How To Create Wealth With Your Tax Cut
As of 1 July 2024, the government implemented its promise to cut taxes for all 13.6 million taxpayers in Australia. This policy responds to the ongoing cost of living pressures affecting many Australians. With the updated stage three tax cuts, taxpayers now save an average of $1,888 per year or roughly $36 per week. That means you’re keeping more of your earnings and paying less tax. For more information, visit taxcuts.gov.au
Here’s a breakdown of how the tax cuts could add up annually:
$50,000 income: Save $929
$60,000 income: Save $1,179
$100,000 income: Save $2,178
$150,000 income: Save $1,879
$200,000 income: Save $4,529
Ways To Maximise Your Tax Cuts:
Make extra repayments on your mortgage or offset account.
Mortgage repayments are a major expense for most families. Consider using some of your tax cut to make extra repayments on your mortgage or into your offset account. For example, if you have a mortgage with a 6% interest rate, putting extra money into your offset account saves you 6% on interest.
Pay off debt.
You could potentially save a lot on interest by paying off high-interest debts like credit card balances. Prioritise paying off the debts with the highest interest rates while making minimum payments on others.
If you have HECS (Higher Education Contribution Scheme) debt, you could use your tax savings to reduce or pay off your student loan.
High-interest savings account.
Another option is to put the extra dollars into a high-interest savings account, where it can grow faster with minimal risk. Some online banks offer higher rates due to lower overhead costs. Just be sure to understand the conditions for earning the highest interest rate.
Always be mindful that while high-interest accounts can yield returns, compare the interest you save – 6-10%, with the potential savings from paying down debt, which could be a lot more.
Boost superannuation.
Consider salary sacrificing and contributing more to your superannuation. One of the benefits of super is its ability to compound over time, allowing you to earn interest on interest. An added bonus is if your employer offers to match your contributions.
The concessional contribution cap for superannuation is increasing to $30,000 from $27,500 in the 2024-25 tax year, allowing you to contribute more each year and receive additional tax deductions. However, remember that this money may be locked away until retirement.
Invest in the stock market.
If you’re debt-free, consider investing your tax savings. If you’re already an investor, use this extra money to boost your existing investments or start a new investment portfolio. Investing $20 or $30 per week in diversified Exchange Traded Funds (ETFs) is a great way to begin. For those unfamiliar, ETFs are funds that trade on the stock exchange like ordinary shares. They combine the benefits of a managed fund with the ease and cost-effectiveness of share trading.
You might also consider individual stocks or ETFs for potentially higher long-term returns.
If you’re only investing the difference between your pre-tax cut and post-tax cut pay, look for low-fee investment options.
As with all investments, we strongly advise speaking with a professional financial adviser/planner before investing.
Create an emergency fund.
Consider establishing an emergency fund for life’s unexpected occurrences. Ideally, have about three to six months’ worth of living expenses put away in a high-interest savings account that’s easy to access.
Invest in skills or education.
Investing in yourself is never a waste of money. Consider upgrading your skills or earning new qualifications to boost your career prospects and income potential.
First Home Super Saver Scheme.
For young people, a tax cut might be a good time to put money into the First Home Super Saver Scheme
Treat yourself.
If you’ve given up some of life’s little luxuries, such as gym memberships or streaming services, there’s nothing wrong with using the tax cut money to reinstate them. But be intentional about it. Rather than letting the money be absorbed into mindless spending, consider which of these things will add the most value to your life.
Whatever you choose to do with your tax cut, the key is to be mindful, set goals, and be aware of the risks involved.
If you need advice or guidance around money matters, contact us and we can point you in the right direction. Or, if it’s mortgage advice you’re after or you’re looking to purchase a property or refinance your current property to free up cash, reach out to us, we’re here to help!
Information sourced from: https://www.forbes.com/advisor/au/personal-finance/how-to-save-not-spend-your-tax-cut/
Disclaimer: These tips are not meant to serve as financial advice. For personalised financial guidance, please consult a registered financial adviser.