The road to fu­ture wealth starts here

The Sunday Times - - Business - Noel Whit­taker

IT’S im­por­tant to re-eval­u­ate your po­si­tion reg­u­larly when you are trav­el­ling the road to fi­nan­cial suc­cess. And what bet­ter time to do it than at the start of a new fi­nan­cial year?

It has been an in­ter­est­ing year — the first full year of the reign of Pres­i­dent Trump.

In gen­eral, his poli­cies have been good for share mar­kets all over the world, at least in the short to medium term — mainly due to tax cuts and spend­ing in­creases. The Aus­tralian share mar­ket pro­duced a to­tal re­turn of 13 per cent if you in­clude div­i­dends, which is much bet­ter than leav­ing your money in the bank.

But that’s his­tory. Your job now is to look at your per­sonal bal­ance sheet and put strate­gies in place to en­sure you fin­ish the new fi­nan­cial year in a bet­ter po­si­tion than you started it.

In­ter­est rates are at his­toric lows, but don’t think th­ese rates will con­tinue for­ever.

Rates are al­ready ris­ing in most devel­oped coun­tries, and while an im­mi­nent rise in Aus­tralia is un­likely, the only way is up, so it must hap­pen. The big ques­tion is when.

Ob­vi­ously, it is far bet­ter to pre­pare for a rate rise in ad­vance than to find your­self in a fi­nan­cial bind when it hap­pens. This is why I sug­gest you try to main­tain home loan re­pay­ments of at least $8.50 per thou­sand a month — that’s $2550 a month on a $300,000 loan. Re­pay­ments at this rate will have your loan out of the way in 15 years if in­ter­est rates are 6 per cent. If they don’t reach this level, your loan will be paid off much faster and you will have given your­self a valu­able safety buf­fer.

But if that’s too much of a stretch for your bud­get, start to pay fort­nightly. Here’s why.

CASE STUDY

You have a home loan of $300,000 and you are pay­ing it back over 30 years at 6 per cent a year with monthly re­pay­ments of $1800. If you main­tained your re­pay­ments at that level you would end up pay­ing nearly $350,000 in in­ter­est. Mov­ing from $1800 a month to $900 a fort­night would slash the term of the loan by six years and save you $60,000 in in­ter­est.

Be­cause there are 26 fort­nights but only 12 cal­en­dar months, mov­ing to fort­nightly pay­ments en­ables you to make the equiv­a­lent of an ex­tra monthly pay­ment with­out feel­ing it.

If you are over 55 you should be pour­ing as much money as you can into su­per­an­nu­a­tion. Yes, you need cash for emer­gen­cies, but there is no point leav­ing money in the bank where the in­ter­est is fully tax­able when you can move it to su­per­an­nu­a­tion where it is taxed at just 15 per cent.

If you are near­ing 60, con­tribut­ing spare funds to su­per is a no-brainer, be­cause you have few wor­ries about lack of ac­cess. Re­mem­ber, a ma­jor ben­e­fit of plac­ing money in su­per is that Cen­tre­link does not count it un­til you reach pen­sion age. For ex­am­ple, if the male part­ner is 65 and the fe­male 60, mov­ing a large amount of su­per from his name to her’s could max­imise his age pen­sion ben­e­fits.

Don’t switch your su­per to an al­lo­cated pen­sion too early if you are look­ing for New­start ben­e­fits; if you do the money will cease to be ex­empt. A bet­ter strat­egy is to make lump-sum with­drawals from your su­per as needed.

Most of my ar­ti­cles have a com­mon theme: help your­self so you can have a more se­cure fi­nan­cial fu­ture. The steps you take to­day will make the dif­fer­ence in the long term. Noel Whit­taker is the au­thor of Mak­ing Money Made Sim­ple and other books on per­sonal fi­nance. His ad­vice is gen­eral in na­ture and read­ers should seek their own pro­fes­sional ad­vice be­fore mak­ing any fi­nan­cial de­ci­sions.

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