Many of us started off investing at a young age, often through a Dollar mite Account at school.
These early lesson in savings and earning interest for the first time set the foundation for a life time of savings, interest and ultimately reward.
It doesn’t really matter if you are saving for a new car, a holiday, a house, the kids’ education or retirement. We all need to save money for purposes that are important to us.
Thankfully, there are many different ways you can save.
Often the best approach becomes self-evident fairly quickly when you look at the purpose and time frame.
Goals such as a holiday or a car might be shorter term goals and as such, a regular savings plan into a bank account or term deposit might be a good starting point.
Thankfully there are many high interest internet savings accounts which give you flexibility with no minimum investment amount; you can set up a regular direct debit to transfer some of your money (usually wages) into a high interest savings account. Whether its $50 per week or $50 a month, its just great to start somewhere.
When it comes to longer term goals such as savings for a house deposit or setting aside money to fund the kids’ education, there are plenty of options available.
We always recommend talking to one of the GNS Group Financial Advisers to work out the best plan of attack for your situation, but some of the things you might consider include:
- There’s nothing wrong with high interest savings account like we mentioned earlier, or term deposits for that matter, but you can also consider, Managed funds, which allow you to invest into professionally invested portfolios, give you the benefit of diversification, customised investment allocation and consolidated reporting.
- Investment bonds are a great option for those on the top marginal tax rate or saving for the kids education with a 10 year time frame to achieve a tax free return, they often have a role to play,
Investing into managed funds whilst a good strategy, can be further enhanced in some situations by the addition of a regular gearing facility. Borrowing to invest is not often front of mind for clients, but with the right timeframe and risk profile, can be a great way to enhance returns and can be tax effective as well.
- When it comes to the kid’s school fees – using an education scholarship fund is an option to consider. Our general concern with this type of savings plan is the lack of flexibility and application of funding at the time of withdrawal for education purposes. If you already have a home loan, it can be very effective to direct your savings plan into the home loan. Instead of earning interest, you will save interest! You also will not see your savings account increasing, but your home loan diminishing. If you have a re-draw account then you will see this type of account increasing in value. This strategy also benefits you by not having to worry about the Tax Man. Because no interest is earned, you don’t have to pay tax.
By way of example – If your home loan interest rate is 5% and you have $10,000 in savings, this means you $500 less mortgage interest.
If you were to invest $10,000 and you earn a 5% return you have made $500. However, the tax office will want a slice of this. Depending on your personal tax rate, you might see $100-$250 disappear in tax, so your real return may not be as great as simply paying off mortgage.
For more information on how you can benefit from a savings plan and which strategy is best for you and your goals, please speak to one of our Financial Advisers today.