It’s safe to say that most people have a minimal discretionary income each week. So what happens with a pay rise or a bonus?
The truth is you have multiple options for short period of time... Being wise with what you do can leave you with much more money than you're getting right now – even with as little as $200 per week you can implement a plan to make the most of your additional income.
All you need to do is divide your salary increase or bonus into four buckets:
1. Have a bit of fun
It’s important to reward yourself for your efforts, so don’t deprive yourself of this. Treat yourself to a night out, that dress/suit you’ve been eyeing off or something special for your house. This should equate to 25 per cent of your net increase or bonus.
2. Grow your super
This tax-effective strategy is easy to manage and uses your gross salary, as opposed to what you take home after tax. Every time your pay changes or you receive a bonus, your superannuation increases by 25 per cent.
For example, if your salary has gone up by $4,000, then ask your employer to take out an additional $1,000 as a salary sacrifice. Assuming you are on a salary of $100,000, if you repeat this step every year for the next 20 years, it should boost your superannuation by more than $75,000.
To implement this plan, speak to your HR team about increasing your superannuation contributions.
3. Pay off debts or save for a rainy day
Monthly payments that are more than the required minimum for your credit card or home loan could reduce the term of both by years, and save you thousands of dollars in interest payments. Start with 25 per cent of your net salary increase or bonus until this debt is repaid.
Then, if you are a diligent saver, why not start a high-interest savings account and get your “rainy day” fund going. It’s also important to keep 3 – 6 months cash aside, just in case something urgent comes up. .
4. Be an investor
Your superannuation is an investment but the reality is you won’t be able to access it for many years. So start an investment plan and contribute 25 per cent of your net salary increase or bonus to something that will provide you with access to growth assets.
The outcome of this strategy is quite similar to the salary sacrifice one – however, the key difference is that you can access your portfolio at any time.
Your plan for financial success should be simple, based on sound principles with proven outcomes. It should make good use of your cash flow, be tax effective, utilise your superannuation and not be overly reliant on your day-to-day involvement. Start today and overcome your barriers to financial success.
Marshall Brentnall is a Director of Evalesco Financial Services, an award winning financial planning firm located in Sydney's CBD. With more than 15 years experience in the financial services industry, Marshall is committed to ensuring that his clients are making smart money decisions and taking steps to increase the likelihood of achieving their financial goals.