right to disconnect: The Key Steps for Small Business
Small Business

Right to Disconnect: Key Steps For Small Business

August 28, 2025
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“A calm environment is for after I finish work” – Lee Child, British Author

In business, momentum matters – but so does the pause.

The right to disconnect is Australia’s newest workplace reform, designed to draw a firm line between “on the clock” and “off the clock.” It’s not about removing your ability to reach staff – it’s about clarity, consent, and respect for balance.

At Bishop Collins, we don’t just crunch the numbers – we aim to support business owners with building a sustainable, human‑first organisation.

This guide breaks down what the right to disconnect means for your business and how to prepare with confidence as the change hits small businesses on 26 August 2025.

What is the right to disconnect in Australia?

In short, this law means employees can refuse to monitor, read or respond to work-related contact outside of their ordinary working hours, unless refusing is considered unreasonable. This applies to contact from you as the employer, or from a client, supplier or third party.

But here’s the good news: you’re still allowed to reach out. The difference is whether your team are expected to respond. If it’s late at night and not urgent – don’t expect a reply until morning.

When does the right to disconnect apply?

  • It already applies to medium and large employers (15+ staff). 

  • It will apply to small business employers (fewer than 15 staff) from 26 August 2025

If you’re a small business, now is the time  to adjust policies, and set expectations with your team. 

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Right to disconnect and employee’s personal circumstances

The legislation doesn’t take a one-size-fits-all approach.

Whether a refusal is reasonable or not depends on context – especially the employee’s personal circumstances, including any family or caring responsibilities.

If a team member is picking up their kids at 5.30pm, a 6pm Slack message about tomorrow’s job brief may not be fair game. But if they’re the on-call manager and a key system goes down, you’re well within reason to expect a reply.

Managing hours contact: It’s about predictability, not punishment

You’re not banned from making contact. But you do need to manage expectations about hours of contact outside of regular schedules.

That starts with asking:

  • What’s your team’s normal working hours?

  • Do they know how to handle after-hours messages?

  • Are you compensating those with higher levels of responsibility or availability?

How does employee’s refusal work in practice?

If an employee reasonably refuses contact – based on the following factors:

  • the urgency of the message

  • how disruptive it is

  • their personal circumstances

  • whether they’re paid extra for after-hours availability

— then they are protected by law and can’t be penalised. As a business owner, it’s wise to embed these expectations clearly, not only in policy but in culture.

Right to disconnect and modern awards: Know your obligations

As of August 2024, every modern award in Australia includes a disconnect clause.

These vary by industry and could have more detailed rules around on-call hours, rosters, or emergency procedures.

If your business relies on an award or enterprise agreement, it’s worth reviewing how those terms interact with your expectations. If you’re unsure, we can connect you with advisers who are best placed to help you interpret these agreements including how they  practically apply to your circumstances. 

Right To Disconnect: Practical advice for small business employers

Getting ready for this change doesn’t have to be complex. Here’s what we recommend:

1. Review your employment arrangements
Define working hours in contracts and PDs. Be clear on when staff are expected to be available, and when they’re not.

2. Communicate your policy early
Let your team know how you’ll be handling out-of-hours contact. Define “reasonable” in your own context – don’t wait until a dispute.

3. Build a simple disconnect policy
Use plain language. No jargon. Just clarify the process for after-hours expectations and the approach for grey areas.

4. Track hours and additional work
Make sure anyone working additional hours is accounted for and that your payroll, HR, and compliance systems reflect that accurately.

5. Prepare for disputes before they escalate
If a disagreement arises, it must first be dealt with at the workplace level. If unresolved, it may move to the Fair Work Commission – so it’s in your best interest to resolve issues early and document your approach.

Why this matters for your business

This isn’t just a workplace rule or compliance – it’s a cultural shift for your business.

It’s a major change that will affect retention, trust, and performance. Setting fair, predictable boundaries helps you:

  • Build stronger, more reliable teams

  • Reduce burnout and unplanned absences

  • Attract talent looking for flexible, respectful employers

  • Avoid costly compliance breaches

At Bishop Collins, we believe success isn’t built on pushing harder – it’s built on working smarter, with empathy and foresight.

