit has increased from $100,000 to $110,000. Non-concessional contributions are those that you have already paid tax at your marginal rate. There is no tax benefit at entry to super, but income from investments is still taxed at the discount 15% inside super. Many start to use these limits in the years leading up to retirement.

The mandatory super guarantee is due to increase from 9.5% to 10% on July 1 this year. Whether this will actually occur remains debated at this point.

The amount you can rollover from your superannuation accumulation account (paying 15% on investment income) to a retirement income account after preservation age has increased with inflation from $1.6M to 1.7M. Income from this account is generally tax free.

Maximise these Opportunities

Doctors income is notoriously tax inefficient. It makes sense to maximise any opportunity to optimise tax.

To capture the tax cuts options are to

  1. Have a money management system in place that separates discretionary from obligatory spending
  2. Set up a direct debit up to transfer the fortnightly/monthly tax cut into a savings or investment account
  3. Make sure you get your tax return right and use any refund to start or boost and investment, or make a worthwhile investment in your lifestyle.

All you Need to Know to Salary Sacrifice Super

Has your employer offered the ability to salary sacrifice super? Would you like salary sacrifice of super explained in detail so you actually understand whether it is the right choice for you?

This article will answer every question you want an answer for. By the end of the article, you will know whether you want to salary sacrifice super, and be ready to download and complete the forms to be sent back to your superannuation provider.

The Basics of Super

Superannuation is the government’s way of forcing us to save to fund our own retirement, rather than relying on the aged pension. It may be paternalistic and controlling, but few people would harness the power of compound interest from their 20’s without it.

Your employer is mandated to pay a 9.5% of your gross “ordinary time” income into your chosen superannuation fund, as long as you are over 18 years of age and earn at least $450 per month.

This includes part-time and casual employees but over time hours do not attract an employer superannuation contribution.

Those under 18 or domestic workers (nannies and housekeepers) need to work 30 hours a week before recieving employers super contributions.

Self employed workers are not mandated to pay superannuation contributions, but can make after tax contributions and then claim a tax deduction.

There is a vague plan to increase the mandatory superannuation contributions, which has already been delayed. We will find out in the budget in May whether the planned increase this year to 10% will actually occur.

Read more about superannuation here.

Concessional vs Non-Concessional Contributions

Superannuation paid by your employer is a concessional contribution. This means it is only taxed on entry to the superannuation fund, at a concessional 15% rate instead of your marginal rate.

There is a limit to how much you can contribute concessionally to superannuation. It is currently $25,000 per year, but increasing to $27,500 in July 2021. If you exceed this, you will need to pay the extra tax (which can be withdrawn from superannuation).

Those earning over $250,000 gross have to pay an extra 15% tax (division 293) on super contributions on pay over the threshold.

If you earn so much you breach the $25,000/$27.500 concessional limit due to employer contributions, there is nothing you can do about this. Just be warned the ATO will send you the extra bills. You can pay the extra tax out of your superannuation as long as you complete the paperwork in time.

Good news for those with a super balance under $500,000 if you have used less than the $25,000 in the previous concessional limit in the past 5 years, the unused cap can be carried forward to the current years. Those stepping up to a senior position for the first time or returning from extended parental leave will as a result be able to avoid the division 293 for a few more years.

Non-concessional contributions are those that you can make after tax. In the years leading up to retirement, people often start funnelling all savings into superannuation, due to the ability to take a tax free income from superannuation after preservation age and retirement.

There is a $100,000 non-concessional cap per year, increasing in July to $110,000. You are able to “bring forward” the next three years caps to contribute a lump sum if you meet eligibility criteria.

Are Salary Sacrifice Super Contributions Concessional?

Yes. You can make additional pre-tax (concessional) super contributions by salary sacrificing. These will be taxed at 15% if you are under the concessional cap. This is particularly beneficial for those:

  • On higher tax rates (earning >$45000 gross)
  • Whose employer rewards extra contributions by contributing more themselves
  • Who have contributed less than the concessional cap of $25,000/ $27,500
  • Those that have plans to purchase their first home and would like to take advantage of concessional taxation on their savings. Seem more detail on the first home super saver scheme.

For those that hit the concessional cap, it still may be advantageous to salary sacrifice super and pay your marginal rate tax (minus 15% already paid and excess contribution charge.

This is generally true if your employer contributes extra super when you salary sacrifice yourself (public health services do this). It’s worth phoning payroll, working out what the deal is and getting out your calculator to see if it’s in your favour to salary sacrifice.

