Planning For Long Term Wealth Creation Essay Example


Cash flow statements typically have three sections; operations, investment and financing components. Cash flow from operating activities is the main source of an individual and company’s cash generation. The net income is to be adjusted to reflect non-cash charges and also working capital items increases and decreases. Debt and equity form the cash flow from financing component. Individuals borrow money occasionally and they are thus required to repay debt. Ann has a HECS debt of $24,000 and she also has a debt of a personal car loan. In addition, she needs to pay $15,000 credit card debt. The investment activities component of a cash flow statement consists of transactions that generate cash outflows. Cash flow analysis provides a way showing the amount of money generated and that which is spend for a year.


Cash flow statement

Net cash flow 90000


Rental expenses 18200

Personal expenses 20000

Total net cash inflow 51800

Increase in creditors (15000)

Cash generated from earning 36800

Tax paid 11040

Interest paid 4914
( 15954)

Net cash inflow 20846

Returns from investing activities

Dividends from shares 120

Frank credit 5142.85

Net cash inflow 15583.15

Financing activities

Loan repaid to HECS ( 24000)

Net decrease in cash and ( 8416.85)


Bank balance 2000

Cash and cash equivalents (6416.85)

At the year end

Advice on Savings

Ann should consider cutting down expenses on luxury items. This will enable her save more which she can use in settlements of her debts and payment of bills. She should also prioritize paying for basic items first before spending any amount on luxury items. Furthermore, she should reduce partying and holidaying overseas to enable her use savings more efficiently.

Calculation of HECS-HELP payment amount

Ann has a HECS-HELP debt of $24,000 which she has to pay. In repaying HECS-HELP loan, there exists no real interest charged but the HECS-HELP debt is being indexed every year to reflect consumer price index changes in maintaining its real value (Study Assist 2014). Australian Taxation Office is responsible for making indexation adjustment on every year on 1st June which will apply to the debt unpaid for the last eleven months or more. The indexation rates that are applied to HECS-HELP debts are as follows; 2013-2.0%, 2012-2.9%, 2011-3.0%, 2010-1.9%, 2009-3.9%, 2008-2.8%, 2007-3.4% and 2006- 2.8 % (Australian Taxation Office 2013).

Ann HECS-HELP payment amount will be calculated as follows:

$24,000*2.0%= 480

Total payment amount is $ 24,480.


Ann has a debt of personal car loan and she is paying $350 monthly towards servicing the loan. Normal tax deduction is applicable to Ann’s personal car loan payable to cover running costs and depreciation which is calculated on a pro-rata basis by the Australian Taxation Office. Another possible tax implication to Ann concerns the credit card debt settlement. She may need to pay some tax to the Australian Taxation Office after settling her credit cards debt.


Australian Taxation Office 2013, HELP indexation rates, Commonwealth of Australia, accessed 05 May 2014, <>.

Jury, T. (2012). Cash Flow Analysis and Forecasting The Definitive Guide to Understanding and Using Published Cash Flow Data. Hoboken, John Wiley & Sons.

Marsden, S. J. (2010). Australian master bookkeepers guide [2009/10]. North Ryde, N.S.W., CCH Australia.

Mulford, C. W., & COMISKEY, E. E. (2005). Creative cash flow reporting: uncovering sustainable financial performance. Hoboken, N.J., J. Wiley.

Study Assist 2014, HECS-HELP, Department of Education, accessed 05 May 05 2014,