Your people are your greatest asset. This law helps you protect that asset – and we’re here to help you get it right.

What if I need to contact employees outside their working hours?

You absolutely can – especially in emergencies or if it’s been previously agreed. The issue isn’t the contact itself – it’s the expectation to respond.

If you regularly need out-of-hours input, think about:

  • Assigning responsibility with compensation

  • Creating an agreed stand-by roster

  • Including expectations in your employment agreements

Fair Work Ombudsman: Right to disconnect resources to Help You Prepare

Getting your business ready for the right to disconnect doesn’t have to be overwhelming.

The Fair Work Ombudsman (FWO) has put together a range of helpful tools to make the process easier – especially for small business owners.

Whether you’re setting policy for the first time or fine-tuning an existing policy, here’s what’s available to support you:

1. Understand the Rules and What Makes a Refusal Unreasonable

The FWO explains the legal framework in plain English, including how to assess if an employee’s refusal to respond to contact outside their working hours is unreasonable. These guidelines are a great place to start when shaping your internal approach.

2. Industry-Specific Examples and Award Information

You’ll find tailored examples relevant to your sector and modern award information that could affect how the disconnect term applies to your team.

3. Busting Myths and Starting Conversations

There’s a whole section that debunks common misunderstandings – like whether employers can still reach out, or how to frame these discussions without creating friction.

4. Dispute Resolution Guidance

Learn how to deal with disputes at the workplace level first, and what to expect if a matter needs to be escalated to the Fair Work Commission.

5. Videos for Small Business Employers

The FWO has created three short videos, specifically designed to help small businesses prepare for the changes. The videos cover:

  • What the new rules are and how they apply to small business employers

  • How to have productive conversations with your team about after-hours contact

  • Steps you can take now to set expectations and reduce future risk

Watch the videos and explore these resources now on the Right to Disconnect page.

Also worth noting: Casual conversion changes

From 26 August 2025, eligible casual employees in small businesses can request to convert to permanent part-time or full-time work under the employee choice pathway.

If you receive a written request, there are rules you’ll need to follow, including:

  • A proper consultation process

  • A timely and compliant written response

The FWO also provides a free template to help guide your response and avoid compliance missteps.

Learn more and access the template on the Becoming a Permanent Employee page.

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What’s next for the right to disconnect?

With the right to disconnect taking effect for small businesses in August 2025, now’s the time to prepare.

  • Review your contracts and awards

  • Set clear expectations around communication

  • Consider how human resources, policies, and compliance can support your team

  • Build boundaries that promote high performance and healthy culture

Need help making it practical?

Let’s chat. At Bishop Collins, we guide businesses through tax compliance and beyond.  

You’re not alone in business – and you don’t need to navigate this alone either.

About the author

Phillip Keenan

As a child, Phil grew up in the Surf Life Saving culture, spending time surfing and volunteering at the beach. This upbringing of helping others, combined with a love of all things business, led Phil to Accounting. Phil has been a part of the Bishop Collins team since 2009. Upon graduating from Newcastle University in 2004, Phil went on to complete his CA in 2007 and his Master of Taxation in 2012. Phil excels in reviewing business structures for tax efficiency and asset protection. Passionate about property investment and development, Phil enjoys surfing, cycling, and family camping trips with his daughters, Millie and Isla.

ATO Interest Charges GIC no longer deductible from 1 July, 2025
Small Business Taxation & Tax Tips

ATO Interest Charges Not Deductible from 1 July 2025: What Businesses Need to Know

June 23, 2025
late payment, ato tax, pay, taxpayers, remit gic

From 1 July 2025, a quiet but significant tax change is coming: interest charges from the ATO will no longer be tax deductible.

This means late tax payments will become even more costly for Australian businesses and individuals. If you’re managing a growing business and have  substantial overdue tax obligations, this is one change you can’t afford to overlook.

