I am trying to figure out what would be a good strategy for me as I am about to start a new job in the mines in June.
As I will be earning in excess of $150,000 a year, I was hoping someone might have either the experience of the know as to how I should be looking at my strategy for financial freedom. I realise I will need to talk to an accountant at the end of the day but the main reason I am seeking advice here is because I want to also get property investors opinions.
My situation will be as follows;
– I will earn in excess of $150,000 p/a (including GST)
– My partner will earn approx. $35,000 p/a after tax– We will both be living near the mine in Central QLD
– No children– I own a property already in Brisbane with a friend, $285,000 mortgage, approx. $35,000 Equity
– The property earns approx. $21,000 rental income p/aI worked out with just my wage alone from the mines I will be taxed around $43,000 p/a. Now I am not a greed man, but I will be working 12hrs a day & 13 day fortnights so I want to salvage as much of that income as i can to become financially free.
I have worked out that my partner and myself can pretty much live of her wage, we may need to use $100-$200 of my wage p/w to live comfortably but a part from this I can invest most of it.
So I guess my question is this, what do you think is the best solution in this situation?
What would you do in my shoes?
Any advice or feedback would be appreciated, and as I said before, I realise the best person to speak to would be an account, but I am looking for a property investors opinion.
The best advice anyone could give you (in my opinion) is do not invest for tax reasons. You invest to try to gain financial freedom, or for greater wealth, or to give your ego a boost, or whatever other reason you might have. Saving a few dollars in tax isn't a reason to invest- tax benefits should only be seen as a little bonus that you get along the way. If an investment doesn't look any good before the tax benefits then in reality it isn't a very good investment at all.
Cheers,
LukeFirst thing to do is to unhinge the ownership of the property you own with your friend.
The mixed ownership means you both will need the permission of the other before you can borrow any more money when this property is used for security for a loan.
Once this has been done, and you have sufficient deposit either in cash or equity or a combination of both then explore a strategy along the lines you are thinking.
Having worked in mining towns in the past I have seen so many people on high wages blowing their opportunity by buying all the latest and greatest widgets and gadgets. The end result is these people are hamstrung by their wage and the need for teh latest and greatest gadget.
At the same time I have seen people come and go who have used the opportunity to set themselves up for later life with clever investing.
Your post seems to place you in the second group.
Now go and unhinge that property and then make your move.
Hey guys, thank you very much for posting.
Both very relevant and also helpful.
Luke, I forgot to mention in my first post that I was always going to invest in property while up there. I guess what I was looking for was a way I could utilise as much of the wage I would earn as possible without wasting any. You are right though, investing based solely on saving money on tax is not a good way to invest. Thanks for your input.
Derek, you are right, if I was to use the property as collateral for another property I would have to invest with my friend. I guess I could try buy him out or sell my share, however the property ise positively geared (it is a highset home with two separate living) so I am reluctant to sell!
Thanks again for your input.Any other opinions out there?
DAZ 008
One of the best vehicles for tax minimisation is a Self Managed Super Fund (SMSF)- any income is taxed at around 15% (depending on your individual situation) and the aim of the fund is to provide long term retirement benefits for the members (primarily you, and family if / when the join the fund).
With a strong surplus from your salary you could increase your contributions into your SMSF (salary sacrifice) and still manage those investments – shares and cash would probably be the better targets although there are a number of off-market investments that can be considered dpending on your tolerance for risk – and once again these can all be run through your SMSF.
The property being residential and already owned by you – won't be able to be transferred into you SMSF. But if you sold (say as your PPOR and there was no tax) you could make a large contribution of part or al of these funds into your SMSF as seed capital to work with or equity in a property for your SMSF and get a small amount of gering say 50%.
A few things need to be considered – cashflow (if you have enough cash comming in to cover all your needs, as SMSF funds need to stay in the fund unti retirement age), risk (high risk generally needs longer terms to smooth out the volatile ups and downs – it can be hard to pick the market), lifestyle (kids, faily, costs etc…these change and are part of your cashflow – but youdon't want to dump too much into your SMSF that leaves you short and vice versa).
If you are likely to be on that salary for an extended time then SMSF will be a good way to manage your affairs – and if you don't want to do anything too far outside the box, a good managed fund in your SMSF can be a passive way to access shares, cash and have professional managers look after your investment – just pick the one right for you.
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