Are Salary Sacrifice Super Contributions Reportable?

Salary sacrificed super contributions are “reportable super contributions”. These count towards your income for assessing:

  • HECS/HELP repayment – Because you will have less taxable income, your automatically witheld HECS/HELP debt repayments will be lower (and incorrect). You will then be asked to repay the debt repayments. Speak to your salary sacrifice provider to work out how much you will owe, and organise for this to be automatically witheld.
  • Super co-contribution
  • Medicare levy surcharge
  • Centrelink benefits
  • Child support payments
  • Concessional super caps

Who can salary sacrifice super

Any employee can salary sacrifice into super. Employers offer variable (or no) other salary sacrifice items. Self employed individuals will have to make personal contributions and tax deduct.

How much salary sacrifice into super

If you earn less than $289,473 gross annually, your mandatory employer contributions will be under the new non-concessional cap.

If you are nowhere near hitting the concessional cap, consider salary sacrificing some extra fortnightly. Ensure you consider the effect of salary sacrifice on HECS/HELP repayments and centrelink. Avoid over sacrificing and getting into financial strife.

If you are expecting to be within $5000 of the cap, you may wish to wait until May to assess how much you can contribute to max your cap. Then contribute up to max out your concessional cap if you can, and it suits your goals.

How to Salary Sacrifice Super

Your payroll will provide you with the foms you need and organise.

Can you salary sacrifice super to your spouse

You cannot use your spouse’s unused concessional super cap to reduce your taxable income as the breadwinner of a household.

You can, however split your contributions with your spouse which provides no immediate tax benefit but does result in more equal balances that could be advantageous down the track. Non-concessional contributions for your lower earning spouse can also attract a significant guaranteed return.

When to Start Salary Sacrifice Super

It is always tempting to delay retirement savings, particularly when you are expecting a big jump in salary.

But it’s easier the earlier you start. Earning 5% in post tax growth annually, it would take $644 per month for 10 years to hit $100,000 in retirement savings.

If you start 20 years out from retirement (perhaps the most expensive phase of your life with a big mortgage and small children) it will cost $243/month to hit your goal.

Were you to start early, 35 years before retirement, it will cost only $88 / month.

If you start later (particularly as a specialist doctor), your mandatory super contributions may already breach the concessional super cap. By contributing earlier in your career, you can take advantage of more years of tax reduced contributions.

It doesnt matter if its such a small amount it doesnt seem worth it. Start with something, increase a little with each pay rise. Your future self will be thrilled!

If a person earning $90,000 contributed the remainder of their concessional cap ($18950) annually into superannuation or invested outside super, both earning 5%

Disadvantages of Sacrificing into Super

There are two major issues that put young people contributing to superannuation, and they are valid and important concerns.

  • Inaccessibility.

Once your cash is in your superannuation, you cannot access it (excluding the first home savers scheme and severe hardship). If you need a new car, your super is no use to you.

Honestly, I see this as a positive, we all need a little help with will power sometimes!

But should you wish to retire early before your preservation age, you will need investments outside super to fund the gap. The government, like many in the world, are struggling to fund aged pensions for an ageing population.

They are very likely to increase our preservation ages prior to retirement. How much, is speculation. It can come as a rude shock for the goal posts to change 5-10 years prior to your planned retirement.

Most, as a result, will plan to have investments outside superannuation as well. But to neglect the incredible tax concessions within super would be short sighted.

  • Legislative changes

As well as changes to preservation age, the government may make further legal changes to superannuation. Perhaps you won’t be able to withdraw your entire balance at preservation age and blow it on depreciating assets before relying on the aged pension.

Perhaps they will get greedy and decide to tax retirees. If labour’s attempt to remove franking credit refunds is anything to go by, taxing retirees seems like political suicide. It’s not impossible though.

Superannuation may become less generous over the years to come. But it has to be somewhat advantaged to encourage people to use it – and help the government get out of paying everyone aged pension.

Most expect super always to be tax advantaged, so you will likely always be better off with money inside super than outside. But you may want more in the older spouse’s super account to minimize future legislative risk.

Is salary sacrifice super worth it

If you earn more than $45,000 salary, salary sacrifice into superannuation is an easy win. Sacrifice what you can easily afford up to the cap, and take advantage of any employer match schemes associated.

