Yahoo Finance 5 bonus money moves that will change your life
This article is part two of a two-part series continuing on from 5 money moves that will change your life published last week.
So last article – in Part 1 of Five money moves that will change your life – we established the smart saving, smart investing and smart borrowing rules to live by, including don’t delay; start investing today, put 2 percent extra into super, avoid dumb debt, get smart debt for a home and consider smart debt for an investment property.
But what about the rest of your money life?
Here are the five further, more specific and strategic money moves – that doesn’t mean they’re harder though – to change your life.
Tip 6: Get the offset advantage
Once you have that smart debt – for a home of your own, an investment property or both – hook offset accounts to it.
These accounts are simply savings accounts but rather than earning paltry interest in regular deposit accounts, they save you your higher mortgage interest rate.
More precisely, they effectively earn you that higher amount. Which means these ‘earnings’ are also tax-free.
How does it work? Any money you hold in an offset account is netted off the top of your home loan and you pay no interest on that amount. So if you have a $100,000 loan but $10,000 in offset accounts, you only pay interest on $90,000.
As such, these can save you a ton of money, and shave years off your loan term… for free.
A final note, fill up your home loan offsets first – you earn tax deductions on your investment debt.
Tip 7: Repay debt highest to lowest interest rate
Repaying any debt early saves you a fortune.
But if you have some legacy debt – because you previously made the enormous error of spending more than you earn – you need to repay it in interest rate order. Descending interest rate.
That usually means your credit card first, your personal loans second and your mortgage third.
But better still, there’s a trick that allows you to repay your highest interest debt – probably that credit card – entirely interest-free.
There are 0 percent balance transfer cards that let you, yep, transfer your balance to the new institution and pay nothing on it for today a period of up to 36 months.
That means every dollar you repay, hopefully enough to clear it within the 36 months, comes off the principle rather than simply going to your provider.
Like the offset account above, a balance transfer card is a free kick to kick debt.
By the way, step away from Afterpay and the like. If you pre-commit your cash, you slip further and further behind.
Tip 8: Get private health cover
If you earn more than $90,000 as a single or $180,000 as a couple, you should have private health cover – simple as that. This is because, if you don’t, you’ll be slugged with a Medicare Levy Surcharge that would probably cost you about as much as the cover.
You just need basic hospital cover to be exempt, but if you sign up for extras too, it’s also possible that you could claim back enough services to recoup the entire cost.
Remember, private health premiums, though expensive, are tax deductible (on incomes up to $140,000 for singles and $280,000 for couples).
You also want to be sure to sign up for cover at least by the July 1 after your 31st birthday. For every tax year you delay after that, your premium will be 2 percent more expensive.
You can find the best-value policy on the privatehealth.gov.au website.
Tip 9: Protect your future
Often when people think money, they think about making it. But it’s vital you protect it… and also protect your earning power.
This is where – it’s icky but essential – life and risk insurance come in.
If you have dependents, you need enough life insurance to pay out your debts and say, cover your children’s costs to age 18. This usually comes with insurance called total and permanent disability, which – if such a thing befalls you – also pays out a lump sum.
The third type of insurance you need, even if you are single, is income protection insurance. With this, if you become ill or have an accident, you’ll keep being paid 75 percent of your income up to age 65.
Finally – and this is the big one…
Tip 10: Focus on the future
We started with… Tip 1: Don’t delay; start investing today. The thing is, that requires holding some money back. And just where is the motivation?
That is the final piece of the puzzle… establishing goals for your life that are so tantalising you can almost taste them.
What does your best life look like? Where do you want your money to take you in the short, medium and long term?
You need to cost and ‘calendar’ these precious goals so you actually hit them.
Because your life can be about mindless money frittering. Or it can be fabulous.
This article is part two of a two-part series continuing on from 5 money moves that will change your life published last week.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to the free Fully Briefed daily newsletter.
