Keep stashing the cash in an offset account
With a baby on the way, Karissa is wise to ...
QMy
husband is 31 and I am 29. We have a combined income of around $230,000 and around $100,000 each in super. While we have a baby on the way, I don’t plan on taking too much time off work, although we will be reduced to one income for six months. Our home (in Brisbane) is valued at around $650,000 with a mortgage of $520,000. We have $40,000 in an offset account and $10,000 in shares. Since we found out I was pregnant we have been practising living off one income – so we are good savers! I am also working towards ensuring we are adequately insured.
In the short term we are stashing cash in our offset to prepare for baby. In the medium to long term I’d like to upgrade to a bigger home while keeping our current property as an investment, and continue contributing to a share portfolio. My question is, how can we execute this plan while minimising tax and continuing to build wealth into the future? Karissa, congratulations on your pregnancy – that is a really exciting stage in life. You have set out a great plan, so there is nothing I can add. Living on one income and building cash reserves are exactly what needs to be done. Tax minimisation at this stage is pretty much limited to super via salary sacrifice. It is really important to save as you are now – into your offset account – so that when you move out you can take that cash for a new property. This is your future tax minimisation plan. It will give you the maximum deductible amount of interest when your current home becomes an investment property and the minimum nondeductible mortgage on your future home.
With a baby coming, the drop to one income and a while before you go back to work, this, along with your growing super, is your best wealth-building plan, so keep on saving via that offset account and reassess after the baby is born and you look at returning to work.
Best wishes for your new child from all of us at Money. Can we get a photo when he or she is born?