You may have noticed some extra dollars in your bank account thanks to the government’s new tax cuts introduced on 1st July 2024. With the updated Stage 3 tax cuts, all the 13.6million taxpayers in Australia will enjoy an average annual saving of $1,888 or about $36 per week. In short, you get to keep more of what you earn, and pay less tax….Yessss! Find out all the details on tax cuts here.
So is this a big deal?
Absolutely! Financial experts agree that these tax cuts preset a real opportunity for Australians to grow their wealth. So before you go and blow it on some new clothes, check out our tips on where you could channel this money & potentially change your life!
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 home loan 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!
Any questions give our friendly team a call (02) 4040 0910.
Disclaimer: These tips are not meant to serve as financial advice. For personalised financial guidance, please consult a registered financial adviser.
Information sourced from: https://www.forbes.com/advisor/au/personal-finance/how-to-save-not-spend-your-tax-cut/
Published 7th August 2024