There are other costs, depending on your employer that you can salary sacrifice in order to pay less tax. Check out the full article here.

What is your super strategy? Can you tolerate the legislative risk of having your money locked away until preservation age (whenever that will be)? Let us know your thoughts in the comment section below.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Check out the up to date guide to making sure you’re in the right super Australia.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

How to Be Frugal Without Being a Cheapskate

The US show “Extreme Cheapskate” features America’s cheapest individuals, and the often cringeworthy tactics they deploy to save a dollar.

No doubt the individuals (presumably paid for the show?) are exaggerating somewhat for entertainment value. Despite the participants seeming pretty proud of their cheapskate habits, a common theme seems to be taking advantage of people.

Perhaps you even have family or friends who you would consider cheapskates, or perhaps you have a reputation yourself?

It is important to set financial goals, and become a top notch money manager, in order to achieve your ideal life in years to come. It is critical to pay off consumer debt, and achieve financial security. But where is the line between frugality and cheapskate? How can you save money and reach your goals, without stepping into cheapskate territory?

Cheapskate vs Frugal – Definitions

Lets start with some formal definitions, from the Merriam-Webster dictionary.

Cheapskate: a miserly or stingy person especiallyone who tries to avoid paying a fair share of costs or expenses

Frugal: characterized by or reflecting economy in the use of resources

Saving the Environment

Using our environmental resources efficiently, by happy accident, is ussually also frugal. Saving water and electricity, reusing and recycling are all simple ways to reduce our impact on the environment, whilst saving money.

By not buying into the grossly consumerist culture around us, we buy less, consume fewer materials and fuel. When re-using second hand goods, we are reusing all the materials and fuels used to create and transport that item.

There is something very satsifying about finding another use for an unwanted material.

Asking a neighbour if you can take the piece of discarded furniture out of their skip to upcycle is a frugal win-win. Your neighbour will likely be glad to have a little more space in that skip!

Stealing your neighbours lemons from an overladen tree probably equates to cheap skate. Just ask, they will likely be glad to see those excess lemons utilised. Bring back a baked good made with lemons and you’ve likely made a friend for life.

If we all got a bit more organised to take turns driving our colleagues to work, there would be a lot less traffic, and savings in fuel and money. As well as helping the environment, we may get to know our colleagues better, which often makes collaborating at work easier.

Our society in Australia has become extremely individualistic. Each household owns one of every item. But a revolution has begun with the “sharing economy”.

Ride sharing, hourly car hire and bicycle hire are the early examples, the world would be more efficient if we all shared more.

If we could have closer, more trusting relationships with our neighbours, we would feel more comfortable sharing lawn mowers, ladders and other seldom used items. Imagine the savings for a street, if they all shared a communal shed.

Check out Sustainable Living for more ideas for improving your environmental and financial efficiency.

Cheapskate Vs Frugal – Quality over Quantity

When trying to save money, it’s easy to fall into the trap of always buying the cheapest option. Sometimes this can be a false economy. You don’t always get what you pay for, but it’s worth considering durability to make the most long-term cost effective purchases.

The cheapest bottle of wine may save you a few extra dollars but, in my experience, punishes you with a far worse headache. Giving up alcohol altogether of course is the far smarter choice, good for your hip pocket, health, productivity and relationships. I’ve not reached that level yet!

Many of use have brought an old bomb of a car in the past, scraping the dollars together, only to be hit with repair bills weeks down the track. Once financially secure, you are unlikely to make this choice again!

Buying a quality (but not flash) second hand car is ussually the most economical choice. Of course, going without a car is going to save you a lot of cash most of the time, and encourage more physical activity on a daily basis.

Social Activities

Socialising with friends, we have all discovered, is really essential to our wellbeing. No-one has ever appreciated the freedom to socialise as much as in the past 12 months. But socialising, depending on your friends, can easily result in hundreds of dollars spent on a flash dinner and copious over priced drinks.

Forgetting your wallet, and letting your friends pay the bill would definitely count as cheapskate behaviour!

Asking your friends to meet up for dinner at your place, or go for a hike with a picnic is a frugal and fun way to socialise.

If there needs to be a big change in your spending habits, it’s probably worth talking to your friends openly about your change in behaviour. If they are good friends, they will support you in this and may be inspired to take a fresh look at their own finances.

Remember to spend money on frivolities sometimes. Many frugal savers just can’t switch off the saving button even after they’ve hit all their goals.

