Can you keep more money for yourself and work towards being better off from 2017?
As the year-end fast approaches, it’s a good time to think about how you can start working towards being better off.
Before the end-of-year holidays start shifting into full swing and before you know it you’re splurging your hard-earned money, take a moment to think about whether you can give yourself more, starting this coming year.
Boost your future with pre-tax dollars
It makes financial sense to put money away for your future rather than sending it to the tax office never to be seen again. So if your employer allows you to salary sacrifice some of your pre-tax income next year, you may be able to put an agreement in place (be sure to get it in writing) so you can boost your super and reduce your tax bill at the same time.
In a nutshell, salary sacrifice lets you pay extra money into your super before your salary is taxed. The money is taxed at a concessional rate of taxi of 15% which is probably less than the tax rate applied to your earnings. There’s a bit of a catch because you can only deposit a limited amount ($30,000 per year if you’re under 50 in the 2016/17 financial year; $35,000 if you’re older).
A little makes a big difference
Let’s look at how salary sacrifice can work.
Angie works as a marketing consultant. She’s 50 years old. Her goal is to start using her salary of $80,000 more effectively so she can build up her super.
Using her current savings plan she saves about $10,010 a year—each fortnight she directs $385 from her pay into her regular bank account.
When she originally sought financial advice, she asked whether it was a good idea to deposit the $10,010 from her savings account into super (after-tax dollars) or whether there was a better way.
Let’s see how Angie adds $15,282 to her super (instead of $10,010) without reducing her take-home pay.
By salary sacrificing pre-tax dollars into super Angie significantly increases her super contributions for the year and benefits in several ways:
– Angie reduces her taxable income and pays less tax overall
– Extra money goes into her super account but at the concessional rate of 15%—nearly 10% less than her marginal tax rate
– By making regular payments into her super and increasing her super balance, Angie benefits more from compound growth and dollar cost averaging—two powerful ways to save money over time.
We’re here to help
If you’re wondering whether you could be making more of your money this coming year, come and see us. We’ll help you work out the financial strategies that can help you reach your goals and whether you can save tax and keep more for yourself in the long run. It’s never too late or too early to put plans in place for your future. Call us today.
© AMP Life Limited.
i Or 30% if you earn more than $300,000 a year.
The Abound Financial & Lifestyle Planning Team
Level 1, 416 Mt.Alexander Road, Ascot Vale, VICTORIA, AUSTRALIA 3032
T: +61 (0) 3 9373 3500
Abound Financial and Lifestyle Planning
Richard Brown CFP®, CPA, BBus(Acc) (242202)
Clinton Smith CFP®, BBus(FP) (428687)
Suzanne Alexander GradDipFinPlan (458264)
Peter White BBus(Eco&Fin) ADFP (443503)
Abound Financial and Lifestyle Planning Pty Ltd (ABN 22 087 690 060) trading as Abound Financial and Lifestyle Planning, is an authorised representative of Charter Financial Planning Limited, Australian Financial Services Licensee.
This information is provided by Charter Financial Planning Limited (Charter FP) ABN 35 002 976 294, an Australian Financial Services Licensee, Licence No. 234665, a wholly owned subsidiary of AMP and a member of the AMP Group. It is believed to be correct at the time of publication, however, no representation or warranty is given as to its accuracy. No liability is accepted by any company within AMP or their respective employees or directors for any statement or opinion or any error or omission or for any loss arising from reliance on the information contained in this document. Investments may only proceed by completing the relevant application form attached to a current Product Disclosure Statement (PDS). Fund managers will receive fees for their services out of which authorised representatives of Charter FP may be paid commission. Neither the return of capital nor the investment performance of any investment is guaranteed by Charter FP. Past performance is not indicative of future performance. Any advice given in this document has not been prepared taking into account your particular investment objectives, financial situation or needs. Any case studies in this publication are hypothetical are not meant to illustrate the circumstances of any particular individual. You should assess your particular investment circumstances prior to making any financial decisions. This taxation information is based on the continuation of present laws and their interpretation and is a general statement only. Individual circumstances may vary. From time to time we may bring to your attention products, services and other information that may be relevant to you. If at any time you no longer wish to receive information, you may opt out by contacting our office.