Stage 3 income tax cuts are being introduced from 1 July 2024, and many will be fortunate enough to have a little extra in each pay. With the cost of living increasing, most of us will think that the best course of action will be to apply the additional income towards bills, groceries, or just being able to live a little, with budgets being so tight of late.
For the more disciplined, strategies such as paying more towards your home loan, setting up a regular investment facility or making additional contributions to superannuation will be more beneficial in the long run compared with just spending the money. With interest rates being at record levels, paying more towards your home loan means repayments could be covering both interest and capital, rather than just interest (depending on individual circumstances.) The quicker you start to pay down the capital, the quicker the loan is repaid. For example, on a $500,000 mortgage over 30 years an additional $400 a month in repayments can save over $200,000 in interest and reduce the term of the loan by 8 years – which means more money down the track to save for retirement. Alternatively, if you were to set up a regular savings plan in a growth fund with $400 a month regular contribution, the value of the investment in 30 years could be over $200,000. Or, if a 40 year old earning $100,000 with $200,000 in super invested in a growth strategy salary sacrifices $400 a month to super, they could have an additional $300,000 in their super fund at age 65.
Whilst we have all felt the impact of the cost of living, being a little more disciplined in the short term could have major benefits in the long term. If you would like to talk about the upcoming tax cuts and your financial goals and objectives, we would love to hear from you. Please contact Jacki Rennie on 8238 0143 or email her at jacki@guardianwealthsolutions.com.au