The 4 Basics of Financial Planning Strategy

1. Repay non-deductable debt – borrowing to buy assets which will rise in value makes sense. Where the asset produces income (such as shares or a rental property), the interest on the borrowings is tax deductable, making the cost effectively cheaper. So bad debt, the one to avoid wherever possible, is debt used to buy something that declines in value (eg. car, furniture). Next you want to clear debt that isn’t tax deductable, such as the debt on your home.

2. Borrow to invest – many people love property investment. Usually because someone they know has done well using this strategy. Australian property has been a good investment over recent years, but the real driver of investment success is the fact that borrowings were used. Borrowings magnify your gains (and losses) and are a common ingredient in successful wealth creation.

3. Invest regularly – trying to time the market is hard. Investing through the ups and downs removes the need to have a crystal ball. When markets are down you get more value for your investment, and when markets are up your portfolio is worth more.

4. Salary sacrifice to super – money you salary sacrifice to super is taxed at 15%. Chances are you are paying at least 30% tax, so this is a significant reduction. Peoples circumstances differ, and there are limits to how much you can contribute, so talk to us before kicking this one off.

It is important to recognise that these strategies do not suit everybody. It is essential that you obtain advice considering your particular circumstances before embarking on any of the strategies above.