Tax cuts were revealed in the Budget — here’s how to make yours work for you
Many of us are going to have a little extra cash in our pockets this year.
It’s all because of the tax cuts and $500 cash payments announced in this year’s Federal Budget.
If you’re not across how much it will all work out to be, check out this piece.
The Treasurer wants us all to spend up big to help pull the economy out of recession, but is that the best option for your financial situation?
Here are five ways to get the most out of your money.
1. Don’t impulse spend
While the extra cash may not seem like much each week, it all adds up.
And the Government wants us to spend, spend, spend.
Obviously, many people are struggling right now (particularly low-income earners) and will need to spend the extra cash on essentials.
And that’s fair enough.
But beyond that, perhaps don’t let it burn a hole in your pocket and impulse spend on something you don’t really need, suggests Kate McCallum, a financial adviser from Multiforte.
“If you’re going to spend it, don’t just let it drip away on more takeaway or online shopping, or something you don’t really value,” she said.
“Spend it on something you really want. We know from the research on happiness the best way to spend money and derive happiness is to spend on experiences.
“You get a buzz from the planning, from actually doing it and then reflecting on it afterwards.”
It’ll lift your spirits and the economy.
“And perhaps concentrate on spending and supporting your local community,” said Kristy Wilson, from the Rural Financial Counselling Service North Queensland.
2. Consider saving it (in a high-interest account)
As a nation, we’ve already been saving like crazy due to these uncertain times.
And if you’re worried about losing your job, or not being able to afford an upcoming expense, putting some money away for an emergency is always a sensible route.
“If you can, try and put away at least three months’ worth of expenses,” Ms McCallum said.
“In times of uncertainty, people become more conscious of emergency funds, but we actually should have one in place all the time.”
You probably realise interest rates are pretty low right now, so try and find the highest interest account you can.
Another option is to put it into an offset account connected to your mortgage (this lowers how much interest you’re paying).
“And be aware that any interest on savings you earn is taxable, so if there is a lower-income earner in the household, perhaps hold the savings in their name,” Ms McCallum said.
3. Pay off those debts
It’s always a good idea to try and quickly pay off any high-interest debts, such as credit cards or payday loans, Ms Wilson says.
“Prioritise the highest interest rate first, and then work down from there,” she suggests.
Mortgage interest rates are fairly low at the moment, so it’s a less urgent debt to pay down.
But putting the cash in an offset account has its benefits. It lowers your debt but also gives you flexibility if you need to access that money in the future.
4. Put it back into your super
If you were one of the thousands who took up to $20,000 out of their superannuation fund earlier this year, perhaps think about replenishing your super.
“If you can afford it, putting some money back into super will help you in retirement. The longer it’s in there, the more it builds,” Ms Wilson said.
Remember the magic of compound interest is earning interest on your interest.
And because the tax cuts are coming out slowly with each pay cycle, you may not even miss it, if you just ask your employer to increase your super contributions, Ms McCallum says.
Don’t forget, if you’re a low- to middle-income earner (and fit the eligibility criteria) and make an after-tax contribution to your super fund, you can get some free money from the Government, called a super co-contribution.
If you put an extra $1,000 into your super account, the Government will top it up with $500.
5. Invest it. You don’t need to be very fancy to do it
While many of us own shares through our super funds, perhaps you’ve been thinking about buying shares directly.
Australian stocks took a dive in March. They’ve slowly been on the up, but haven’t returned to pre-COVID-19 levels yet.
“Remember that investing in shares is a long-term proposition,” Ms McCallum said.
“You should ideally be investing for at least seven years.”
But be careful choosing stocks, as you’ll need to do some research.
To get set up, you’ll need an authorised broker to buy shares on your behalf, but there are many online brokers that offer a cheap ‘no-frills’ experience.
And the minimum amount of shares you can buy is $500 (that’s a rule from the market operator, the ASX).
Don’t forget there can be tax implications to consider too.
“Be aware that dividends and capital gains (when it comes time to sell) are taxable, so consider putting them in the lower-income earner’s name,” Ms McCallum said.
This article contains general information only. It should not be relied on as financial advice.