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How to make the most out of your income

How to make the most out of your income
Photo: How to make the most out of your income
In this three-part series, we explore how 50-year-old pathologist assistant Georgie and her husband Nate can make the most of their income and how financial advice might be able to improve their circumst­ances as they approach retirement.

Today’s article looks at Georgie’s budgeting and salary packaging opportunities.

Georgie recently celebrated her 50th birthday with her family and her 25-year wedding anniversary with her husband, Nate. These milestones prompted Georgie to take a look at the family’s finances to make sure they’re on track for a comfortable retirement.

The first step was to review their monthly household budget to see if there is potential to save a bit more. Georgie and Nate have a combined monthly income of $6,690 net and total expenses of $4,590, which leaves $2,100 for savings. Georgie’s two children are still living at home, but have recently started full-time jobs and have agreed to start contributing towards household expenses.

Here’s a breakdown of their regular monthly household expenses: 



Thanks to their lower expenses, Georgie’s and Nate’s monthly savings have jumped from $2,100 to $2,940! A great outcome, with the possibility of a further boost to savings when the children become totally financially independent.

But Georgie didn’t stop there. After a bit more research, she discovered that her employer offers salary packaging arrangements. Salary packaging allows you to pay for some of your personal expenses out of your pre-tax salary, which means you pay less income tax because your taxable income is lower.

Georgie spoke to her payroll manager and was able to ‘salary package’ part of her mortgage payment. Georgie’s monthly pay changed as follows:



By salary packaging alone (refer column 2 above), Georgie was able to increase her savings by $293 a month or $3,516 per annum, which represents the tax advantage of salary packaging.

Georgie’s payroll manager also introduced her to the benefits of ‘salary sacrificing’ contributions into super. Salary sacrificing simply means paying super contributions from your pre-tax salary rather than your after-tax salary. SG contributions and salary sacrifice contributions attract a 15% contribution tax, which is lower than her normal tax rate.

Georgie decides to invest the $293 monthly saving from packaging part of her mortgage straight into her super account. By doing this, her take-home pay reduces back to approximately her pre-packaging and salary sacrifice amount. However, her total super contributions (SG + salary sacrifice) has now increased to gross amount of $773 (+$395) each month.

Let’s recap on the changes Georgie has made to her pay, the family’s expenses and their savings:

Georgie’s and Nate’s monthly take-home pay is: $6,690
Monthly expenses are now $3,750 (were $4,590)
Monthly savings outside of super are now $2,940 (were $2,100)
Packaged $750 per month to their mortgage, which is from pre-tax salary
Georgie's gross super contributions are now $773 per month (were $378)
Georgie has maintained her net monthly pay at approximately $3,309

Georgie is happy with the way the household finances now look because there is more money to set aside for emergencies, holidays and retirement planning.

Part two of this series will look at how financial planning can provide Georgie and Nate with solutions to help them achieve their retirement goals.

First State Super is one of Australia’s largest super funds. We manage more than $48 billion for more than 750,000 members. We are a profit-for-members super fund, which means we work for the benefit of our members, not shareholders.

Everyone’s situation is different. Georgie’s situation is illustrative only as her employer pays SG based on her gross income prior to deductions. Georgie receives the full benefit from any tax savings as a result of salary packaging; other employers may treat this slightly differently. This information should not be taken to contain or to provide an estimate of the outcome you would receive.

Consider our product disclosure statement before making a decision about First State Super. Call us 1300 650 873 or visit firststatesuper.com.au for a copy. FSS Trustee Corporation ABN 11 118 202 672 ASFL 293340 is the trustee of the First State Superannuation Scheme (First State Super) ABN 53 226 460 365. This contains general information only.

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