Stage 3 Tax Cuts: Invest or spend? How to maximise your extra income
Sydney, Australia 6/6/2024: As the stage three tax cuts approach, many Australians will face an important decision: invest, save, or spend the extra cash in the bank. Assuming there are no pressing debts, the tax cuts present a unique opportunity for wealth creation.
InvestSMART, a leading digital wealth adviser and portfolio manager, has analysed how Australians earning an average of $70,000, $100,000 and $130,000 could grow their wealth over 10 years by investing the extra earnings after the stage three tax cuts come into effect.
If an Australian earning $100,000 invests their additional $181 each month in a high growth portfolio returning an average of 8% a year, they could earn $31,465 after 10 years. That's $7,265 more than a high interest savings account earning an average of 2.38% over 10 years. Of course, past performance is not an indication of future performance.
|
Annual Income |
Extra income per month |
Total if invested for 10 years in a 'high growth' portfolio |
Total if saved for 10 years in a high interest savings account |
Difference investing and saving |
|
$70,000 |
$119 |
$20,687 |
$15,911 |
$4,776 |
|
$100,000 |
$181 |
$31,465 |
$24,200 |
$7,265 |
|
$130,000 |
$281 |
$48,849 |
$37,570 |
$11,279 |
*Assumes 8% average return for a high growth portfolio over 10 years and an average 2.38% return on savings accounts.
Effie Zahos, InvestSMART's money expert said:
"The average tax saving amounts to $1,888 annually or $36 a week. For most workers it will have a modest impact on their take-home pay. If you don't have a plan in place, it's very easy for the extra income to slip through your fingers.
"Ideally, every extra dollar should have a purpose. If you're in the position to invest it's the perfect opportunity to get started on your wealth creation journey. Whether that be to save for a home deposit or add to your super through salary sacrificing."
Frequently Asked Questions about this Article…
The stage three tax cuts are upcoming changes to the Australian tax system that will result in extra income for many Australians. For example, someone earning $100,000 could see an additional $181 per month. This extra income presents an opportunity to invest, save, or spend, depending on your financial goals.
To maximize the extra income from the stage three tax cuts, consider investing it in a high growth portfolio. For instance, investing $181 monthly at an 8% annual return could grow to $31,465 over 10 years, significantly more than saving it in a high interest account.
Investing the extra income from tax cuts can potentially yield higher returns compared to saving. For example, investing $181 monthly at an 8% return could result in $31,465 after 10 years, compared to $24,200 if saved in a high interest account.
Investing extra income from tax cuts in a high growth portfolio could significantly increase your wealth. For example, an investment of $181 per month at an 8% return could grow to $31,465 over 10 years, offering a substantial advantage over traditional savings.
Your income level determines the amount of extra income you receive from the tax cuts. For instance, someone earning $70,000 might receive an extra $119 per month, while someone earning $130,000 could receive $281 monthly.
Before investing your extra income from tax cuts, consider your financial goals, risk tolerance, and investment timeline. It's important to have a plan to ensure the extra income contributes effectively to your wealth creation journey.
Yes, investing your extra income can help achieve long-term financial goals such as saving for a home deposit or boosting your superannuation. Consistent investing can significantly enhance your financial position over time.
The difference in returns between investing and saving the extra income can be substantial. For example, investing $181 monthly at an 8% return could yield $31,465 over 10 years, compared to $24,200 if saved in a high interest account, resulting in a $7,265 difference.
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