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 Financial Happenings Blog 
Wednesday, February 04 2009

Depending on how the negotiations go in the Senate regarding the latest stimulus package developed by the federal government, there is a chance that many will be receiving a $950 payment some time in April.  So what should you be doing with that money?

My response may not be what the government is hoping to hear but my first reaction is to say save the money.

With interest rates falling by the month the next logical question is where should you put the saved money? Here are some ideas the merits of which will depend on your personal situation:

  • Put it towards that non tax deductible debt, the higher interest rate options first - Eg credit cards, personal loans etc
  • Put it towards your mortgage - if you have an offset account even better, this will reduce interest payments but keep the cash accessible.  The interest cost reduction from putting it towards your loan will definitely out weigh any interest you would get from saving especially if you are stuck in a fixed interest loan.
  • First Home Savers could put it towards a First Home Saver Account and by doing so get a 17% extra kickstart from the government - an extra $161.50.  The money goes into a 15% tax on income earnings within the account which could also be beneficial for some but one word of warning, the returns on the savings will not be flash going forward as most of the options offered are for the funds to sit in cash.
  • Add the $950 to your investment portfolio - unless Australian share dividends are cut by 60% going forward the return you are likely to get from the dividend payments from shares should beat cash returns.
  • If you won't need the money before retirement you could make a contribution into super.
    • If you are likely to earn less than $30,352 during the current financial year then a personal contribution of $950 will entitle you to receive a government co-contribution of $1,425
    • If you earn less than $60,352 then you could contribute some of it as a personal contribution and receive some government co-contribution and then use the rest to pay for your regular cost of living and then salary sacrifice extra into super.  An extra $950 in the hand would allow you to salary sacrifice $1,385 back into super and maintain the same amount of cash in hand to pay for your living costs.  By doing this you would save $230 of tax. (15% superannuation contributions tax compared to the 30% marginal tax rate plus 1.5% Medicare Levy for those earning more than $34,000)
    • There are other superannuation contribution rules that may determine whether you are or are not able to make this extra contribution (for instance contribution limits) and these should be checked before jumping in.

There is actually one possible option to spend the money that is worth considering:

  • If you are in small business, use the money towards purchasing $1,000 or more of business equipment which, if the stimulus package gets passed as it is, should entitle you to a 30% rebate from the government.  A saving of $285 on the $950.  But only if you NEED the equipment don't be sucked into the trap of purchasing unnecessary equipment!

It will be interesting to see what the end package looks like.  What ever happens I am sure there will be some great financial strategies that can be employed to make the most of what is on offer.

Regards,
Scott Keefer

Posted by: Scott Keefer AT 02:03 am   |  Permalink   |  Email
 
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