Harder core / deprivation saving should be for short periods of time, whilst working towards a specific goal, or digging yourself out of debt. For the long term, remember to achieve some balance, and use your fun money budget to splurge on something that brings you joy.

CheapSkate vs Frugal – Practicing Generosity

The differentiation between a cheapskate and frugality is how you treat others. A cheap skate will horde their money, refusing to spend anything whenever they can.

A frugal person simply chooses what they spend their income on consciously, and utilises their resources efficiently.

Helping others is often a source of happiness and self worth. Be generous with your money, without being taken advantage. Put some money aside for charitable giving, tips and treating your friends, family or colleagues.

Find a charity who’s values align with your own, and when you see the donation leaving your account, you will experience a little kick of satisfaction.

Be generous with your time. Don’t work so much you can’t help your friend move house, assist at your child’s school or enjoy lazy days with your most special people.

Gift giving can be a joyful experience, although not, in my experience under the pressure of set deadlines. Buy gifts for your loved ones when you see something they will really love. Consider limiting “routine” presents on birthdays and Christmas to avoid swapping meaningless rubbish just because it is expected.

Practice Gratitude

Australia is a wealthy country, and most reading this live in relative prosperity and wealth. I feel so fortunate to live here. But even in Australia, there are those that are struggling. Overseas, of course, poverty is even more extreme.

The trend of the middle class wealthy to show off with superfluous status symbols seems distasteful. Status seems addictive, with many getting themselves into financial strife because their posessions are never enough. There is always someone with more.

Practice gratitude regularly for all you have. Taking the time to reflect on how fortunate you are (even despite challenges) will make you happier.

To be frugal without crossing into cheapskate territory, focus on the efficient use of your resources whilst ensuring you are always paying your fair share, and not taking advantage of others.

What differentiates a cheapskate from a frugal person for you? Share your thoughts in the comment section below.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

Barefoot Investor Buckets: Structure Your Money to Build Wealth

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

The Barefoot investor book was an incredible success, selling over 1.43 million copies since 2016. Australian’s were clearly struggling and needed a simple money management system

The Barefoot investor started a movement, sometimes light-heartedly referred to as a cult. Once you have read the Barefoot investor book, you do notice those little orange cards everywhere.

Wouldn’t it be nice if you had a complete understanding of your household budget? If a system to let you know how much money you could splurge and when you should tighten the purse strings?

This article will outline the pros and cons of the Barefoot Investor buckets, and alternative money management systems. 

By the end, you will have decided on a system that will work for you.  Whether or not you have a mortgage, single or multiple offset accounts, and steady or lumpy and irregular income. 

Article Outline

Why is a Money Management Strategy Necessary?

The success of the Barefoot Investor came down to the need for people to have a money management system. We all want to save towards long-term goals, but we also want to have fun along the way.  Personal finance is getting more complex, with a dizzying array of savings accounts, credit cards, loans and investment products available.

It is very easy for you to find yourself with multiple bank accounts, savings accounts and credit cards. It’s easy to completely lose track of what you are spending on. And can lead to spending time shuffling money from one transaction account to other accounts, trying to avoid an overdrawn fee.

How can we Get Savings Just Right?

Most of us would like a Goldilocks solution to our financial plan. We don’t want to over save and miss out on experiences and adventures that we could have responsibly afforded. More often, people ignore their futures and spend almost everything on luxury purchases and experiences.  Often, they are overwhelmed with the task of working out how much they need to save, so assume it’s impossible and give up. 

Neither is the way to a balanced and happy life. We all need to find the balance between YOLO (You only live once) and financial independence (retire early or by traditional retirement age).

Somehow we need to work out how much to put aside in savings accounts and investments, while keeping as much money aside for special experiences. Continue reading

How to Tempt Your UK Doctor Mates to Move to Australia

I did the move to Australia as a naive 2nd year doctor. It was an impulsive move, unusual for me, based on an opportunity that came up to follow a friend. My entire life pivoted on that random decision to bum around (and work) in Australia for a year. I normally love to plan with intentionality, inching ever closer to my “Perfect life”.

For me was a distant 15 years ago now.  Like many poms, I just couldn’t leave the lucky country.  And now, quite frankly, I’m too spoiled to work in the NHS again! The move to Australia was one of the best decisions I have made.

I guest posted recently at The Female Money Doctor, a UK GP with an interest in all things finance. I outlined the Australian health system for UK doctors, and an in depth comparison between pay for junior doctors in both countries.

