TAX cuts of around $15 will be with us from July 1, so you are going to find more money in your pay packet. That’s great, but human nature being what it is, you will almost certainly fritter it away if you don't put a plan immediately in place to save it.
If you have a housing loan contact your lender and arrange for your loan repayments to be increased by the amount of the tax cut. You will be able to handle the increased payment easily and it will enable you to save a handy chunk of money over time.
Suppose your loan is $200,000 and your present repayments are $1331 a month over 30 years. Increasing the payments by just $15 a week would reduce the term of the loan to 25 years and save you a staggering $47,000 in interest.
Other options are to salary sacrifice the pay rise into superannuation or to use it to start an investment plan. You could talk to your adviser about a regular gearing plan whereby you could contribute $100 a month, that’s just $23 a week, which is matched by $200 a month in borrowed money to make a total investment of $300 a month.
This mightn’t sound like much but if you had started doing this in January 1990, and your fund matched the All Ordinaries Accumulation Index, your portfolio would now be worth $207,000. The debt would be $49,000 and your contributions would total $24.500 plus the tax deductible interest on the loan. All this for just $23 a week.
Obviously you must take advice to ensure that the strategy that you adopt is suitable for your personal situation, but it's a certainty that you'd need to take action immediately. If you don't, the tax cuts will vanish and you'll never have the benefit of them.
Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is email@example.com.
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