1. Super
There are a number of superannuation strategies I could look at, including personal deductible contributions, government co-contributions and undeducted contributions.
a. Undeducted Contributions are when you put money towards your super from post-tax income - no more tax is taken when you contribute to it, and it’s tax free when you take it out. Any earnings on this over time will only be liable for 15 per cent tax.
b. The Co-Contribution Scheme means every time you pay a dollar of undeducted contributions towards your super, the government pays $1.50.
Both schemes are limited to $1500, and you must be earning less than $28,000 pa for the $1500 - co contribution drops by 5c for each dollar over the threshold.
2. Other strategies
Aside from superannuation there are other strategies I can employ to minimise tax.
a. Pre-paying expenses to reduce taxable income - You can prepay your interest on an investment loan up to twelve months in advance, then claim the deductions against your salary this year.
b. using tax-effective investments or gearing strategies to increase your tax deductions. There are a number of options here. One popular method is investing in agricultural schemes - check with ASIC for product rulings.
Sunday
Investing in Growth Assets
Super is generally a long term investment (ie 7 years or more). And since I can’t access my money until I retire, I want to think about using a growth investment strategy.
Growth funds invest most of my super in growth assets like shares and property. Historically, these investments have provided much better returns than cash or fixed interest over the longer term. However, they involve more risk and may fluctuate in value quite significantly over periods of time. That’s why the recommended time-frame is longer than for more defensive types of investments eg cash or fixed interest.
The chart below shows how $100,000 left in a super fund for 20 years can increase in value by around 50% with just an extra 2% performance return each year.
Growth funds invest most of my super in growth assets like shares and property. Historically, these investments have provided much better returns than cash or fixed interest over the longer term. However, they involve more risk and may fluctuate in value quite significantly over periods of time. That’s why the recommended time-frame is longer than for more defensive types of investments eg cash or fixed interest.
The chart below shows how $100,000 left in a super fund for 20 years can increase in value by around 50% with just an extra 2% performance return each year.
tax effectiveness - super
Consider three scenarios:
a. employer pays you $5,000 salary in cash and invest the money outside super (marginal tax rate is 31.5%).
b. employer pays you $5,000 salary in cash and invest the money outside super (marginal tax rate is 46.5%).
c. employer pays $5,000 a year into super account (15% contributions tax applies).
Saving through super can be much more tax effective than saving the same amount outside super. And this can make a real difference to how much money I will eventually have for your retirement.
With this illustration, after just one year a person who pays 31.5% tax (a) would have over 20% more money in their super account and 35% more money after 20 years. That’s a difference of $29,754 if person (a) salary sacrifices into super. Whereas the benefits to a person (b) who pays 46.5% tax are even greater, with almost twice as much money after 20 years. That’s a difference of $52,904 if person (b) salary sacrifices into super.
What’s really impressive is that this isn’t smoke and mirrors, it’s simple mathematics.
The contributions and performance returns inside super are taxed at a maximum of 15%, so they compound at a much faster rate. Outside super the salary and performance returns are taxed at 31.5%* and 46.5%* so the after tax returns are much lower.
source: http://www.colonialfirststate.com.au
a. employer pays you $5,000 salary in cash and invest the money outside super (marginal tax rate is 31.5%).
b. employer pays you $5,000 salary in cash and invest the money outside super (marginal tax rate is 46.5%).
c. employer pays $5,000 a year into super account (15% contributions tax applies).
Saving through super can be much more tax effective than saving the same amount outside super. And this can make a real difference to how much money I will eventually have for your retirement.
With this illustration, after just one year a person who pays 31.5% tax (a) would have over 20% more money in their super account and 35% more money after 20 years. That’s a difference of $29,754 if person (a) salary sacrifices into super. Whereas the benefits to a person (b) who pays 46.5% tax are even greater, with almost twice as much money after 20 years. That’s a difference of $52,904 if person (b) salary sacrifices into super.
What’s really impressive is that this isn’t smoke and mirrors, it’s simple mathematics.
