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The best way to allocate any extra adhoc income | Ask An Advisor

Here are some tips on what to do with extra money from things like gifts, tax return or overtime

Ask An Advisor

Hello and welcome back to Ask An Advisor.

A big focus this month for us here at Equity Mates is growing our mailing list. To do that, we have put some money aside for Facebook and Google ads.

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Have a great day!

- Bryce and Alec

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The week’s question

"What should I do with the extra income I have coming in adhoc i.e from overtime, gifts, $4k tax return? Pay down my 35k HECS or contribute to super (also sitting around 35k) at the age of 27? I also have an investment property in which most of my savings sits in offset accounts and I dollar cost average into ETF's monthly.”

- Sadaf

This week’s advice

This week’s advisor is Ethan Stein, Associate Advisor at Montara Wealth.

This is his response to Sadaf’s question:

It really depends - a good financial plan is always best designed around you and your circumstances/objectives. For example, you might be better off continuing to invest in ETFs, put the funds towards another property, fund an upskilling course to increase your income or meet lifestyle goals like your first overseas holiday.

I partner with clients every day who are in situations like yours, dealing with seemingly endless options but not knowing which is the right one for them – the best choice depends on your circumstances and what you are trying to achieve. I always remind clients to think of all these options as pieces of a puzzle – always make sure you step back and look at the broader picture.

Putting aside the other options and your objectives for a moment, let’s focus on some of the advantages/disadvantages of the options you’ve asked about.

HECS/HELP repayment

Advantages

  • Borrowing capacity: If you were to refinance your existing home loan or purchase another property, the bank will take your HECS/HELP repayments into account. Should you entirely payoff this student debt, your capacity to borrow will improve.

  • Saved indexation: By reducing your student loan, a smaller loan amount will be indexed next June and you will reduce the total cost of repaying the loan.

  • Improved cashflow: Once your HECS/HELP loan is repaid in full, your employer can stop taking repayments from your pay which should enhance your cashflow.

Disadvantages

  • Lack of accessibility: Once you have made a payment to your HECS/HELP loan you cannot get it back. So, before you do make sure you have a sufficient cash buffer in place.

  • No immediate improvement to borrowing or cashflow: Whilst reducing your HECS/HELP loan will reduce the amount that gets indexed each June, you will not reap immediate rewards from a cashflow perspective because your repayments are based on if you owe money and how much you earn, not what you owe.

 Superannuation contribution

Advantages

  • Retirement: Superannuation returns are compounding in nature and are taxed at concessional rates so the more invested in superannuation the greater chance you have of a comfortable retirement.

  • Tax: You may be eligible to claim a tax deduction for your contribution into your superannuation.

Disadvantages:

  • Lack of accessibility: Money in your superannuation fund is inaccessible unless you meet a “condition of release” (i.e. retirement, disability, first home buyer super saver scheme)

 

About Ethan Stein

Ethan is an Associate Adviser at Montara Wealth. Ethan provides strategy based holistic advice to his clients, focusing on their goals and aspirations.

When he isn’t on the go, he enjoys a good dinner and drink with family and friends or heading out to support the Penrith Panthers.

You can get in contact with Ethan here.

Want to ask a question?

We have a star-studded list of advisors waiting to answer your question, so what are you waiting for?

Email [email protected] with your question 

A message from Fidelity

The next Apple?

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So how can you find the ‘next Apple’ when there are more than 4,000 global investment opportunities to research?

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This information does not take into account any person’s objectives, financial situation or needs. The PDS and TMD for the relevant fund can be obtained by contacting Fidelity or on our website www.fidelity.com.au and should be considered before making any investment decision. FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”) issues Fidelity’s managed investment schemes. To the maximum extent permitted by law, Fidelity Australia, its associates and related bodies corporate disclaim all responsibility and liability for any loss however arising in relation to this information which is solely for use by and distribution to the intended recipient.

©2023 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International, the Fidelity International logo and F symbols are trademarks of FIL Limited.

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