Growing your money pot doesn’t mean you have to work harder — you can make your money work harder for you. We’ve listed the top ten tips to help you grow and protect your money for you and your family.
There are a number of reasons why women need to make their money work harder than men. On average women get paid less than men, which means women’s superannuation contributions are also smaller. Women are more likely than men to take time out of work to care for children or family members which can have a huge impact on their savings and superannuation. And generally women live longer than men so their retirement savings need to stretch further.
The good news is whether you’re working, caring for your family or like many women today, doing both, there are some simple things you can start doing today that will make a big difference later.
1.Pay yourself first
The first step is the most important and will get you off to a great start. Make a list of all the money you receive and all your outgoings for the past month. Take a look to see if you can make any savings — ask yourself do you really need it? Once you know how much you need to live on for one month, put that into your everyday bank account for day-to-day spending. Everything else you can use for savings or investing.
2. Learn to love compound interest
Compound interest is your friend. Once you have your savings or your investment money (see tip 1) you can start realising the benefit of compound interest — which is really very simple. It’s simply the interest on your interest. For example, when you receive interest from a saving or investment and you reinvest that interest instead of withdrawing it, the next time your interest will be calculated on your original savings plus the interest you’ve received. So your next interest payment will be higher and so on and so on. In this way your savings or investment builds up faster and works harder for you.
3.Save or invest?
The terms investing and saving are often used interchangeably, but are actually very different. Saving is putting your money aside for short term goals (such as your next holiday) or as a backup in case of emergency and usually earns a basic rate of interest. Investing on the other hand, is putting your money to work for the longer term — to grow and increase your financial security over time for those important life events such as your first home or your children’s education.
4.‘Sacrifice’ some of your salary to superannuation
Superannuation is a tax-effective way to help you put money aside for your retirement while you are still working. Salary sacrifice could not only increase your superannuation savings, but may reduce your taxable income too.
You simply ‘sacrifice’ an amount of your salary (before tax) to your superannuation fund and pay 15 per cent tax1 on the amount you sacrifice instead of your marginal tax rate (which can be up to 47 per cent). Not only that but your taxable income is also reduced by the amount you sacrifice so your taxable income could drop you into a lower tax bracket saving you even more.
1 The contributions tax rate is 30 per cent for individuals earning over $250,000 pa.
5.Get your superannuation together
Many of us, through changing jobs, have more than one superannuation account. In fact there is an average of 2.8 superannuation accounts for every Australian worker. If you have more than one superannuation account you could be paying more than you need to in multiple fees, which could be eating away at your superannuation. Consolidating your account can not only reduce the fees you pay but it also means you only have one account to manage, saving you precious time too.
6.Make the most of the Government’s superannuation co-contribution
The superannuation co-contribution is a Federal Government initiative to help Australians save for their retirement. Up to certain limits, for every dollar you contribute, the Government will make a co-contribution. If you earn less than $36,813 the Government proposes to pay $0.50 for every dollar you contribute to superannuation, up to a maximum co-contribution of $500. If you earn between $36,813 and $51,813, the co-contribution decreases by $0.3333 for every dollar.
If you’re thinking of cutting down the number of hours you work or returning from maternity leave to part-time work this strategy could be appropriate for you.
7.Share your superannuation and minimise tax
If you or your partner are not working, or only working part time, the primary earner could be eligible for an 18 per cent tax offset simply by making a contribution to the other partner’s superannuation.
For example, if you earn less than $37,000 pa and your partner contributes up to $3,000 pa to your superannuation, your partner could be eligible for an offset of up to $540 pa — or vice versa. This means while you receive $3,000 in your superannuation your partner may be out of pocket by only $2,460. It’s a bargain.
The definition of ‘spouse’ for this purpose includes a person who, although not legally married to you, lives with you on a genuine domestic basis as your husband or wife. It also includes same-sex partners. It does not include a person to whom you are married but lives separately and apart from you on a permanent basis.
8.You’ve built it, don’t lose it
So now you’ve got your savings, investments and superannuation under control it’s time to ensure you’re protected. Ninety-five per cent of families do not have adequate levels of insurance in place. Make sure you’re not one of them. There are four main types of personal insurance.
- Income protection – covers the loss of income during an extended absence from work due to illness or injury
- Trauma insurance – provides a lump sum payment as a result of a specified ‘trauma’ such as a heart attack or stroke
- Total and Permanent Disablement – covers the permanent loss of income through illness or injury that prevents your return to work
- Life insurance – provides financial support for your dependants in the event of your death.
9.Plan for the unexpected
Always aim to have three months worth of wages in your savings account, not only in the case of illness or injury, but also in the case of redundancy or divorce.
And as your wealth grows and you accumulate more and more assets, it becomes increasingly important to have a valid Will in place to ensure that your intentions are fully carried out after you’ve gone. Fifty per cent of Australians die without a Will and many more don’t update their Will following key events such as marriage, divorce or the birth of a child or grandchild. Make sure your assets are passed on to the ones you love.
10.Get some financial advice
There’s some great ways to increase your financial security but finding the opportunity to put these plans in place can be time consuming and easily put off. The earlier you start the easier it will be.
A financial planner can help take away the burden of planning for your future so you can start making your money work harder straight away.
Patrick Williams, Sarah Carter and YBM Financial Services are Authorised Representatives of Lonsdale Financial Group Ltd I ABN 76 006 637 225 I AFSL 246934.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.