What you need to know to get ahead financially
Low interest rates are often seen as an opportunity to pay off your mortgage faster… but for young professionals, there are other strategies which may offer greater financial gain in the long run.
One of the most common questions I am asked is “What should we be doing to get ahead financially while interest rates are so low?”
While paying down your mortgage reduces your debt and helps you work towards owning a significant asset, there may be more appropriate strategies to manage your finances and build your wealth for the long-term.
Three strategies to help you get ahead financially while interest rates are low
#1: Restructure your debt
“Interest saved is as good as money earned.” Now is the time to address your debt, including how your mortgage and other debt is structured.
With interest rates at all-time lows, there could be significant advantages to refinancing your mortgage to a provider with a lower interest rate or more flexible payment options. There may be other options that could benefit you as well, such as using an offset bank account, which enables you to offset your mortgage against your savings, potentially saving you thousands in interest over the long term.
It’s not just your mortgage you should consider, you may also have other options to make the most of your debt. Prioritising your debt according to interest payable or consolidating your personal debt within a new loan can improve your cash flow and provide you with more options for wealth creation.
#2 Debt recycling
“Leveraging debt for the purpose of growing your wealth could be one of your most important strategies for growing your wealth.” A low interest rate environment may be the opportunity to designate some of your debt for the purpose of generating income through investment in shares, managed funds or investment property.
Leveraging your debt for these types of investments can be beneficial to building your long-term wealth, as these assets are likely to generate an income and may also have tax advantages, as often interest payable on this type of debt is tax deductible. While your home may appreciate in value, it does not generate an income and you cannot claim a tax deduction on interest associated with your mortgage.
You may be able to use any surplus funds (through securing a lower interest rate for your mortgage) or using an equity release or investment loan to start or build an investment portfolio. Harnessing the power of compound interest means that even a modest capital investment can significantly build your wealth over time. Read more in our recent article Boost your wealth through the benefits of compounding returns.
#3 Contribute excess funds to super
“Depending on your life stage, it’s important to consider super as part of your overall long-term financial planning.” It may be time to consider boosting your super using any excess funds available. Superannuation is one of the most tax-effective schemes available for building savings for your retirement, with contributions and earnings generally taxed at 15% (unless you earn more than $250,000 per annum). Salary sacrificing can also be a strategy to reduce your taxable income.
“Matt helped us consolidate our financial position as a couple and that enabled us to have a clearer picture of what we could comfortably achieve in the future. We appreciated his flexible approach; he knew we were time-poor and made the effort to meet us outside of office hours at a location most convenient for us. We felt reassured by his holistic approach that considered every aspect of our lives and helped us put in place protection measures to safeguard our family’s future.” Mr Q and Mrs L Tamme – Young Professionals
When planning for your financial future, it’s important to consider your individual circumstances and stage of life and we encourage you to seek professional advice. If you would like to know more about making the most of a low interest rate environment and building wealth for your long-term future, I encourage you to contact us now on 07 3720 1299 or email admin@wealthfundamentals.com.au
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances. This information is based on our understanding of legislation at the time of writing. Such legislation may be subject to change. This publication cannot be reproduced in any form without the express written consent of the author.