Money matters
There are a lot of money myths out there and some of them may be costing you a small fortune. From investing to salary sacrificing, we unpack the four most common.
Myth 1: You need a lot of money to start investing Busted: You can start investing with as little as you like ...
Typically you’ll need a minimum of $500 to invest in shares directly. Unfortunately that won’t get you much of an investment but you can become an investor for a fraction of that and stay diversified.
Micro-investing platforms such as Spaceship Voyager, Raiz and CommSec Pocket allow you to invest your small change in a variety of ready-made portfolios made up of exchange traded funds (ETFs).
Spaceship Voyager, for example, allows its users to get into the share market with as little as they like. It offers three portfolios where you can make one-off or regular payments into the funds, which themselves hold various assets like shares and cash. The platform is fee-free for the first $5000 invested. However, for balances above $5000 account fees do apply.
With a Raiz account, you’ll need to accumulate $5 before the money is invested. It charges a $3.50 monthly fee if your balance is under $15,000. CommSec Pocket lets you invest in seven themed portfolios – also comprised of ETFs, with as little as $50. A $2 fee applies for trades up to $1000. Tip:
While you don’t need to be uberwealthy to enjoy success as an investor you do need to watch the fees. In addition to platform fees, the issuers of the ETFs also charge their own management fees. Fees can have a big impact on your investments, especially if your balance is small.
Myth 2: Pay a bill late and it will hurt your credit score Depends: It all comes down to who and what bill it is ….
Miss a traffic offense bill and you’ll certainly get hit with a late payment fee but it won’t hurt your credit score.
Your credit score is essentially a number that’s based on your credit report. This one little number can pack a punch as it basically sums up the information on your credit report and lets lenders know how trustworthy your reputation is as a borrower.
Essentially there are three main credit agencies in Australia – Equifax, Experian and illion. Depending on who you go through, your score could be out of 1000 or 1200. Ideally, you want to get over the 800 mark if you want some bragging rights.
Only licensed credit providers such as banks and financial institutions are able to disclose repayment history information to a credit reporting body. So, if you miss a car loan or credit card minimum repayment it will be noted.
Your repayment history is reported every month and stays on your report for 24 months.
There is a grace period of 14 days before an overdue monthly payment can be reported by a credit provider to a credit reporting body.
As for a missed phone or internet bill, it can only be reported if you default – that is, you owe $150 or more and it’s at least 60 days overdue. A default remains on your credit report for five years.
When it comes to Buy Now, Pay Later (BNPL), things aren’t quite as clear. Not all BNPL providers conduct credit checks, so only information from those BNPL providers who do will be recorded on a credit report.
At this point in time your BNPL repayments are not included on a credit report, however this is due to change as later this year credit reporting bodies start to receive this information. Tip:
According to Equifax, regularly making your minimum repayments for loans and credit cards on time each month is a good way to demonstrate good credit behaviour and can help improve your credit score.
Myth 3 There’s no point salary sacrificing into super if you don’t earn a high income Busted: Low income earners can benefit from the tax savings
Salary sacrificing into super is where you choose to have some of your before-tax income paid into your super account by your employer. This is on top of what your employer might pay you under the super guarantee, which is no less than 10% of your earnings, if you’re eligible.
Every pre-tax dollar you pop into your super is taxed at just 15%, rather than your marginal rate. So if your marginal tax rate is greater than 15% you stand to gain some benefit. While the tax savings are certainly greater the higher the income you’re on, as H&R Block’s example shows (see table, below), even low income earners benefit.
After taking into account the Low Income Super Tax Offset (LISTO), the difference in tax savings between someone earning $30,000 who salary sacrifices $1000 and someone earning $200,000 is just over $100. Tip:
There are limits to how much you can salary sacrifice. The combined total of employer and salary sacrificed contributions must not exceed $27,500 per financial year. It’s worth chatting to a tax expert or financial adviser as to what may be right for you.