At Bishop Collins, we help you stay ahead of the curve – not just compliant, but confident and tax-effective. Here’s what you need to know.

What is the ATO interest charge?

The ATO interest charge, known as the General Interest Charge (GIC), is the interest the ATO applies when a tax debt isn’t paid by the due date. Think of it as the ATO’s version of interest on a bank loan  –  it’s not a flat penalty, it’s a daily compounding interest charge.

The ATO also applies the Shortfall Interest Charge (SIC) when you’ve paid less tax than you should have – say, due to an error in your income tax return or activity statements.

Why does the ATO charge interest?

The purpose of these charges is twofold:

  1. Encourage timely payment of tax debts.

  2. Prevent an unfair financial advantage for those who delay paying their tax obligations.

The rules are backed by the Taxation Administration Act, designed to ensure fairness in the system.

How much is the ATO general interest charge?

As of 1 July 2025, the GIC rate  will change to 10.78% per annum – considerably higher than most secured business loan rates. It’s tied to the Reserve Bank’s 90-day bank accepted bill rate plus an uplift factor. The Shortfall Interest Charge – SIC rate is slightly lower, reflecting its retrospective application.

So, what’s changing? From 1 July 2025, these interest charges will no longer be deductible for income tax purposes. That means if you’re late paying your tax, there’s no longer any tax deduction to ease the sting.

Is general interest charge tax-deductible?

Not for long. Under current rules, businesses and individuals can deduct GIC and SIC as expenses in their tax return. This changes with the new legislation effective from 1 July 2025, as announced by the ATO.

This shift is intended to encourage timely payment and aligns with the broader push for improving tax compliance across Australia.

What is the difference between general interest charge and shortfall interest charge?

  • General Interest Charge (GIC): Applies to unpaid taxes after the due date, including payment plans.

  • Shortfall Interest Charge (SIC): Applies when a tax shortfall is later identified, likely as a result of an ATO review or audit.

Both serve to recoup the economic cost of late or incorrect payments.

What you can do: minimise impact, maximise advantage

This upcoming change should prompt a fresh look at your tax liabilities and strategy:

✔️ Pay on time

Avoid GIC and SIC by paying your tax payable by the due date. It’s now more expensive not to.

✔️ Use structured finance, not the ATO

If you’re tight on cash, short-term business loans could be cheaper than racking up interest charges. And unlike ATO interest, commercial finance interest remains deductible.

✔️ Review your tax affairs now

Proactively manage your tax obligations, check for errors in your income tax return, and address potential shortfalls before they attract interest.

✔️ Talk to us

Whether you need help understanding the SIC rates, assessing your tax debts, or revising your payment plan, Bishop Collins is here to help.

Why being proactive pays off

Let’s say you’re hit with a $50,000 PAYG shortfall in FY2026. Under the new rules, if you delay payment for six months at current GIC rates, you’ll pay over $2,700 in non-deductible interest. That’s real money out of pocket.

Compare that with securing short-term finance at 8% – a deductible option that not only costs less but keeps your tax position cleaner.

You’re Not Alone in Business

This change may seem small, but it reflects a broader theme: managing your tax proactively is no longer optional – it’s essential. The good news? You don’t have to go it alone.

Bishop Collins is your partner in navigating tax complexities with confidence. We’re across every change so you can focus on what you do best – running and growing your business.

Need help reviewing your tax strategy?

Get in touch today. Let’s talk about your options to avoid costly mistakes and set up more tax effective systems to take effect during the 2026 financial year. 

About the author

Phillip Keenan

As a child, Phil grew up in the Surf Life Saving culture, spending time surfing and volunteering at the beach. This upbringing of helping others, combined with a love of all things business, led Phil to Accounting. Phil has been a part of the Bishop Collins team since 2009. Upon graduating from Newcastle University in 2004, Phil went on to complete his CA in 2007 and his Master of Taxation in 2012. Phil excels in reviewing business structures for tax efficiency and asset protection. Passionate about property investment and development, Phil enjoys surfing, cycling, and family camping trips with his daughters, Millie and Isla.

payslip with a title stating payday superannuation with Bishop Collins logo in bottom right
SMSF & Superannuation

Preparing for Payday Superannuation: A Business Owner’s Guide to 2026

December 15, 2024

payslip with a title stating payday superannuation with Bishop Collins logo in bottom right

PHIL_3_3500

Phil Keenan

Director

The introduction of payday superannuation is set to transform how Australian businesses handle employee superannuation payments.