Check the article out, and share it with the Pommie mates you’d like to move to Australia!

Have any readers’ moved here from overseas? Was it a good move, do you have any regrets?

What are Assets? How to Build an Asset Portfolio

An asset is a resource owned with the expectation it will provide a financial benefit. It may produce income, increase in value over time or reduce expenses.

Appreciating Assets

These are assets expected to increase in value, over and above the costs involved holding them.

They may not produce a physical (taxable) income in the first few years.

Investment in appreciating assets can come with significant long term financial rewards. But asset selection and a long time frame is critical to actually make a profit.

Capital growth property is higher risk because it generally involves significant leverage (debt). There may only be a small contribution of your own money, but you can lose far more if you select the wrong asset.

Often, you are contributing money on a monthly basis to hold this sort of asset, although this can be softened with the tax benefit of negative gearing.

You need to be an expert or hire a (carefully chosen, trustworthy) expert to invest capital growth property.

Shares / ETFs can also be appreciating assets, if the companies involved are expected to increase in value. With individual shares, again you need to be an expert or hire one to succeed. Even then, research tells us even the experts don’t get it right consistently.

Broad ETFs (such as ASX 300) are expected to increase in value over the long term. As long as you buy broad, hold long term, and don’t panic and sell during a market dip/crash this is an easy strategy. Stick with your investment strategy! If you add leverage to this investment to expedite returns, the risk of investing increases significantly.

Income Assets

A lot of investors feel more comfortable with income assets. Because they provide a cash return from day 1 they feel this is a less speculative/ risky approach. The returns are taxed, and tend to be inferior to capital growth that can compound for years untaxed.

These assets can, of course, still lose significant value, but income investors fret about this less as long as the income keeps coming.

Examples of income assets would be positively geared property and dividend focussed ETFs or shares.

Expense Reducing Assets

We often don’t consider expense reducing assets, but your home is one (in preventing the need to pay rent). Unless you are rentvesting.

Solar panels reduce your ongoing electricity bills for the next decade or more (as long as you stay put). Whether they provide sufficient return on investment along the with environmental benefits is up to you.

What assets reduce your ongoing expenses?

Depreciating “Assets”

Many people consider anything with monetary value an asset.

Your car is worth some money, and could be sold to liquidate the cash if needed. But the value of 99% of cars depreciates over time. And you may not be able to get to work without a car.

On top of that, ownership of the car actually produces extra expenses, such as tax and insurance. For that reason, most with an interest in personal finance would consider depreciating assets like cars a liability.

Boats, caravans, motorbikes and jet skis are also depreciating assets (aka liabilities). These are a lifestyle choice, but are doing nothing positive for your finances.

Your Home

You can consider your home an asset under some, but not all circumstances. It does not create an income, but does reduce expenses by way of saving rent. But you are still “wasting money” on interest for the honour of home ownership.

In order to consider a principal place of residence (PPOR) an asset, the following equation applies.

Capital growth + Rent saved > Interest paid + rates + maintenance costs.

is your home really an asset?

Renting is likely to get more expensive over time, so the equation becomes more favourable the longer you stay. It is also far more likely to be in favour of owning if you want to live in an area with good capital growth potential.

Buying in an area with low capital growth expectation for under 10 years may seem better than renting, but remember to consider opportunity cost. Would you better off renting and buying an investment property in a better area?

The Balance Sheet

A balance sheet is a snapshot of a business, demonstrating it’s assets and liabilities at a particular point in time.

Successful money managers treat their personal finances more like a business, ensuring long-term financial growth and sustainability.

Monitoring your own “balance sheet” allows you to track your progress over time – and appreciate progress made.

Applying these concepts to personal finances will also help us understand investing opportunities better.


Assets are listed according to their liquidity. That is the ease of getting money out at short notice in case it is needed.

Current Assets (Can be converted to Cash within a year)

Cash & Cash Equivalents – This is your emergency fund, savings accounts, offsets

Marketable Securities – Any ETFs, shares or other liquid investments

Accounts Receivable – Money that you are owed and are expecting to recieve. Expected tax refunds and owed income goes here.

Pre-paid expenses – If you have paid your investment interest a year in advance

Long Term Investments – cannot be liquidated within a year

Fixed Assets = Property & Land

Intangible Assets – These are “assets” that increase earning potential and are difficult to put a value on for the individual.

