1. Your retirement savings are a not priority
Unfortunately most people do not know how much money they currently have in Superannuation, where the money is invested or how much they are paying in fees. Superannuation will be providing the vast majority of your income in retirement as the old age pension is phased out over the coming years. Unfortunately, people do not pay enough attention to this money because they cannot access the funds right now. If I had a hundred thousand dollars cash sitting in the bank today, I would probably check the balance daily, yet when it comes to Superannuation why is it we just don’t care?
2. You are not doing enough to reduce your tax liability
On a salary of $65,000 the tax payable over 30 years is approximately $408,000 based on today’s tax rates. By simply salary sacrificing $100 per week towards your superannuation you would effectively reduce your tax over that period by $54,000 and you would have put away an additional $156,000 for your retirement. Unfortunately today most people wait until the end of the financial year to start scrounging for receipts to see if they can get a tax refund of a couple of hundred to maybe a couple of thousand dollars. Planning your tax liability more effectively and investigating ways to use this tax money is not exclusively for the wealthy.
3. You do not understand debt
Most people do not understand debt, it wasn’t taught effectively in school and yet it consumes most of our available after tax income. As an example a mortgage of $350,000 over 30 year term will actually end up costing closer to $647,000 to repay, that's a massive $297,000 in interest (based on 6% over 30 years). There are two types of debt, there is GOOD debt and then there is BAD debt. Good debt is any debt that you could claim a tax deduction for. Bad debt is personal debt which represents personal loans, credit cards and home loans. Having debt in place can be a good thing for you because it can allow you to purchase an asset that you could otherwise not afford. Not planning your debt effectively, can mean that you end up paying a lot more in interest than you should be over the long term.
In summary, a lot of people think that getting financial advice, or speaking with a professional adviser is expensive. In comparison to $297,000 worth of interest and $408,000 of tax over a 30 year period, paying for advice to reduce these liabilities is small change. It may seem complicated to most people but that doesn’t stop you from buying a new car with electric windows, onboard computers and fuel injection... You may not know how it all works so you trust a professional (a mechanic in this instance) to look after the things you don’t understand, same applies to tax, debt and investing.
The biggest risk you face today is sitting back and doing nothing, surely 20 years of self funded retirement is worth spending a few hours today with a professional?
Published on 20th of October 2014 by Marty Stanowich