Starting 1 July 2026, employers will need to align their super contributions with payroll cycles rather than the quarterly system.

It is crucial for employers to make super contributions for eligible employees from the start of their employment to meet superannuation obligations and avoid penalties.

While this change aims to improve employee outcomes, it also places a new layer of responsibility on business owners.

This payday super guide breaks down the changes, highlights potential challenges, and provides actionable insights to help your business prepare for payday super.

What Is Payday Superannuation and Super Guarantee Payments?

Under the current system, employers are required to pay superannuation quarterly. From July 2026, payday superannuation will mandate that super payments be made with each payroll cycle.

This shift is designed to ensure employees receive their superannuation in real-time, reducing unpaid super issues and aligning with modern payroll practices.

Ordinary time earnings (OTE) are used as the base for calculating super guarantee payments and therefore superannuation contributions. This is an important term for employers to understand.

Why the Change To Super Payments?

The Australian Taxation Office (ATO) has identified a significant gap in unpaid superannuation, with $3.4 billion in super entitlements unpaid annually.

Recent crackdowns include issuing 8,710 Director Penalty Notices (DPNs) in the last financial year, underlining the need for businesses to improve compliance. A DPN can make the Director personally liable for the unpaid tax debts of the company which include Superannuation Guarantee Charge.

Failing to comply with superannuation obligations can also result in a superannuation guarantee (SG) shortfall, which may lead to additional administration and interest charges. .

The introduction of payday superannuation aims to:

  • Ensure employees have faster access to their super.
  • Reduce unpaid super cases.
  • Improve long-term retirement outcomes for employees.

Key Challenges for Business Owners with Eligible Employees

While the benefits for employees are clear, the transition to payday superannuation introduces challenges for businesses:

  1. Cash Flow Management: Paying super more frequently could strain businesses with inconsistent revenue streams. It’s crucial to reassess cash flow strategies to ensure super is readily available during each payroll cycle.
  2. Increased Administrative Burden: Employers will need to adjust payroll systems to calculate and process super with every payment. This could mean additional time, resources, or outsourcing to ensure accuracy.
  3. Compliance Risks: The ATO has ramped up compliance measures, issuing penalties and DPNs to directors for unpaid super. Failing to adhere to payday super requirements could result in steep fines and reputational damage. Additionally, non-compliance may lead to the super guarantee charge (SGC), which includes penalties and interest for late or unpaid super contributions.

Super Funds and Eligibility

To comply with the new payday superannuation requirements, it’s crucial that super guarantee payments are made to complying super funds or retirement savings accounts (RSAs) on time.

These funds must meet the Australian Taxation Office’s (ATO) stringent criteria to be considered compliant. Specifically, a super fund must:

  • Be a complying super fund
  • Be registered with the ATO
  • Have an Australian Business Number (ABN)
  • Have a Unique Superannuation Identifier (USI)

Ensuring that your employees’ super funds meet these eligibility criteria is essential to avoid penalties or fines.

Employers have the option to pay super guarantee contributions to a default fund, which is a fund that meets the ATO’s requirements and is chosen by the employer. This can simplify the process, but it’s important to verify that the default fund remains compliant.

