|To create wealth you need to make the best use of your financial resources which is your capital and your surplus income.Capital
Capital can come in many forms. Many Australians only think to seek advice once they have a lump sum of money however the key is to make use of existing sources of capital such as your superannuation and the equity that you have in existing investments, or your personal residence.
Equity refers to how much of your personal residence you own (as opposed to how much the bank owns). If your personal residence is valued at $400,000 and your mortgage is $250,000, your equity is the difference between these two amounts – so in this example, your equity is $150,000.
To create wealth you need to make full use of this equity, take the time to consolidate all your superannuation into one account, ensure your super is invested the right way and ensure that you are keeping cost such as tax and fees to a minimum.
You don’t need to have a great deal of capital to get started. What is more important is your surplus income.
Your surplus income is essentially how much you save or otherwise put towards the future each year.To calculate your surplus income, add up all the income you earn everything you earn, then reduce this figure by all of your expenses including tax, loan repayments and living expenses. If you make extra repayments to your home loan over and above the minimum repayment or extra contributions to superannuation each year then essentially this is surplus income (not an extra expense).
The more surplus income you have the more wealth you can create.
If you don’t have any surplus income (i.e. you are spending everything you earn) then our advice is of little value to you. If this is an issue for you, then you need to sit down and do a budget and start making some tough decisions on where you can cut back on some spending.
Your surplus income can be put to use using any number of the financial strategies listed below. The best way to invest your surplus depends on the financial goals that you’re trying to achieve, but is also influenced by factors such as your age, the amount of tax you currently pay and how much risk you are willing to accept. You should seek advice to ensure that you are maximising the use of your surplus income.
Below is an example of a strategy that we recommend to our clients along with a strategy brief which explains the strategy in more detail and provides a case study.
Details of other strategies (and strategy briefs) will be available in the Strategies section (under the heading ‘Articles’) in the coming weeks.
Salary sacrifice to superannuation
Salary sacrificing to superannuation involves instructing your employer to contribute money to superannuation instead of paying it to you as salary. Every dollar that you earn over $30,000 will be taxed at over 30%, whereas if that dollar is contributed to superannuation it will be taxed at a maximum of 15%. That same dollar will create more wealth for you in super compared to outside super due to the other tax concessions superannuation receives, but there are restrictions on when you can access this money which needs to be planned for.
Click below for a strategy brief.