The contributions and performance returns inside super are taxed at a maximum of 15%, so they compound at a much faster rate. Outside super the salary and performance returns are taxed at 31.5%* and 46.5%* so the after tax returns are much lower.
source: http://www.colonialfirststate.com.au
superannuation
Clever Strategies for Super
1. Consolidate your super
It’s much easier to keep track of your money if it’s in one account and, you’ll probably pay less fees. Download our Consolidate your super flyer for more information.
2. Beef up your super savings
The before-tax contributions (also known as concessional contributions) you make, and performance returns you may earn inside super are taxed at 15%. For many people, saving through super is much more tax effective than saving the same amount outside super.
3. Spouse contributions
In many cases one spouse accumulates the lion’s share of the super. Boosting your spouse’s super can reduce your family’s annual tax bill.
4. Tax rebate for additional spouse contributions
If your spouse earns less than $10,800 pa, you can make a $3,000 after-tax contribution (also known as a non-concessional contribution) to their super account. This may qualify you for a tax rebate of $540. This strategy can be used each year.
5. Co-contributions – let the government top up your super
People who earn less than $31,920 a year can potentially receive a $1,000 helping hand from the government via a free ‘co-contribution’ into their super fund. If you earn $31,920 to $61,920 a year, you can still receive a super co-contribution but it will be adjusted depending on your income and how much you personally contribute. From 1 July 2007 self-employed people may also be eligible to receive a co-contribution.
6. Take a long-term view
Super is generally a long-term investment (ie seven years or more). And since you can’t access your money until you retire, you might want to think about using a growth investment strategy. For more on growth assets read Why consider growth assets?
7. Beware of the caps
There are caps on the amount of concessional (before tax) and non-concessional (after tax) contributions you can make each year. See our Federal budget flyer for more information. Please see Super terms explained for more information on concessional and non-concessional caps.
1. Consolidate your super
It’s much easier to keep track of your money if it’s in one account and, you’ll probably pay less fees. Download our Consolidate your super flyer for more information.
2. Beef up your super savings
The before-tax contributions (also known as concessional contributions) you make, and performance returns you may earn inside super are taxed at 15%. For many people, saving through super is much more tax effective than saving the same amount outside super.
3. Spouse contributions
In many cases one spouse accumulates the lion’s share of the super. Boosting your spouse’s super can reduce your family’s annual tax bill.
4. Tax rebate for additional spouse contributions
If your spouse earns less than $10,800 pa, you can make a $3,000 after-tax contribution (also known as a non-concessional contribution) to their super account. This may qualify you for a tax rebate of $540. This strategy can be used each year.
5. Co-contributions – let the government top up your super
People who earn less than $31,920 a year can potentially receive a $1,000 helping hand from the government via a free ‘co-contribution’ into their super fund. If you earn $31,920 to $61,920 a year, you can still receive a super co-contribution but it will be adjusted depending on your income and how much you personally contribute. From 1 July 2007 self-employed people may also be eligible to receive a co-contribution.
6. Take a long-term view
Super is generally a long-term investment (ie seven years or more). And since you can’t access your money until you retire, you might want to think about using a growth investment strategy. For more on growth assets read Why consider growth assets?
7. Beware of the caps
There are caps on the amount of concessional (before tax) and non-concessional (after tax) contributions you can make each year. See our Federal budget flyer for more information. Please see Super terms explained for more information on concessional and non-concessional caps.
Wednesday
Commercial Property
Major investment sector and one that can dish up healthy returns, but it is dominated by more experienced investors.
Retail Property - typically refers to shops
Industrial Property - referring to warehouses and factories
Office - cover broad range of properties form residential houses, such as a terrace house on commercially zoned land through to purpose built office homes
Retail Property - typically refers to shops
Industrial Property - referring to warehouses and factories
Office - cover broad range of properties form residential houses, such as a terrace house on commercially zoned land through to purpose built office homes
Tuesday
Investing in Property
residential property should always be regarded as a long-term investment and to get an accurate picture of an investment's performance, I need to look at returns that have been calculated over as long a term as possible.