By adhering to these guidelines, you can ensure that your super guarantee payments are correctly allocated, safeguarding your employees’ retirement savings and maintaining compliance with ATO regulations.

meeting, tax office, hand, due date

Payment Due Dates and Frequency

Under the current system, super guarantee payments are due quarterly, with specific due dates as follows:

  • 1 July – 30 September: 28 October
  • 1 October – 31 December: 28 January
  • 1 January – 31 March: 28 April
  • 1 April – 30 June: 28 July

However, with the introduction of payday superannuation, employers will be required to make super payments more frequently, such as fortnightly or monthly. Employers have seven days from an employee’s payday for their SG to be received by their super fund. The only exceptions are for new employees whose due date will be after their first two weeks of employment, and for small and irregular payments that occur outside the employee’s ordinary pay cycle.If a due date falls on a weekend or public holiday, employers can make the payment on the next working day.

Compliance and Penalties

Meeting your super guarantee obligations is not just a legal requirement but also a critical aspect of supporting your employees’ financial futures. Failure to comply can result in significant penalties and fines from the ATO. Penalties may be imposed for:

  • Late payment of super guarantee contributions
  • Failure to pay super guarantee contributions
  • Failure to provide required information to the ATO

If you find yourself struggling to meet these obligations, it’s crucial to act promptly.

Making a voluntary disclosure by completing and lodging an SGC statement (NAT 9599) by its due date can help mitigate penalties and personal liability. The ATO is willing to work with employers to establish a payment plan and minimise nominal interest.

The Superannuation Guarantee Charge (SGC) will be updated to reflect the seriousness of underpayment or late payment, with stronger compliance actions for those unwilling to meet their obligations.

This could include additional penalties, making it even more important to stay on top of your super guarantee payments.

For assistance, employers can contact the ATO at 13 10 20 or visit their website.

Additionally, consulting with a registered tax agent or BAS agent like Bishop Collins can provide valuable support in navigating these requirements.

By staying informed and proactive, you can ensure compliance and avoid the costly consequences of superannuation theft or late payments.

How to Prepare for Payday Superannuation and Super Contributions

Here’s a step-by-step guide to ensure your business is ready:

1. Engage Your Accountant or Tax Advisor

Consulting with your accountant or tax advisor is crucial to navigate the changes introduced by payday super. They can help you understand your obligations and ensure you are compliant with the latest regulations. Discussing strategies to avoid DPNs and penalties for late payments may include lodging a late payment offset election to manage superannuation compliance effectively. This proactive approach can save your business from unnecessary fines.

2. Review Your Payroll Systems

  • Consult with your payroll provider to integrate super payments into your payroll software. Many systems already support automated payday super processing.
  • Ensure accuracy in employee details and super fund information to avoid delays.

3. Update Your Cash Flow Forecast for the Due Date

  • Reassess cash flow projections to account for more frequent super payments.
  • Identify periods of potential cash shortfalls and secure working capital finance options if necessary.

4. Communicate with Your Team

  • Inform your finance and HR teams about the changes and provide training if needed.
  • Keep employees updated on how this will benefit their superannuation balances.

5. Leverage ATO Resources

  • Use tools and guides provided by the ATO to ensure compliance.
  • Stay informed about updates or additional support for small businesses.

The Bigger Picture: Supporting Employees and Your Business

While payday superannuation introduces administrative challenges, it’s an opportunity to strengthen employee satisfaction. Employees will appreciate the faster contributions to their super funds, which can improve morale and retention.

Moreover, businesses that embrace these changes proactively will mitigate compliance risks and position themselves as responsible employers.

Payday Super: A Changing Landscape

The shift to payday super represents a significant change in Australia’s payroll landscape. By preparing early, reviewing cash flow strategies, and leveraging professional advice, your business can navigate these changes smoothly.

At Bishop Collins, we’re here to help you understand and implement these new requirements. Whether you need assistance with payroll systems, cash flow management, or compliance strategies, contact our team for personalised advice.

Don’t wait until the last minute – start preparing today.

Because you’re not alone in business.

money jar growth
SMSF & Superannuation

The Ultimate SMSF Trustees Guide | Self-Managed Super Fund

August 24, 2022

money jar growth

PHIL_3_3500

Phil Keenan

Director

And so, it begins… the ultimate guide to a self-managed super fund for trustees. Let’s be honest; twelve hundred words won’t be enough to provide you with all the super fund answers you’re likely looking for. However, it should provide you with enough information to ask the right questions and get started with understanding more about your self-managed super fund.

