Hi, I'm a 28-year-old self-employed male wondering whether I should invest my surplus cash flow via super (deductible contributions) or in my own name personally? I'm worried about tying up my money for such a long time but am aware of the tax benefits if I'm in the 37-cent tax bracket.
Sam in Curtin, WA
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Hi Sam, frankly there’s compelling arguments to further investigate both above options. Funds placed in super will contribute to your long-term savings in a tax friendly environment offering compounding interest benefits, additional long-term tax benefits and also immediate tax benefits depending on how they are contributed into Superannuation. As you are self-employed you may use these, or potentially some of these, contributions to lower your assessable income, which ironically frees up more cash flow by reducing ongoing BAS and pre-paid tax obligations.
Alternatively, you may choose to invest using your personal name taking advantage of the current economic climate and purchase some shares, EFTs or managed funds at a discounted rate to further help yourself in the long term. Personally, I’d challenge you to spend a bit of time considering the longer-term strategy with an aim of trying to understand WHY you are seeking to invest and use this to tie into some measurable and achievable goals. Is the aim of this to generate enough income to pay your rates? Offer a yearly holiday? Increase in capital by a specific amount to reduce debt? Allow you the ability to take a day off per week? If you are to focus on the real underlying reason, then you’re less to likely to pull out in the future when the inevitable market falls or periods of strong volatility arise.
Find yourself a good adviser and arrange a time to have a chat to discuss using the above strategies in conjunction with each other to put you in the driver’s seat, explore other options available to you in terms of budgeting, cash flow and any future capital considerations. Talk about tax effective insurances or potentially purchasing commercial premises and see if there are any available government grants that you might be entitled to. Most importantly, keep asking questions like the one above because short term thought, and considerations can have a huge long-term benefit when properly factored into a relevant client focused strategy.
Give me a hoy in a few years and tell me how you got on, Regards.
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