Thursday, January 04, 2018

Annual Accounts 2017

This is our annual account - the sum of each of the monthly accounts I've posted - in Australian Dollars (one Aussie Dollar is currently 78 US cents - see accounts in USD at the end of this post). First a reminder about how these accounts are laid out: Current account is all non-retirement accounts and housing account income and spending. Then the other two are fairly self-explanatory. But housing spending only includes mortgage interest. Property taxes etc. are included in the current account. There is not a lot of logic to this except the "transfer to housing" is measured using the transfer from our checking account to our mortgage account. Current other income is reported after tax, while investment income is reported pre-tax. Net tax on investment income then gets subtracted from current income as our annual tax refund or extra payment gets included there. Retirement investment income gets reported pre-tax too while retirement contributions are after tax. For retirement accounts, "tax credits" is the imputed tax on investment earnings which is used to compute pre-tax earnings from the actual received amounts. For non-retirement accounts, "tax credits" are actual franking credits received on Australian dividends and the tax withheld on foreign investment income. Both of these are included in the pre-tax earning but are not actually received month to month as cash.... Finally, "core expenditure" for housing is the actual mortgage interest we paid. "expenditure" adds back how much interest we saved by keeping money in our offset account. We include that saved interest in the current account as the earnings of that pile of cash. That virtual earning needs to be spent somewhere to balance the accounts... It is also included in the "transfer to housing". Our actual mortgage payments were less than the number reported by the $8k in saved interest. For current accounts "core expenditure" takes out business expenses that will be refunded by our employers and some one-off expenditures. This year, I think there are none of those one-off expenditures. Oh, "saving" is the difference between "other income" net of transfers to other columns and spending in that column, while "change in net worth" also includes the investment income.

We earned $201k after tax in salary, business related refunds, medical payment refunds, tax refunds etc. We earned (pre-tax including unrealised capital gains) $107k on non-retirement account investments. Both of those numbers were up strongly from last year as Moominmama went back to work and investment markets performed very strongly in the first year of the Trump Administration. Total current after tax income was $308k. Including mortgage interest we spent $101 up 7.5% from last year.

$7.6k of the current investment income was tax credits, which actually was down on last year. Finally, we transferred $50k in mortgage payments (and virtual saved interest) to the housing account. The change in current net worth, was therefore $160k. Looking at just saving from non-investment income, we saved $60k. Both these numbers were up strongly from last year.

The retirement account is a bit simpler. We made $47k in after tax contributions and the value rose by an estimated additional $126k in pre tax returns. $15k was the estimated tax on that and so the increase in net worth was $158k. Taxes are just estimated because all we get to see is the after tax returns. I do this exercise to make retirement and non-retirement returns comparable.

Finally, the housing account. We spent $14k on mortgage interest. We would have paid $23k in mortgage interest if we didn't have an offset account. I estimate our house is worth $2k more than I did last year based on recent sales in our neighbourhood. After counting the transfer of $50k into the housing account housing equity increased $31k of which $27k was due to paying off principal on our mortgage.

In total net worth increased by $350k, $135k of which was saving from non-investment sources. Comparing 2017's accounts with the 2016's, we saved 34% more and net worth increased by 61% more. Total after tax income was almost half a million dollars, up 52% on last year. It is hard to get my head around that number and reconcile it with our fairly modest lifestyle. Of course, most of it was earned in retirement and non-retirement investment accounts and it includes a lot of notional unrealized capital gains. In 2008 we had a net loss of $150k...

Here are the same accounts expressed in US Dollars:

Because of exchange rate movements "non-core" investment earnings don't translate from one set of accounts to the other at a regular exchange rate. The "core investment earnings" takes out that exchange rate movement.

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