As per a recent survey, about 48% of Australians live paycheck to paycheck.
With rising inflation and economic uncertainties, understanding how to manage your finances when income decreases has become more crucial than ever.
So to help you with that, let’s have a quick look at 5 steps you can take when your income takes a hit.
1. Immediate Financial Assessment And Tax Position Review
Understanding Your Total Tax Exposure
Before making any financial decisions, it’s crucial to understand your complete tax position. Many Australians focus solely on income tax return, overlooking the cumulative impact of various tax obligations:
| Tax Type | Key Considerations | Impact on Reduced Income |
|---|---|---|
| Direct Taxes | Income Tax, Medicare Levy | Immediate impact on take-home pay |
| Indirect Taxes | GST, Fuel Excise, Stamp Duty | Affects daily living costs |
| Capital Gains | Investment Sales, Property Disposal | Consider timing of asset sales |
Actionable Tax Strategies
When income reduces, your tax position often presents opportunities for optimisation:
Superannuation Benefits
- Concessional contributions cap: $27,500 annually
- Tax rate of only 15% on contributions
- Zero tax on earnings in retirement phase
- Catch-up contributions if balance below $500,000
Investment Structure Review
- Consider trust structures for income streaming
- Evaluate negative gearing opportunities
- Assess franking credit benefits
- Review debt recycling possibilities
2. Comprehensive Budget Restructuring
Essential Expense Analysis
Create a detailed breakdown of expenses using the following framework:
| Category | Priority Level | Review Actions |
|---|---|---|
| Housing Costs | Critical | Mortgage/rent review, refinancing options |
| Utilities | High | Provider comparison, usage reduction |
| Insurance | High | Policy consolidation, coverage review |
| Transport | Medium | Cost-effective alternatives |
| Groceries | High | Bulk buying, supplier switching |
| Debt Payments | Critical | Refinancing, hardship provisions |
Financial Buffer Creation
Establish emergency reserves through:
- Liquid asset maintenance
- Credit facility review
- Asset liquidation strategy
- Payment plan arrangements
3. Income Protection And Enhancement
Protecting Existing Income
- Review employment contracts
- Understand redundancy entitlements
- Assess insurance coverage
- Document all income sources
Strategic Income Development
| Strategy | Implementation Timeline | Tax Implications |
|---|---|---|
| Skills Monetisation | Short-term | Regular income tax rates |
| Asset Utilisation | Medium-term | Consider CGT implications |
| Investment Income | Long-term | Potential tax benefits |
| Side Business | Variable | Business structure considerations |
4. Investment And Wealth Protection
Investment Portfolio Review
Risk Exposure Analysis
Conduct stress testing of your portfolio against market downturns
Review geographical diversification across Australian and international markets
Assess sector concentration risks, particularly in volatile industries
Evaluate currency exposure in international investments
Review correlation between different investments to ensure true diversification
Asset Allocation Restructuring
Fixed Income Securities: Government bonds, corporate bonds, term deposits
Property Investments: Direct property, REITs, commercial property trusts
Equities: Blue-chip stocks, small-cap growth stocks, international shares
Cash Holdings: Emergency funds, short-term investment opportunities
Alternative Investments: Infrastructure, commodities, private equity
Investment Timeframes
Short-term (0-2 years): Focus on capital preservation and liquidity
Medium-term (2-5 years): Balanced approach with moderate growth
Long-term (5+ years): Growth-focused strategies with higher risk tolerance
Tax Efficiency Measures
Capital Gains Tax minimisation strategies
Dividend imputation benefits maximisation
Investment bond tax advantages
Timing of buy/sell decisions for tax purposes
Debt Management Strategy
Mortgage Optimisation
Interest rate negotiation with current lender
Refinancing options assessment
Offset account maximisation
Principal reduction strategies
Fixed vs variable rate analysis
Investment Loan Management
Interest capitalisation opportunities
Cross-collateralisation risks
Loan-to-Value ratio monitoring
Interest rate hedging strategies
Tax deductibility maintenance
Personal Debt Consolidation
High-interest debt elimination priority
Balance transfer opportunities
- Debt consolidation loan assessment
- Payment hierarchy establishment
- Interest rate reduction negotiations
5. Long-term Financial Resilience Building
Superannuation Optimisation
Contribution Strategy
Salary sacrifice arrangements
Personal deductible contributions
Government co-contribution eligibility
Spouse contribution benefits
Catch-up contribution opportunities
Contribution splitting strategies
Investment Mix Assessment
Growth vs defensive asset balance
Sector diversification requirements
Fee structure analysis
Performance benchmarking
Risk alignment review
Insurance Within Super
Death cover adequacy
Total and Permanent Disability coverage
Income protection limits
Premium cost efficiency
Claims process understanding
Beneficiary Nominations
Binding vs non-binding nominations
Estate planning integration
Tax implications for beneficiaries
Regular review requirements
Special conditions consideration
Tax-Effective Structure Development
Family Trust Benefits
Income streaming flexibility
Asset protection advantages
Generational wealth transfer
Tax rate arbitrage opportunities
Capital gains tax considerations
Corporate beneficiary options
Trust deed requirements
Annual distribution planning
Investment Company Advantages
Flat tax rate certainty
Dividend franking benefits
Reinvestment opportunities
Succession planning benefits
Director remuneration options
Corporate tax concessions
Capital raising potential
Self-Managed Super Fund Considerations
Investment control benefits
Direct property investment options
Related party transaction rules
Sole purpose test compliance
Investment strategy requirements
Audit and reporting obligations
Trustee responsibilities
Succession planning options
Partnership Structure Analysis
Income sharing arrangements
Capital contribution requirements
Liability considerations
Tax treatment clarity
Exit strategy planning
Partnership agreement essentials
Asset protection measures
Get Help With Your Taxes
If recent financial changes have impacted your income, you don’t have to navigate it alone. At KPG Taxation, our expert accountants are here to support you with tailored advice and strategies to maximise your refund and manage your finances effectively.
Connect with us to take control of your financial future with confidence—reach out today to get started!