I still think it’s worth reflecting on what intangible assets we have, or could acquire.

For me these include a medical degree, specialist qualification, professional reputation and finance/investing knowledge.


Are what you owe to others. Again they are listed as current (within 1 year) and long-term.

Current Liabilities includes credit cards payable, tax bills pending, this year’s mortgage repayments, investment debt interest and student loan payments.

Long term Liabilities. For me this is bank loans on my PPOR and investment properties. You may have other debts expected to take more than a year to pay back – student loans, car repayments etc.

Share Holders’ Equity / Net Worth

OK you probably don’t have shareholders as an individual or household!

On a business balance sheet the calculation is often stated as

Assets = liabilities + shareholders equity


Which is a different way of saying

Equity (or Net worth) = Assets – Liabilities


Your equity / net worth should increase overtime. This may involve increasing purely assets (eg direct debiting into ETFs) or increasing your liabilities (debt) and assets by purchasing growing assets. It could also be achieved by simply reducing your liabilities. All three may be appropriate at different stages of your life.

Debt to Equity Ratio

From the balance sheet the debt/equity ratio can be calculated.

Debt/Equity ratio = Total Liabilities / Total Assets

This may increase at times, particularly when starting investing in property. Banks, when assessing loan risk don’t take into account your current assets e.g. Cash in an offset, but only Loan/Property value.

Investors will often borrow up to 80% of this ratio. Those in an ultra low risk of default occupation may be offered loans of up to 90% LVR (loan: Value ratio) without the need for lenders mortgage insurance.

In reality though your true debt / equity ratio may be a lot lower due to a generous cash emergency fund stored in your offset account. This may be the more useful ratio to monitor for your own information.

Acid Test Ratio

The Acid-test ratio looks at the ability of a company to cover it’s short term liabilities with it’s current assets. As a household, this ensures you can cover all the bills for the next year – pretty important!

Acid test = Current Assets/ Current Liabilities

If you are looking to build wealth, you will want to start building an asset portfolio. Make sure you are buying assets, not sneaky liabilities!

To see all the wealth building strategies shared with Aussie doc freedom, check out the Ultimate Step by Step guide to Wealth building, with wealth building strategies.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

How to Achieve Financial Fitness

Achieving financial goals is similar in many ways to reaching fitness goals. Building financial fitness is a long term project that needs to become a habit, like your daily run.

No Comparisons

Eliud Kipchoge is the world record marathon runner, covering 26 miles in 2:01.18. There is little point in comparing this man’s incredible athletic ability with my novice running.

For the vast majority of us running a marathon, winning the race is not a goal or realistic possibility. The aim in running a marathon is to achieve the distance. We may aim to beat our personal best, but comparing ourselves with other athletes is a bit pointless. They may have better genetics, run hundreds of marathons before, or be running dressed as a chicken.

Personal finance is similar. It is a common error to compare financial fitness with friends, family or colleagues, and risk becoming demoralised. You have no idea what hands up or handicaps your friends may have been gifted.

Looking rich with flashy consumer goods is very different from achieving real wealth. It is, quite frankly none of your business how anyone else is doing financially. Stick to your lane, focus on you and your immediate family’s goals.

No Excuses. Just Do it.

Kipchoge has form. He won the Berlin Marathon in 2015, despite his shoes failing just 10km into the race. He ran the remaining 32km with his insoles flapping out of both shoes, to finish with bloodied, blistered feet.

There are countless other examples of the power of pure bloody stubborness in achieving goals against all odds.

If we don’t achieve our goals, realistically most of the time, it wasn’t that high a priority. Problems occur, barriers materialize, and often priorities change as a result.

The reason most do not achieve their (realistic) fitness or financial goals, is because they don’t prioritize them.


Another good reason for not achieving fitness or financial goals. Have you evert put off working out repeatedly until it’s too late to complete it? Guilty! Whether it’s work, exercise, study or investing it’s easy to put it off if it seems difficult or unappealing.

Reader, you have probably already discovered that when you eventually get that dreaded job over and done with, it is usually much easier and faster than expected. How many times have you procrastinated for hours over a 10 minute job you were dreading?!

It’s easy and common to procrastinate when it comes to investing. The world of investing can seem intimidating. Many lose out on years of returns because investing just seems too hard.

Put the time aside needed to work out your goals, financial plan and basic asset selection. Perfect is, as usual, the enemy of good. Get it done and you can always improve it later. But if you don’t get started, there is a risk you never will.