We’ve broken the ultimate SMSF trustees guide into three distinct parts. Part one focuses on what might motivate you to establish an SMSF. Part two describes what an SMSF is and addresses the rules and regulations you must comply with after establishing it. The third and final part of the SMSF guide summarises the steps required to wind up a self-managed super fund if your circumstances change.

people computer desk

Part One: Why Set Up A SMSF?

There are many reasons why you might choose to set up a self-managed super fund, but they generally fall into a few categories, as outlined below.

Financial Control

The first category is control. Control can take many forms, but in relation to superannuation, it generally refers to having the flexibility to decide:

  • What, when and how much to invest in an asset.
  • What, when and how much to invest in an asset class (cash, bonds, property, shares etc.)
  • When to sell the asset.

Financial control can be empowering and shifts the accountability and responsibility for investment returns to you.

Investment Choice

The second thing to consider is investment choice. A self-managed super fund can invest in shares in unlisted companies and units in unlisted trusts. Your Super Fund can also borrow to invest directly in property or shares and units. This strategy is referred to as gearing and is often used to maximise investment returns in the medium to long term.

Cost-Effectiveness

The third and final item to consider is cost. A self-managed super fund can be a cost-effective way of accumulating retirement savings. The cost-effectiveness of a SMSF will generally depend on the value of your superannuation balances.

There is a lot of misinformation about how much superannuation one should have before considering setting up a self-managed super fund. But in all truth, there is no such thing as the right amount, as what is right is highly dependent on personal circumstances. However, as a general rule, it’s unlikely to be cost-effective to set up a self-managed super fund if the total superannuation balance, including all members, is less than $200,000.

According to the Australian Taxation Office (ATO), the average operating expenses (audit, accounting and tax compliance, management and administration, ATO supervisory levy) of an SMSF with a total superannuation balance of between $200,000 and $500,000 expressed as a percentage of the total value of the assets is 1.2%*.

*self-managed super fund profile | Australian Taxation Office (ato.gov.au).

Part Two: What Is A SMSF, And What Are The Key Rules And Regulations?

At this point, you’ve read part one of the ultimate SMSF trustees guide, and you’ve decided if an SMSF could be right for you. But before you make the final decision, it’s good to know what a SMSF entails.

What is A SMSF?

To qualify as a SMSF, the fund must have less than six members. In broad terms, if the trustees of the SMSF are individuals, each trustee must also be a member. If the trustee is a company, each member must be a director of the trustee company. No member of the SMSF can be an employee of the other member unless the members are related, and the SMSF can’t pay the trustee for their services acting as trustee.

money coins man

What Are the Rules and Regulations Around A SMSF?

Many of the rules and regulations are highlighted in the ATO’s ‘self-managed super fund trustee declaration’. This declaration is published by the ATO and must be executed within 21 days of becoming a trustee or a director of a corporate trustee. A copy of the declaration can be accessed by following the link. Trustee declaration (ato.gov.au).

This declaration sets out the core areas of responsibility under various sub-headings. We’ll explore each of these briefly in turn below.

Super Fund Sole Purpose Test

The SMSF must be maintained solely for the purpose of providing benefits to members in retirement or their beneficiaries if a member dies.

What are the trustee’s duties?

The trustee must implement and review an investment strategy that considers risk, return, diversification, liquidity, and whether insurance is appropriate for the members. The trustee must ensure that the assets of the SMSF are kept separate from their personal assets and take action to protect the assets (evidence and insurance).

Super Fund Investment restrictions

The trustee (acting in this capacity on behalf of the SMSF) must not:

  1. Give financial assistance to a member or relative.
  2. Buy assets from a member or their associate (note, there are exceptions for business property, listed securities and certain in-house assets).
  3. Borrow money on behalf of the SMSF (unless the borrowing is permitted by law).
  4. Buy in-house assets where the asset’s value is greater than 5% of the market value of all of the assets of the SMSF. An in-house asset includes loans to or investments in related parties of the SMSF.
  5. Enter into non-commercial investments.