Borrowing to invest
- the dynamic of borrowing to invest is that it enables to increase my stake in an asset which in turn amplifies the size of its return to my self.
the higher the borrowings, therefore the higher my risk
Positively geared properties
- generates positive returns
- generally only work if the property is fully let year in year out and it dose not give the same tax advantages as negative gearing
- easy way to achieve positive gearing is to purchasing a property at the lower end of the price range and charging a rent that adequately covers the interest on borrowings plus other expenses.
Borrowing to invest
- the dynamic of borrowing to invest is that it enables to increase my stake in an asset which in turn amplifies the size of its return to my self.
the higher the borrowings, therefore the higher my risk
Positively geared properties
- generates positive returns
- generally only work if the property is fully let year in year out and it dose not give the same tax advantages as negative gearing
- easy way to achieve positive gearing is to purchasing a property at the lower end of the price range and charging a rent that adequately covers the interest on borrowings plus other expenses.
Keys to Successful Investing
1. Invest in something I understand
2. Consider mainstream assets first
- cash, property and shares
3. Understand risk equals return
4. Look for an investment that stands on its own merit
5. Diversify investments
6. Don't time the market
7. Try dollar cost averaging
8. Invest in growth assets for the long term
9. Take advice
10. Take action
2. Consider mainstream assets first
- cash, property and shares
3. Understand risk equals return
4. Look for an investment that stands on its own merit
5. Diversify investments
6. Don't time the market
7. Try dollar cost averaging
8. Invest in growth assets for the long term
9. Take advice
10. Take action
Monday
Car Insurance
On the last day of 2009 I was involved in a car accident. My car was parked on the street
and a rental truck smashed my parked car a ran away.
Thankfully I had 3 witnesses who recorded the details of the rental truck.
Because I have a car insurance my car is being fixed.
From this event I learnt the importance of insurance. In the text book, it outlined that
you never know when and what will happen, and my car was damaged when I was not even driving.
Also from this event I learnt that I should always look for other benefits within my insurance policy
and how to deal with car accidents when they do arise.
Overall this was a good learning process yet a little annoying as it was not my fault.
Sunday
Insurance
The textbook outline the basics of car insurance which are:
1. Compulsory Third Party CTP
2. Third Party
3. Comprehensive
When my parents bought my first car this year I had to some research on car insurances and its costs.
After my research I found out that AAMI car insurance was the best for me. Although NRMA is probably the most well known car insurer the cost was very expensive.
To reduce my insurance I was only insure for the third party not comprehensive. However as Paul writes in his book "What If?".
Therefore I insured my car with the full insurance which covers both my car and third party. I still thought that my premium was high, therefore to reduce my premium
my excess fee is like $2000 and hope i drive safely and not crash into someone else. Thankfully this has not occurred.
However the cost of owning a car is too expensive. I need to pay the insurance, rego, fuel, any other modifications, maintenance, and especially drops in value.
Although it is very convenient to own a car it is very expensive to drive it.
Thursday
Mortgages
It is important to do this at start of the buying process so that I have more certainty of the funds.
The text book outline an important strategies to pay off the mortgage off faster.
Some key repayment strategies include
1. Additional repayments
2. Make fortnightly payments - I end up with 13 monthly instalments instead of 12.
3. Lump sum payments.
4. Go for shorter term.
Points to remember for a Good Mortgage
1. competitive rates
2. flexibility - exiting, early payouts, portability
3. low application fees
4. low or no ongoing fees
5. ability to make additional repayments
6. redraw facility
7. Save up a big deposit.
It is also very important to budget and track expenses, + Continue living like a student for as long as possible.
New Product Features
Family Guarantee
- Parents use their home as security for your home loan
- Allows you to borrow 100% of purchase price + stamp duty + legal fees + bank fees
- Saves you paying mortgage insurance
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