The average household spent $358 per week commuting to work in the December quarter last year, just before the coronavirus pandemic hit.
For the lucky ones who were able to hold onto their jobs amid the first recession in decades, the work-from-home revolution has seen the exorbitant commute costs relegated to the recent history books, if temporarily.
This extra cash in the pocket has been a silver lining of the lockdown period, alongside any gains from the money ordinarily spent on long brunches or nights out on the town.
Granted, for many the advantage won from cancelled commutes has been offset by lost income (or the spike in spending on indoor plants and home renovations at Bunnings).
But nonetheless, certified financial planners think it is an amount of money that can be put to work in pursuit of long-term wealth.
So we asked six top CFPs what they would advise a 30-year-old, slightly above-average-income earner do to deploy $358 per week (or $18,616 per year) to help them reach their financial and life goals.
We also specified the hypothetical worker should have no debt (because knowing financial planners, we knew what they would likely all say someone in debt should do as the first priority).
Here’s what they came up with.
Fran Hughes CFP, Nexia Perth Financial Solutions
“The first idea is to build up an emergency fund. A study by Deloitte Access Economics found that 13.4 million Aussies don’t have emergency savings to fall back on if they are out of a job.
While we could not have predicted a pandemic, it certainly has exposed the financial vulnerability of not ‘saving for a rainy day’. A general rule of thumb is build up three to six months’ worth of living expenses in an interest-earning bank account.
Second, you could start saving for your first home. Owning a home is the great Australian dream. Perhaps this is just what you needed to kick off the savings plan for the deposit on your first home.
There are many ways to optimise savings for your first home, including the first home super saver introduced by the federal government in 2017.
The FHSS scheme allows you to save up to $15,000 per annum for your first home inside your super fund, while receiving a tax break.
For someone who is on an $80,000 income, salary-sacrificing $288 per week of the otherwise commute cost into the FHSS could mean a tax saving of up to $2,920.
Or, your could start building that investment portfolio. Starting a small investment portfolio has never been more accessible.
With the introduction of digital investment platforms such as Raiz, Six Park and CommSec’s Pocket, you are able to build up an investment portfolio as a long-term wealth creation strategy.
A general rule of thumb is to invest for a minimum of five to seven years and consider your tolerance to risk.”
James Gerrard CFP, FinancialAdvisor.com.au
“Given this is money that would otherwise have been spent on normal travel costs, people could be a little more creative and move up the risk spectrum.
In other words, look at this money as bonus savings and invest small amounts in things they haven’t considered previously.
Some of our clients have purchased crypto currency, one has purchased a pink diamond while others have got into buying and selling collectible cars, whisky, art and watches.
So if there’s been things you’ve wanted to invest in such as collectibles investments but previously never had the cash flow to allocate to it, now could be to the right time to revisit this.”
Sunitha Williams CFP, Elston
“Contributing a small amount into super each week can make a significant difference to your retirement savings thanks to an immediate net tax benefit of 19.5 per cent on every dollar contributed and the power of compounding interest.
Contributed funds are then invested in an environment where the maximum rate of tax on earnings is 15 per cent.
To demonstrate, if you were to salary-sacrifice $50 a week for 30 years and assuming average long-term performance of 7 per cent per annum, you would increase your retirement nest egg by $180,000 ($66,300 of this being your total contributions net of 15 per cent contribution tax).
An additional benefit is that if you are looking to buy your first home, you can apply for eligible voluntary contributions to be released from super under the FHSSS. This means you get to keep more of your hard-earned dollars after tax to put towards your home deposit.”
Antoinette Mullins CFP, Beyond Today
“When I was 30, travel was my biggest goal and I put everything I had into it.
Over the last 10 years I have learnt some valuable lessons and now I know not to just focus on short-term goals. My tip would be to consider your goals and values: what is important to you now?
But also consider what may be important to you in 10 years or more – split spare money between the two and it will make a big difference.
Here are some options to split your spare $358 a week:
- Take $158 a week (or $8216 over one year) and make a pre-tax contribution to super. Save tax (about $2831) and have a better retirement (you could be better off by $47,108 through compound interest, assuming 5 per cent per annum).
- Take $100 a week and put it into a high-interest-earning savings account. This can be used for medium-term-goals, such as a holiday or to help through life’s little emergencies when they pop up.
- Take the last $100 and spend it on the “now” – whatever makes your heart sing. We all need some joy during these weird times.”
Chris Giaouris CFP, Chronos Private
“For somebody in this scenario, I would be using these funds to put towards whatever investment goals this individual may have.
For example, they may want to build wealth for the future but at the same time want to buy a property within the next two years.
If that was me, I would be holding some of this extra income in cash as this provides some certainty around a future home deposit, with the rest being invested in something more aggressive like the stockmarket.
We find diversified exchange-traded funds are a great way to access global markets without needing a large initial sum of money.
And while saving towards a house deposit using only interest-bearing bank accounts won’t generate a great return right now, a two-year time frame is short and an investment that might generate a better return (like shares) brings heightened levels of risk when the time frame is this short.”
Peter Campbell CFP, Merideon Wealth Strategies
“As always, what to do boils down to what you want to achieve.
If it is to purchase your own home, you may want to look into taking advantage of the FHSSS, whereby you make contributions to superannuation to have money invested in a tax-concessional environment before making a withdrawal to make a deposit on a home.
A personally owned portfolio will provide you with the opportunity for wealth creation while retaining liquidity and access to your money.
It’s important to obtain specialist advice here, as investments carry risk and your portfolio should be tailored to you. Income or realised capital growth within a personally owned portfolio do need to be reported to the ATO for taxation treatment.
If it is to invest for more than a 10-year period, a combination of superannuation contribution and personal investment through a tax-efficient structure such as an insurance bond may serve you well. Capital growth within an insurance bond is tax free after 10 years in place.”
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