Sunday, July 11, 2004

Happy New Financial Year (Part 1)

As of July 1st it's a new financial year here in Australia. Seeing as that's also coincided with the end of my day job, it's a good time to revise the budget for the next 12 months.

I've wondered how much detail to provide on this topic. Cash flow is the number one issue for a startup business and so vital to my discussions here but it is also quite private information. That said, I really I don't care if people know how much money I'm making, especially since I've made it no secret that the answer to that question is "not a lot". It's a deliberate choice I've made and so far I'm very happy with that choice.

So I've decided to talk about it and to post a fair amount of detail about both my business and personal finances. Since the business finances are a bit complicated I'll make it really simple and just state how long it would take before the business was bankrupt if there was no income coming in. The personal finances are nice and simple so I'll just talk about the actual dollar amounts.

The business finances

I think I've previously mentioned that I have a few months worth of expenses saved up. I won't mention the exact amount but as of today the business has enough cash reserves to pay my wage, the office portion of my rent and other expenses for approximately 9 weeks which is around the beginning of September. That sounds pretty grim but remember it assumes that I receive no further income whatsoever which won't be the case. It is the worst case scenario though so that seems like an appropriately pessimistic way to measure the health of the business.

My personal finances

When it comes to personal expenses I'm going week to week. There's no personal nest egg I can access although I can draw more from the business in emergencies.

I currently pay myself $325 per week after tax which is a very big drop compared to what I was paying myself 12 months ago. For those who aren't Australian the average weekly wage here is $948 per week ($722 after tax), unemployment benefits are $195 per week and a Big Mac costs around $3. I'm a single guy with no financial commitments which is really the only reason I can get away with such a comparitively small weekly wage.

So that's the income side of things, now for the expenses. For the last 6 weeks of the previous financial year my personal expenses averaged $394 per week. That's quite obviously more than I'm paying myself, $71 more, so something needs to be done.

Here's the breakdown of that $394 per week, see if you can spot where I'm planning to reduce my spending.

Rent$135
Groceries$63
Trains, buses and taxis$21
Bank fees and interest$13
Miscellaneous$162
Total$394

The miscellaneous category which is largely the money I spend on entertaining myself is the obvious candidate to make cuts to. Those bank fees are higher than I expected though. I'd rather spend that $13 on miscellaneous items like beer and movies than contribute to another record profit for the National Australia Bank.

I'll leave this for now and continue it later by properly defining my personal spending budget and laying down some strategies for sticking to it.

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