Gavin's Tips of the Week

Salary sacrificing to superannuation can be a great way to save for your retirement as it can reduce your taxable income and move your assets into the super, which is subject to low rates of tax.
Salary sacrificing involves replacing your taxable income (taxed at up to 46.5%) with super contributions (taxed at a maximum of 15%). For example, if your marginal tax rate is 31.5% (anyone with an income greater than $35,000) and you salary sacrifice $10,000 to superannuation, you can receive a tax saving of $1,650.
This strategy is not for everyone. Remember that superannuation cannot be accessed until you retire. We suggest you speak to your financial adviser to see whether it is suitable for you.

Remember that the Government reduced the concessional superannuation contribution cap from 1 July 2009.  This includes any Superannuation Guarantee, salary sacrifice or personal tax deductible contributions.  The cap has been reduced to $25,000 (previously $50,000) and for those over 50, the cap is now $50,000 (previously $100,000).  If you are on a high income, salary sacrificing or making deductible contributions you need to manage this closely as the penalty for exceeding the cap is up to 93% of the excessive contribution.

Tax Tip No. 3 - Donate to tax deductible organisations prior to the 30 June and reduce the tax you pay this financial year. This not only lowers the tax you pay by reducing your taxable income but also benefits the organisation you give to.

Tax Tip No. 2 - Consider making a tax deductible contribution to superannuation before 30 June (called a concessional contribution). The maximum rate of tax on the contribution will be 15%, rather than being taxed at your marginal tax rate, resulting in a tax saving of up to 31.5%. This strategy is best suited to the self employed or those receiving little or no income from an employer.  If you are employed, you could always consider a setting up a salary sacrifice strategy which will effectively provide the same tax saving as well as build up your assets in a tax effective environment.

Tax Tip No. 1 -  If your spouse earns less than $10,800 you could benefit by contributing up to $3,000 into your spouses superannuation fund and receive a $540 rebate. A rebate means you get to keep $540 that you would have otherwise paid in tax.

Transition to Retirement strategies are still very effective post the budget even if they have been scaled back by the halving of concessional contribution limits to $25,000 (under 50 years of age) and $50,000 (over 50 years of age). You can continue to salary sacrifice your earned income into superannuation, effectively substituting higher taxed employment income with lower taxed pension income if you are between 55 and 60 or tax free pension income if you are over 60.

Limit your intake of doom and gloom. The Main Stream Media is having a field day scaring people out of their wits with sensationalized headlines and doomsayer stories. The best economic indicator is your own bank account or personal financial situation. Sure, keep abreast of what is happening in the world but limit how much of the doom and gloom you take in just as you should avoid the hype during bull markets. Your investment experience is likely to improve and your anxiety levels will diminish.

Compounding, or earning interest on your interest, also works in reverse. If you are in debt and do not pay your full interest expense each month you end up paying interest on interest. Focus on paying off your debt ASAP!!

Research has supported anecdotal evidence to show that using cash rather than plastic fantastic (credit cards, store card and debit cards) reduces your spending by 12%-18%. Try drawing your monthly budgeted allowance for discretionary items such as food, clothing and entertainment and using cash to see if the approach works for you. Let us know how you get on.

It was many moons ago while reading Robert T. Kiyosaki’s book, Rich Dad Poor Dad, that I learned about the concept of paying yourself first. It is a concept that you may well benefit from also. It involves setting aside a certain amount of your income for savings prior to spending any other money. You take you income, deduct any taxes you need to pay, give an amount, put aside some on the income (pay yourself first) and then use the remainder to live on. It’s a great way to ensure you save. Waiting until the end of the month to set aside savings usually doesn’t work because the money is generally spent by then. So go ahead, pay yourself first and work toward achieving your goals.

For couples wanting to find true financial freedom, remember to plan together, keep each other accountable and communicate constantly.