Once you’ve got your savings plans in place and an emergency fund built up, it’s time to think about how you can best use your income to make sure your money is working as hard as it could be.
1. Reduce your debts
Typically a loan carries a higher interest rate than a savings account. It’s a great idea to clear your home loan quickly, but also look at reducing smaller debts with higher rates like credit cards and personal loans so that they’re not costing you money unnecessarily. Once these are reduced you can invest any remaining money to create benefits later on or start to put extra money into your home loan.
2. The benefits of compound interest
Most savings accounts will offer you compound interest. This means that not only do you earn interest on your principal saving amount, you also earn interest on previous interest earned. The more money you can put away and the earlier you do it, the more chance it has to work for you and add to your savings.
3. Make extra super contributions
Retirement may be a long term goal but the earlier you start to look after your super, the better off you will be once you do retire. By law your employer is currently required to put 9.5% of your salary into your super account.
If you choose to make extra super contributions you can save money on your tax payments. Extra contributions into your super are typically taxed at a rate of 15%, this means if you earn more than $37,000 the tax rate is lower than your marginal tax rate. There are limits on how much you can contribute in this way and once your money is in super you generally can’t access it until you retire. See more information from the Australian Government on contribution caps and thresholds.
4. Understand salary sacrificing
Some employers offer salary sacrificing or packaging – an agreement between an employer and employee where you pay for an item like a car out of your pre-tax salary. Like making extra super contributions, this can mean you can save money on your tax payments by reducing your taxable income. Speak to your employer to see if this is something you can take advantage of.
5. Consider investment opportunities
If you’ve built up your savings and feel that you’re ready to start investing, there are a range of opportunities available. Property and shares are two of the most common, and each carry specific risks as well as potential benefits. Start by thinking about how much you are comfortable investing and what your goals are, this will help you determine which option may be right for you.
Read next: Setting up your retirement