15 ways to save cashPUBLISHED : | UPDATED:
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If you have savings, you might be better off keeping the money in your offset account. Photo: Louise Kennerley
You can never have enough cash, and these tips could fatten your wallet nicely
1. Dividend stripping
Dividend stripping involves buying shares before their dividend ex-date but selling them straight after for their dividend. Most shares will fall post ex-date but you still stand to receive the franking credits and if you’ve picked a good stock they may not fall by the entire amount of the dividend. This works best in a rising market.
2. Credit where credit’s due
If you’ve racked up a sizeable debt on your credit card it might be time to consider switching to a balance transfer card. If you had a debt of $3000 and transferred it to a card with a balance transfer rate of 2.9 per cent for 12 months you’d save $994 in interest (assuming you would otherwise have paid it off at a rate of 19.24 per cent).
3. Do it yourself
If you’ve decided your best bet is to manage your superannuation yourself then you still need to make sure you have the best products and services for your DIY fund. The administration platform will be one of your most important tools, so make sure you get value for money.
4. Healthy and wealthy
Making sure you have the right health insurance is important not only for your well-being but also for your back pocket. What’s the point of having a policy that covers obstetrics if your children have grown up?
5. Home in
Offset accounts are a great way to reduce your home loan. Have your pay deposited directly into an offset account, use your credit card for everyday purchases (one that has an interest-free period longer than 31 days) and you can keep the money there – reducing your interest liability – until your next pay, at which point you pay off your credit card. On a salary of $3000 per fortnight and a 25-year loan of $300,000 at 6.7 per cent you stand to save $6024 and pay off your loan seven months earlier.
If you have savings, you might be better off keeping the money in your offset account too. A $10,000 sum in the offset account in our example would mean the loan is paid off two years earlier, saving $39,496 in interest.
6. Give until it hurts
Depending on your tax bracket, a gift given could be a gift halved. Donations to registered charities are tax-deductible and will lower your overall taxable income.
7. Tax back
If you get a consistent, sizeable tax refund each year – perhaps because you have a negatively geared investment property – it might be worth applying for a pay as you go (PAYG) withholding variation. This would reduce the tax taken out of your regular pay, perhaps depositing an extra $150 in your pocket each month. You can put that money to work now rather than having to wait for a lump sum from the ATO at the end of the year.
8. Make that first repayment quickly
This is more a mind trick than anything else, but if you make your first repayment when your home loan is approved – rather than when it’s actually required a month later, you could pay your loan off five months earlier and save almost $10,000 in interest. That’s because the amount comes straight off the principal, as no interest will have accrued yet.
9. Gold rush
Gold’s price has been increasing steadily for the past 11 years. If you believe gold is only going to continue to appreciate then you could buy a stock such as goldminer Newcrest Mining (NCM), although this may not closely track the gold price itself. Alternatively you could buy an exchange-traded fund such as the BetaShares Gold Bullion ETF.
10. Foreign exchange
This isn’t for the faint-hearted, but if you have a little bit of spare cash and a fair bit of spare time you might want to try your hand at the foreign exchange market. Set up a dummy account at one of the major providers first and have a few practice runs, then make sure you don’t risk any more than you can afford to lose.
11. Super match
The co-contribution thresholds may have been frozen in the 2011 budget but nevertheless if you earn less than $31,920 you stand to receive a matching government contribution for every dollar you contribute to your super fund after tax.
12. Pension plan
Over 55 and thinking about scaling back at work? You’d be silly not to consider a transition-to-retirement pension. You draw down a part pension at the same time as contributing more into super before tax. Your income stays the same but you have a larger retirement nest egg at the end. Just make sure you don’t exceed your concessional contribution limit, which has been cut to $50,000 for those aged 50-plus and which may be halved again from July 1, 2012.
13. Debt plan
It might seem like a good idea at the time, but think hard about consolidating debt into your mortgage because you’ll be paying it off over the life of the mortgage – perhaps 25 years – instead of the, say, five years of a personal loan.
For example, if you rolled a $10,000 loan into an existing home loan of $300,000 with a life of 25 years and an interest rate of 6.7 per cent, you’d pay an extra $8500 in interest. That compares to the $3652 in interest you’d pay on a $10,000 personal loan at 13 per cent over five years. If you do decide to consolidate the debt in your mortgage, make the same payments as you would if it were the personal loan.
14. Reinvest dividends
If you tick the option to have your dividends reinvested you might be surprised by the size of your holding 10 years on. Just imagine if you’d done that with a stock like BHP Billiton or one of the banks. It’s a relatively painless way of saving for the future – as long as you invest in good solid stocks to start with. You’ll also be able to acquire the additional shares without the cost of brokerage.
15. Sell your opinion
Get your name on a market researcher’s database and you can take part in surveys, focus groups on new products or taste tests for which you may be paid cash in hand. Do an internet search for local market research companies and call them to see how you can register.
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Penny Pryor Smart Investor