SMSF Administration

The trustee must prepare and retain a statement of financial position, operating statement and an annual return. They must also retain records that support the preparation of these documents for at least 5 years. The trustee is required to appoint an approved SMSF auditor each year and lodge the annual return. This must be done before the due date each year.

Why Is Following The Rules And Regulations Important?

The ATO has been given the power to ensure that SMSFs are complying with their obligations. There is a number of penalties that can be imposed for failing to comply, ranging from:

  • A specific direction to rectify a breach or undertake education.
  • Imposing a fine or penalty.
  • Making the SMSF non-complying.

The best way to avoid penalties for failing to comply is to be aware of the rules and to work closely with your adviser before making any critical decisions.

adviser people laptop paper

Part 3: Self Managed Super Fund Guide

Winding up the SMSF

The third and final part of the ultimate SMSF trustees guide provides guidance in relation to winding up a fund. There are many reasons why an SMSF may need to be wound up, but most of the time, it’s due to the death of the members or because of a change in circumstances (relationship breakdown or members relocating overseas).

Before commencing the wind-up process, the first step will be to review the trust deed. Whilst there is a standard framework for winding up the super fund according to regulations and law, the trust deed may impose specific requirements, and these must be followed.

Once you know the requirements set out in the trust deed, the process is mainly procedural. Assets are generally sold, and income tax and other outstanding liabilities must be paid.

Each member’s superannuation balance must be calculated and either rolled over to another complying superannuation fund or paid out of the SMSF if a condition of release has been satisfied. A final audit and income tax return must also be completed and lodged.

More information relating to winding up your SMSF can be found on the ATO’s website; Winding up | Australian Taxation Office (ato.gov.au).

There you have it – the ultimate SMSF trustees guide in less than 1,200 words. Use this guide as a reference point whether you’re setting up, running, or winding down an SMSF and always aim to seek professional guidance.

Financial & Retirement Planning Wealth Management

What is the FIRE movement?

February 11, 2022

Phillip Keenan

Phil Keenan

Director

Juston Jirwander Bishop Collins Accountants headshot

Juston Jirwander

Director

The FIRE movement is gathering more and more traction in Australia off the back of increased momentum in the United States. It’s likely that the concept has existed for many years but most credit the acronym to a book written by Vicki Robyn and Joe Dominguez in 1992 called Your Money or Your Life.

I suspect that many people have either not heard about it, or if they have, they’ve struggled to find time to prioritise learning more about it. If you fall into either of these groups, you should keep reading.

Let’s start with the simple question, what does FIRE stand for?

FIRE = Financial Independence Retire Early

I’m sure everyone understands what Retire Early means and is equally excited by the prospect of having the freedom to retire before their body or their mind (or both) give up. As for Financial Independence, a simple definition would be having enough money to pay for your basic needs and comforts without the need to work. Note that financial independence will mean different things to each of you as we all define basic needs and comforts differently.

Some can easily live a frugal life, and in contrast, others might enjoy the finer things in life. The meaning of a life of comfort is individual but Financial Independence is not. The key to Financial Independence is having a portfolio of income producing assets that generate enough money for you to live off for the rest of your life. In turn, this gives you the option to retire early. Sounds fantastic, doesn’t it!

Create Your FIRE Roadmap

In Your Money or Your Life, Robyn and Dominguez offer an alternative approach to achieving Financial Independence as soon as possible – part of the journey involves recording your actual expenses and challenging you to think about whether your expenditure is aligned with pursuing your values and purpose (the things that are important to you).

Challenging your spending habits opens the possibility of accumulating more savings and achieving Financial Independence sooner. The sooner you start, the sooner that you can build an investment portfolio and live off that in your 30s or 40s. Like me, many people reading this have possibly surpassed their 30s, but this shouldn’t stop you from wanting to set up your FIRE plan now and set your sights on achieving Financial Independence.