Financial Fitness: Planning or Doing

It’s important to build your financial literacy. But don’t let learning delay investing more than a few weeks. Planning can easily turn into procrastination. Ever spent hours making an incredible, detailed (and perhaps even decorative) study plan? (ahem)

Set a deadline by which you will make your first investment. Keep it simple, low risk and automated.

Regular Training – Building Financial Knowledge

Your initial knowledge acquisition stage should be basic, just enough to allow you to get started. But continue building your knowledge over time. Just like improving your bench press weight, improving financial literacy will not happen overnight.

A common pattern is to get excited about your new goals, consume everything you can find on the topic, and then losing interest. Pace yourself.

Similar to acquiring all the knowledge needed to complete your day job, financial literacy is collected little by little, in layers upon layers. This is far more effective learning than the cramming for exams we all have to do at times.

Knowledge needs to be understood, digested and internalized before the next layer can be added.

Similar to medicine, I suspect you could never run out of financial knowledge to learn. Warren Buffet, often called the best investor of all time, still spends hours reading daily.

Make learning a habit, and protect from yourself from losing interest completely. Subcribe to a blog, podcast or publication that will prompt you to read or listen a little every month.

As you learn more, your financial plan will evolve. Be careful not to change frequently every time you discover something new. Give the knowledge time to settle and find context. Weigh everything up carefully before changing plans.

Even if you plan to outsource your planning to a financial planner, you need basic financial literacy and a good understanding of your investments. The problem is, you need a fair bit of knowledge to know a trustworthy advisor from the other sort.

Automation Builds Habits

We are all only Human. Who really feels like working out when the alarm goes off an hour early in the morning?

Faced with the choice of making your planned investment or buying that new whizz bang TV on offer, which will you choose? Is your choice the one that will bring you most happiness long-term (hint: An even better TV will be out next year!).

With working out, and finances, for the mortals amongst us, as many barriers need to be removed as possible.

Work out clothes can be laid out the night before (Or even worn to bed), a work-out buddy provides accountability, even an app that records workouts provides some motivation.

The most powerful habit builder in investing is a direct debit. Whether it be to your savings account (only if still building an emergency fund, don’t get stuck here), broker account or mortgage.

It is easy to cancel if you really need the cash, but you are far more likely to stick to the plan if it occurs without your brain being involved every month.

Financial Fitness: Pace Yourself

Remember your first long distance runs at school? Inevitably, we all ran too fast (the enthusiasm!), only to run out of steam. Pacing yourself is as important in financial fitness as it is in becoming physically fitter.

Going all out with no money allowed for fun is probably not going to last. Make your plan realistic, allowing a set fun money budget.

Setting a fun money limit actually helps to prioritize the spending you really value. I find I’m far more ruthless cutting out low value spending, and enjoy treating myself even more when it is carefully considered.

Exactly how much fun money you allow, and how far you cut spending is very individual.

Most will not challenge themselves and continue spending money on expenses they don’t really value. So it’s worth stretching yourself with expense cutting to discover what you will really miss.

Truly valuable spending can be added back into the budget once you’ve proved you really don’t want to live without it.

Minimize Set Backs

Over training, or not having the right equipment can increase the risk of injury. Injuries significantly impair your training, and set you back on your schedule.

Financial mistakes can set you back years. Avoid scams at all costs, be suspicious and check everything.

Listen to those around you. Certainly not for their advice (unless you know for a fact they have achieved what you wish to) but for their mistakes.

People often blame the asset class, or instrument they used to invest in. Try and identify the avoidable errors that you can learn from. It’s probably best not to point them out (it’s a bit late!).

End result – Avoid the Anticlimax

Financial independence is a financial movement increasing in popularity involving mostly young high earners saving 50%+ of their income and investing until they can live off their investments in 10-15 years.

Some who hated their jobs have become completely obsessed with the goal of financial independence, to detriment of all else. After achieving financial independence, some describe a sense of anticlimax.

I’ve experienced the same after finishing a marathon I had been in training for months. I think it’s similar with many huge achievements, the real joy is often in the journey.

So make sure to maintain a sense of balance, enjoy your exercise, and have a plan for after the big event. Invest for the future, but don’t let it consume you. Remember to invest in life experiences along the way.

Financial Fitness Quiz

How Financially fit are you? Find out with Aussie Doc’s first quiz!

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.