Nomad Experiences in the US, MM and AU

I feel like posting today. Currently at Starbucks, read a few chapters on Millionaire Habits, and just feel like posting something now. Could be the caffeine finally kicking it as it’s dark roast today on my White Chocolate Mocha.

My 10+ years working in Investment Banking and Financial Services industries made me realize that working up corporate ladder wasn’t my thing. I didn’t mind working the hours starting the day by 8AM checking e-mails before everyone started to settle by 9AM and working past midnight during the monthly, quarterly, and yearend closing periods. Corporate politics was a different story. If sending out an e-mail around 4AM in the morning appeases my Managing Director, then that’s not for me. However, I prefer to get back home before midnight just so that I can at least have a small chat with Kathy on how her day went just before she hits the bed. Money was good including bonuses, but if you actually calculate the total hours worked and using after tax money, then it doesn’t look so appealing. For those weekends when I’m not called into the office, I prefer to just chill with Kathy. However, to meet with our friends would require scheduling a few weeks if not a month in advance. There’s also consumerism. We don’t do much of that since we invested about 50% of our earnings, and I’m thankful that I’ve learned personal finance and investing in my early years. Thank You for the Coffeehouse Investor and The Motley Fool, and thank you my brain for actually working, and thank you for my heart for caring about our future. Remember the saying that I wish I could tell my younger self to do certain things? Instead, I’m thankful for my younger self that I did what should have been done.

Life is a lot different now by Age 40. Could be cause most of us have kids and our focus is on them now. For our friends and relatives whom are DINKS (Dual Income, No Kids), I’m not seeing many of them enjoying life as they should be since they have that personal freedom. Some have decided to relocate out of the US and move internationally (as we did), but I’m not seeing that they’re truly maximizing their happiness. Could be that their employer only allows for a few weeks of vacation during the year. Could be the higher cost of living. Many reasons.

After relocating to MM, it opened my mind. Cultural shock. Unlike the US where many focuses on consumerism, their fancy this or that bag or gadget or car, or greed where they manipulate if not exploit the more vulnerable, MM is more transparent. However, this being said, some are more genuine than others (mainly female), and the males are more controlling, ignorant and arrogant. Just because I’m not white doesn’t mean I’m not an Expat. I’m still an Expat. When I was a Consultant for a few companies, most of the females were more eager to learn from my experiences, my methods, and my techniques. I can sense that their brains were churning and a steep learning curve, but their excitement was definitely there. I felt valued. Not only to the employer whom I had a Consultant job to do, but I built positive energy as I was sharing my experiences and felt that I was being valued. Not used. Valued, since after they learned certain techniques from me, they’ve applied it on their jobs. It wasn’t part of my consultant responsibilities either since the scope is different, but knowing that I can save them hours of work and focused on efficiency and minimize errors was eventful.

After relocating to Australia and based from my experience living here in Australia, the government doesn’t favour higher income earners for those salaried paid workers. The progressive tax system is much higher, and there really aren’t much deductibles unless you’re self employed. Income earners pay hefty taxes, so they have much less disposable income. Only the SG (Super Guarantee) on Superannuation is a favorable thing. As of to-date, we’re at 11.5% paid by the employer. We’re also taxed at 15%, and withdrawals are tax free upon pension age. It makes even the US 401K Company Match look like a joke. Another advantage is that Australia has a tax free threshold up to 18.2K. If you include the LITO, then it’s up to 21.9K income tax free (18.2K + 700/19%). For Joint, so if Kathy decides not to work, then 21.9Kx2=43.8K income tax free. I understand that LITO of 700 covers up to 37.5K, but prefer not to be taxed at 19% above the 18.2K threshold. Let’s do some analysis. Being taxed at 19% between 18.2K-to-37.5K is 3.67K-.7K=3K. 3K/37.5K=8%, but 3K/19.3K=15.5%. To offset the 3K taxes, would mean 3K in Franking Credits, so would need about 7K in dividends fully franked for about 3K in Franking Credits. 7K in Dividends at about 6% rate would require about 116K investments. That’s the easy part. The harder part would be to make an additional 19.3K in realized gains to cover the next threshold. At 8%, would be 19.3K/8%=241K investments. That’s 241K-116K=+125K in additional investments. Our Mortgage Interest Rate is currently at 6.79%, so doesn’t make much sense for me to risk more through trading, when we’re guaranteed cost savings in interest fees with no risk. Makes more sense if we just stick with our target realized of 21.9K income through trading (less comms) and DFC while utilizing LITO.

If we include Dividends and Franking Credits (Imputation Credits), Franking Credits are tax credits so that’s even more beneficial. Although Franking Credits are added to assessable income, it’s credits so it’s free cash flow. However, I’ve noticed that the tax free threshold is not indexed to inflation, so in today’s currency, would be vastly different than 5 years from now, and so on.

For US taxes at 10% under 11.6K USD, but 12% up to 47K USD. Excluding Standard Deductions from our calculations, 47K USDxFX 1.5=70K AUD taxed at 12%, so 8.4K AUD. 70K AUD income tax is about 18.9%, or 13.2K, so essentially we’d be paying an additional 13.2K-8.4K=4.8K in taxes. No thanks. Prefer to utilize our FTC on the US side, and we remain tax free on the AU side. Thank you very much.

Now for US Taxes, as a US Citizen we have to pay worldwide tax, but if you account for FTC (Foreign Tax Credits) and since Australia is a higher taxed country, it’s actually more beneficial since we have accumulated positive credits. We’re in the accumulation phase, so utilizing FTC’s aren’t pertinent at this point, but can be included as part of our Financial Planning. Filing FBAR is annoying though as we would need to keep track of every single bank account. I mean who does that? As for Superannuation, it’s good that we no longer need to include our Superannuation investments as part of our US tax return as realized gains, so I’m pushing hard on Income Funds, ETFs and PFICs an all the way. As for ETFs in Taxable Account, our US Accountant is filing as ordinary dividends, even though I don’t think it’s accurate, don’t care either way since it’s their CPA license on the line. Since our investments are streamlined directly to the ATO, we don’t need source documents when we file our AU taxes. I only use it as reference to record the Contract Buys/Sells to ensure that I recorded it properly on our Dashboard, as well as deducting our total commissions paid for the trading fees to include these costs on my cost basis. As for the US, even the mark-to-market isn’t accurate since Australia is on fiscal calendar (June ending), and US is on calendar year (December ending). US doesn’t use CL strategy on ETFs, and Australia can use CL strategy on ETFs. Once again, these restrictions doesn’t work, so maybe classifying all funds (including ETFs) as ordinary dividends is easier.