Proper planning for Financial Independence requires a large amount of research, planning and organization. It’s not about investing in the latest get rich quick scheme or anything that is likely to risk your hard-earned savings. Instead, FIREbugs (followers of the movement) are encouraged to invest in low-risk strong yield investments. This will provide you with the opportunity to live off the passive income for many years to come before you’re able to access your superannuation savings.

The idea is to make sure your money is always working for you, whether it’s investing in shares, property or using cash to offset your mortgage. However, it’s not all about the investments you make. It’s also about keeping your everyday expenses to those that add value to your life and looking for ways to make more cash (which could include working toward a promotion, retraining, extending your working hours or getting a second job). It can also include reducing costs to create more opportunities to save and invest, such as paying off credit card debt or other high interest-bearing loans.

What I love about this movement is that it’s not about budgets! The journey to true Financial Independence will certainly require you to spend time understanding your available income, spending habits and savings goals, however it does this with the objective of challenging how you think about money and what it can do for you.

If you’ve now started thinking about your FIRE roadmap, dedication and consistency for effective execution will be the key to success.

It Requires Commitment!

Napoleon Hill said, “Great achievement is usually born of great sacrifice”, and it couldn’t be more accurate for a FIREbug!

Being a FIREbug may mean that you miss out on the Sunday café brunch with friends, takeaway lunch and dinners, all the fantastic subscription services (who doesn’t love Netflix) and expensive holidays to name a few. However, if you can put them aside for the short-term and keep looking ahead, you’ll succeed in achieving Financial Independence and thus have the ability to Retire Early!

The Forbes Advisor has reported that several FIRE retirement variations dictate the lifestyle a FIREbug is willing and able to maintain – as this directly impacts your savings and therefore your ability to achieve Financial Independence. Some of these variations include:

Fat FIRE – Designed for the individual with a higher salary who aims to save substantially more than the average worker but doesn’t want to reduce their current standard of living. This option generally takes an aggressive saving and investment strategy for it to work.

Lean FIRE – Designed for those happy to adhere to minimalist living and concentrate on extreme savings. However, this option requires a far more restricted lifestyle, as many Lean FIREbugs live on less than $25,000 a year.

Barista FIRE – This option is for people who want to live between the two choices above. They quit their 9-to-5 jobs but use a combination of part-time work and savings to live in a less-than-minimalist lifestyle.

If Retiring Early is important to you, it’s likely that you’ll be required to challenge your current thinking. No doubt you’ll benefit from making sure that your expenditure is well considered and aligned with your values as this will maximise the amount of money which you have available to save and invest.

Irrespective of which FIREbug path you choose, as a FIREbug, you’re likely to be savings and investing a greater share of your income then the average person will want to. But the principle of setting aside a set percentage of your income every month for investment—and starting to do that as early as possible—will allow you to grow your retirement savings quicker.

Don`t Forget an Emergency Fund!

A vital part of any successful FIRE plan should be your emergency fund. An emergency fund refers to money stashed away for times of financial distress, kind of like a safety net for any unforeseen mishaps or unexpected expenses, such as losing your job, illness or major repairs to your car or home. Whilst you can insure against some of these events, it certainly doesn’t hurt to have an additional line of defense.

Assets in an emergency fund should be cash or highly liquid assets to reduce the need to draw from high-interest debt options such as credit cards or loans. Having an emergency fund will also save you from tapping into your FIRE funds and thus setting your goals back a few years. These emergency funds are typically three to six months’ worth of expenses.

If you want to be especially prepared, some FIREbugs suggest an emergency fund of up to one years’ worth of expenses. A great way to save for your emergency fund is to divert any extra money for discretionary spending, such as your tax refunds or stimulus money, to a dedicated high-interest savings account.

Get a Financial Advisor

Once you’ve decided you’re ready to start becoming a FIREbug, get some financial advice from a great advisor. They will help create a realistic FIRE roadmap which is right for you and point you in the correct direction to start investing and saving. Contact us on the form below and take your first steps toward Financial Independence. Then, with discipline, sacrifice and determination, you too can have the ability to Retire Early!

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