Wealth Accumulation

The most rudimentary concept of wealth accumulation is simple – spend less than you earn. Understanding and managing cash flow is therefore paramount to accumulating wealth.

The difference between good debt and bad debt and what’s appropriate for your situation is often key in accumulating wealth.

Some basics include consolidating high interest paying debts into lower interest paying housing loans where possible to assist in interest savings, which can then be utilised to repay the debt faster. Offset accounts are useful for higher income earners who are disciplined enough to use credit to pay for day to day expenses and repay the balance in full every month to allow salary to offset interest until the credit card bill is due.

Most people are familiar with holding investment property to accumulate wealth, but often do not consider alternatives. Once non-deductible debt is under control (e.g. credit cards, car loans, home loan) consideration of whether deductible debt (that is debt used to produce an income and thus the interest is tax deductible) is appropriate. This will be a decision based on your circumstances such as cash flow, job security, family situation and time frame. Borrowing options may include utilising a line of credit on your home, a margin loan, a separate mortgage, and some can be financed either as principal and interest or interest only. The advantages and disadvantages of borrowing to invest in property versus other assets is important.

Super is a very attractive option to build wealth for retirement due to the tax benefits and compounding effects of these tax benefits mean your super savings may grow faster than non-super alternatives.

A bond, issued either as a life insurance or friendly society is an investment structure where tax on the income and capital gains earned from the investment is paid by the provider at the company tax rate of 30%. This creates tax advantages for some investors, particularly those on marginal tax rates above 30%. The advantage of an investment in these bonds is that the benefits are tax paid to the investor if withdrawn after the 10th anniversary, providing that annual contributions do not exceed 125% of the contributions made in the previous year. The proceeds are also tax paid upon death of the life insured.

A cornerstone of any sound wealth accumulation strategy is protecting the wealth you have built and your ability to earn an income.

  • Salary packaging
  • Debt management
  • Managing super contributions
  • Family trusts
  • Insurance bonds

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