“I’m earning, but I’m just not saving”
I’m sure we’ve all said this at some stage of our working life. So how do we resolve this problem? You can start by thinking in terms of investing, rather than saving. When you save, you have easy access to your money and the interest is usually quite low – your money isn’t working for you.
By investing in your super using a salary sacrifice arrangement, there is less temptation to withdraw cash and you are forced to leave your money alone. And the longer you leave your money alone, the more it grows because you are making regular contributions and your interest is compounding.
There is no magic formula here – just three easy steps
- Set achievable goals and write them down.
- Draw up a budget, know your expenses and work out how much of your ‘before-tax’ salary you can afford to contribute each month through your employer.
- Make a plan to invest and invest according to your plan. Commit to investing a set amount of your pay every month.
Remember, using a salary sacrifice strategy to invest in super is one of the most tax effective ways to save for your future. By investing a fixed amount of money at regular intervals coupled with a diversified investment strategy, you are potentially reducing your exposure to risk while still earning stronger returns. Arguably, the real risk is leaving your money in a savings account where it isn’t working for you.
Benefits of salary sacrificing into super
If you make super contributions under a salary sacrifice arrangement, there are typically benefits for both you and your employer.
- Reduction in your assessable income - The part of your salary you sacrifice into super is not assessable income for taxation purposes. It is not included as income on your payment summary and is not subject to pay as you go (PAYG) withholding tax. However, from 1 July 2009 salary sacrifice contributions will be included in the income test to determine if you are eligible for the Government co-contribution and some other government concessional benefits.
- No fringe benefits tax - When salary sacrificed super contributions are made to a complying super fund like VISSF, the sacrificed amount is not considered a fringe benefit for tax purposes. Salary sacrificed contributions are treated as employer contributions.
- Deductibility for your employer - If you are under 75 years of age, your employer can usually claim a tax deduction on the amount of salary sacrificed contributions they contribute to your super fund on your behalf.