Sort Your Money Out. Glen James
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been used in 18 months, sell it and put the money towards paying down debt
if it isn't a family heirloom, sell it and put the money towards paying down debt.
You can always buy more crap later when you're out of debt. And think about how great you'll feel after de-cluttering and getting your house and garage in order to reflect the fact you're getting your financial life in order.
Existing savings
If you're in consumer debt on one hand and on the other hand have cash savings, it's probably because you don't have a solid money system in place and/or you're conflicted and have a mash-up of logic and emotions in your mind. That's okay: you're in the right place.
To be absolutely clear, once you have resolved that you are ready in step 1, you need to put all cash savings above $2000 to your smallest debt in the debt snowball to smash it out ASAP. If this is scary for you, don't do it all at once.
Some steps to assist in emotionally moving money from savings to debt could be:
deciding that you are no longer saving any more money and each pay allocate your savings money towards your debt
breaking your savings up: if you have $4000 in savings on top of your $2000 emergency fund, you could move, say, $500 per week onto the debt (if it hurts too much moving it all in one go): now you're wading into the water
jumping into the water once you're in waist deep! Check your emotions after the first couple of payments towards your debt, and if you're feeling good, bite the bullet and transfer the rest of your additional savings (but not the emergency fund). I am being cheeky here, but remember: you wouldn't borrow money on your credit card or a personal loan to have that money sitting in a savings account earning virtually zero interest, would you? (Don't answer that!) If you are not feeling satisfied with paying down your debt, you could always get back into debt — but how's that been working for you?
Side hustles
This is a bit of a buzz phrase which has increased in popularity in recent years. Side hustling is when you work on the side to your regular or main job and ‘hustle’ to make additional money or to advance your career. I am not a fan of pursuing a side hustle for the sake of it. I value your time and you should too. I believe there are only four reasons you should do a side hustle and they are:
to earn extra money to get out of debt (that's you!)
to earn extra money to save for a short-term goal (e.g. you wish to save up $2000 for a new mountain bike, stand-up paddleboard or something that you really want but don't have money for in your day-to-day life)
to organically start to build a business on the side: you can do this after hours or on weekends and as time passes, the goal would be to grow the business so much that you need to quit your main job to pursue your own business 100 per cent of the time
to allocate the income to investments only. This might be the only reason to side hustle long term (so it's not in vain). You will then ensure that your human capital (I'll talk about this in the next chapter) will be committed to growth assets so your sacrifice of time and effort spent working now will be worth much more in the future as your investments grow and compound over the longer term.
It is important to understand that if you're doing a side hustle to pay for food, rent and other day-to-day expenses, it's really just a second job. This could be a sign that your expenses are higher than your income, which means you may need to consider reducing your expenses or that you're being underpaid.
Don't waste your time working extra hours to then just consume that money. Put it to use! And if you aren't planning to do something longer term with your hustle money, only commit to the hustle for as long as you're paying off your debt to ensure you're not overcooking yourself.
You might say, ‘Glen, I love doing photography/graphic design/catering on the side and I'm happy to have it as my side hustle long term’. Awesome. Do that. It sounds like a great hobby that you'll get paid for. I just want you to have your own wellbeing in mind. Because if you are on the grind for a long period of time, your finances might be looking pretty, but it might be costing you in other areas of your life (mental health, relationships).
I don't want to treat you, my dear reader, like you can't think for yourself. This is why I will give examples to prompt you and to point you in the right direction. You know how the four examples above will best fit into your personal situation. I want you to be the best version of you. If this means you will be hitting the pub — to pour beer, that is, after hours for a short stint to clean up your debt — awesome.
If you're going to side hustle and are contracting through an ABN, it might be worth setting aside a modest amount of what you earn, say 25 per cent, in a separate online bank account for tax. You can review this as time goes by, but I would rather you have the money sitting in an account ready to pay the Australian Tax Office (ATO) than not having any money to pay a bill come tax time!
Just on side hustles, please remember that you don't need to start a side hustle out of guilt — because ‘everyone is doing it’ — or boredom. People often waste time and money on pursuing side hustles when these finite resources could be used towards other effective goals or investments, such as further study or professional development in order to increase income at your main source of employment.
HECS/HELP debt
Many people under 35 carry HECS/HELP debt — and that's okay. Even if you are over this age, it is still okay. Investing in education is fantastic because it can improve your opportunities in the employment market. If you're working in the area of your study, you've probably found it was a great investment. If not, don't worry — HECS/HELP debt is a very inexpensive loan from the government.
I don't believe you should rush to pay your HECS/HELP debt off because it currently isn't charged interest. However, every year on 1 June the ATO does apply ‘indexation’ to HECS and HELP debt. This means that your HECS/HELP debt is adjusted each year so the debt maintains its real value to keep up with changes in the cost of living in Australia. The government has loaned you money for your studies and annual indexation ensures that the government doesn't lose money to inflation over time. In 2021 the indexation rate was 0.6 per cent and there were different repayment rates (ranging from 1 to 10 per cent) depending on your annual income.
For example, if your debt was $25 000 on 1 June 2021 the ATO would apply the indexation rate of 0.6 per cent and increase your HECS debt by $150 ($25 000 multiplied by 0.6 per cent). An annual income of $60 000 attracts a compulsory repayment rate of 2.5 per cent, which means that your employer would withhold $1500 to give to the ATO. This would have been applied against your HECS/HELP debt when you filed your tax return for 2021.
You may think it will take 20 years to pay off the HECS/HELP debt at that rate, but if your salary doesn't increase at all over 20 years, you may have bigger problems to worry about!
Two other reasons for not paying off this ‘indexed loan’ with voluntary payments are as follows:
Any debt dies with you (RIP). Any extra payments made towards your HECS/HELP debt will not flow through to family or dependants following your premature death. You could have paid that extra money down on your mortgage, super contributions or other investments — and that money would then flow through to your estate beneficiaries (as either cash or assets, which may have possibly grown over time).
Voluntary HECS/HELP repayments are not tax deductible to you. You can't claim them on your tax return and benefit from paying less tax.
It is my prediction that at some stage in the future a new government will move to change the current policy so that a deceased person's estate must clear the remaining debt. But even if this does occur, I would not change my view on not paying it down early.
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