August 9, 2007

As far as I understand, a lot of self-employed people get the opportunity to defer all their tax payments until the end of the year.

I’d like to learn more about this as it seems that this a wonderful opportunity to earn money on behalf of the tax man.

So if you’re Australian and expecting to pay lots after July 1, I’d recommend doing the tax return as early as possible (July 1, 2, whatever) to find out how much you’ll owe. But here’s the key : you don’t submit your tax return until much later. You just take your tax liability, invest it somewhere, collecting the interest and only pay your tax obligation when you absolutely have to. (Ie. when the risk of potential fines outweighs the investment benefits.)

Hmmm I wonder if anyone I know does this already. And I also wonder if anyone does this on their GST contributions.

 *edit* I’m still reading the voluminous works of Travis Morien as linked to below, and just bumped into him mentioning that this is why people keep their money in companies. If they don’t withdraw it as dividends from a company, they’re able to keep it in there at the lower tax rate which means the difference can then be re-invested. When reading any of his stuff remember that it may be dated. Most content - if not all - was written before 2007.*/edit*

And I wonder how a self-employed person (such as Pete) finds managing all that stuff on their own. I can imagine it would get very tedious after a short while.

Other interesting points : self-employed people can claim a deduction on their initial super contributions; home investors can claim tax on interest as much as 13 months ahead by paying interest in advance - not only this, but the lender often will give a discount on these payments; investment in agriculture is tax deductible.

The recent rate rise has got me thinking a lot of about investing money.

I’m actually quite happy about the latest interest rate rise, specifically because the housing market needed reining in big time. It needs more reining in. I feel sorry for my parents, but all the kids advised them against the purchase of their current house. Hopefully the rise doesn’t cause them to suffer too much. The opposite is true for me, I sat down last year in a bit of a panic about housing affordability and have decided for the short term at least, to manage my money such that interest rate rises become the best thing since sliced bread.

Travis Morien investment FAQ, some of his presentations, and an article about lowering risk in investing. This is the site I have been reading, and it’s wonderfully validating that I have had a lot of the same ideas as experts… (Such as buying good companies in the worst performing sectors on the stock market, buying into index funds around the world…)

There’s an enormous wealth of information and all of it is worthwhile. Morien talks in simple language that makes these sometimes difficult concepts easy to understand. And it’s also not a hypey sales pitch like all the con artists. The fact that he is basically preaching Buffett gives him a huge tick in my eyes.

There’s an article at my work quoting Warren Buffett, the greatest investor in the world today by a country mile, on his basic principles. He’s currently second richest man in the world, and has made all of that just by investing prudently. I quote:

1. “Our favourite holding period is forever.”

2. “Risk comes from not knowing what you’re doing.”

3. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

4. “If a business does well, the stock eventually follows.”

5. On gold: “It gets dug out of the ground in Africa, or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

6. “Time is the friend of the wonderful company, enemy of the mediocre.”

7. “Only when the tide goes out do you discover who’s been swimming naked.” (A great reason to buy stocks in sectors that have been smashed. It exposes the pretenders.)

8. “We simply attempt to be fearful when others are greedy and greedy only when others are fearful.” (Or as someone else said : “if your taxi driver is talking about it, it’s time to get out.”)

9. “It’s better to hang out with people better than you… Pick out associates whose behavious is better than yours and you’ll drift in that direction.”

10.”The smarter the journalists are, the better off society is. For to a degree, people read the press to inform themselves - and the better the teacher, the better the student body.”

Bonus quote:

11. “You pay a high price for a cheery consensus .”