Money Makeover

Hi Scott,

My wife and I used to have three investment properties -- and we hated every minute of it. Now we own our house outright, and it’s a bloody good feeling. We are happily married with two kids (5 and 7). Our situation now is like this: we have NO debt (I mean zero), a combined income of $90k, super of about $75k, shares worth $25k and cash $25k. For the first time we have surplus cash that is not going to banks or rental agents, so please give us some direction. I do not want to waste it.

Jim

Hi Jim,

You rock.

When you don’t have to make a monthly repayment to a bank, you can really start to build wealth.

Here’s how:

Based on what you’ve told me, you’re probably picking up some Family Tax Benefit (around $118 per fortnight, more if one of you is on a low income).

So start up an investment bond for your kids (a bond can be kicked off with about $1,000) and then every month add your Family Tax Benefit to the bond.

You won’t pay any tax on the earnings, and in 10 years you can pull out the lot tax-free (or leave it to grow, and give it to your kids when they’re older).

Best of all, Centrelink ignores investment bond earnings when they work out your Family Tax Benefit.

Then I want you to turbocharge your super.

Make sure it’s in an ultra-low-fee fund. My standard advice is to boost your pre-tax super contributions to 15 percent (talk to your bosses about salary sacrifice).

If you do that, by age 67 you’ll have over $600,000 (in today’s dollars). But with your mortgage paid off, and your Mojo, I think you should challenge yourself to do more than that.

Scott