Use your income wisely

To often we see good money wasted by people that do not understand the concept of investing out of gross income. There are two main ways this can be achieved:

1. Salary Sacrifice contributions to superannuation
2. An interest only investment loan where your employer pays the interest for you as a salary sacrifice out of gross income (you get the tax deduction now rather than at the end of the year).

The benefit of doing this is that you are saving the tax that would have been payable on this gross income. EG: An investor says they can afford $1000 per week out of cashflow to invest. If that comes out of after tax income (assumed 46.5% tax rate) they have earned $1869 to invest $1000. Therefore if they invested $1000 of pretax income they would benefit by $869 before they had even received an investment return.

Our research shows that over a 5 year period an investor (based on the same investment return etc) will be better off borrowing to invest in the above mentioned situation by about 300% or 3 times the net position they would have been by using after tax income.

Investing is about sourcing investment return form sources other than your personal exertion. It takes time and effort to build an investment portfolio that will replace your personal exertion income, but when it does you won't know yourself.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA