Money for jam ??
Hey team,
Happy Sunday.
Before we get into it for this week, I wanted to ask a favour. Pivot has been listed by Financial Standard as a MAX awards finalist for Community Initiative of the Year, recognising our work in financial education and helping people take control of their money.
We’re definitely fighting an uphill battle, because our competition in these awards is made up of multi-billion dollar super and investment funds and the biggest and best creative agencies in Australia - Pivot is the ONLY financial advice company that’s included in a finalist
I’m super proud to see Pivot up against these massive companies, but I’d like to throw down a serious challenge. The awards are decided through public voting, which is where you come in - I’d love it if you could flick us a vote and see if we can give these Goliaths a run for their money.
Money Hack of the Week
Mortgage interest on your own home isn’t tax deductible - but it can be…
Debt recycling can convert your mortgage into tax deductible investment debt.?
Learn how below.
Based on the average Aussie mortgage of ~$600k, with the current average mortgage interest rate of ~6%, making your home mortgage tax deductible would give you ANNUAL tax deductions of $36k+*.
This is one of my favourite strategies for home owners, because it helps you:
How it works:
This strategy works because when you withdraw money from debt and use it to invest, the interest costs are considered tax deductible**.
And it does it all WITHOUT you increasing how much debt you have.
The execution can get a little complex so you should seek some good advice if you’re thinking about using this strategy, but it’s a powerful one if you want to get ahead the smart way.?
*assuming income above $45k pa
**This is not tax advice pls confirm w. your tax person
Smart Money Story of the Week
Buying property below max borrowing, then not being able to buy more property.
Maxing out your debt BEFORE having kids can make you a stack of cash*.
But the risk...
When you start a family, you’re heading directly for the ’trough of sorrow’. Lower income on leave. Part time income after. Daycare costs on top. More kid related expenses.
And it lasts for years (at least).
One of our clients recently paid the price for getting this wrong.
Your ability to save & invest through the early years of kids will be significantly reduced, & in some cases stops altogether. You’re effectively hitting the brakes. And your ability to borrow will be reduced, potentially non existent.
Starting a family isn’t about so much more than money - but you will come out the other side…
…And on the other side your money is going to be even important than before.
This client bought a property before having their first kid. They could borrow up to $1.1m, but figured taking on that much debt wasn’t smart. They ended up with a good property & made but they could have had so much more…
They COULD have afforded the $1.1m property, even after buffering for higher interest rates & lower income. But once they realised this it was too late, the banks wouldn’t lend them any more money.
It ended up being 4 years before household income got back on track to reload. Not having this extra $400k of property (spending $700k vs $1.1m) meant missing out on over $135k of growth in the property market while they were having kids.
But the $135k isn’t even the cost, the real cost is how much this $135k would make them over the decades ahead, conservatively well over $2m.
领英推荐
If you’re planning kids in the future, one of the biggest things to ensure the cost of doing this is as low as possible is to take out the maximum amount of debt you can and invest as much as possible, so the money can bubble away while you’re focused on your family. And this is where the * comes in, you should only take as much debt as you can WITHOUT compromising on your risk management.
How to plan smart BEFORE you have kids with property:
This way, you’ll come out the other side in the strongest position possible.
Your Questions and Answers
If you have money questions you want answered, send them through by replying here or emailing us at [email protected] - I can’t promise all requests will be answered, but I will read every email you send.
From last week.
Hey Ben,
Can I do the bring forward contribution to super of $360,000 in the final year before converting to pension mode?
Can I keep paying $30,000 super contributions to an accumulation fund while simultaneously receiving income from a pension fund (when retired)?
Paul
Hey Paul,
When you contribute to super, there are two main ways you can put money into your super fund. The first is through ‘concessional contributions’ which are subject to a limit of $27,500 (increasing to $30,000 from 1 July. This limit includes funds you contribute via your employer, through salary sacrifice, or through making personal contributions to your super fund. Any concessional contributions made to your super fund are tax deductible, either to yourself or to your employer.
The other way you can contribute is through ‘non concessional contributions’ which are made after tax, and the limit for these contributions is $110,000 p.a. You don’t receive a tax deduction for these sorts of contributions, but the benefit is that you get the money into the lower tax super environment.
With Non concessional contributions, you have the ability to ‘bring forward’ contribution from up to two future years, which effectively allows you to contribute up to $330,000 in one year. There’s a further hack with this strategy, because it’s based on financial years. So for example, someone could contribute $110,000 on 30 June, and then contribute a further $330,000 on 1 July - this allows you to get quite a lot of money into super in a short time.
In relation to pensions, these contributions have no impact on your ability to start a pension from your super money, so essentially you can make a large non concessional contribution on one day, and start a pension the next - subject to the maximum pension amount (transfer balance cap).
Once a pension is started on your super money, that account is effectively ‘sealed off’ and can’t receive further contributions. But the thing is that you can have multiple pension accounts, so for example you could make some non concessional contributions, start a pension the next day with this money, then the following day make contributions to a new super accumulation account, and then start another pension on this money.
There are some rules you should be aware of around how pension income is treated and taxed by the ATO, so if you’re considering contributions at this sort of level and a multiple pension strategy, getting some good advice will pay for itself.
Hope it helps.
Ben
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To your success,
Ben
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