You’ve changed jobs and you’re busy focusing on settling in and succeeding in your new role. Here are five financial decisions you’ll need to consider to ensure you’re on track.
- Consider how you can eliminate or reduce debt
The interest rates you pay on borrowed money can quickly absorb any extra income. If you’re looking to reduce your debt, but can’t decide what to pay off first, it’s usually best to start by eliminating debt with the highest interest rates such as any credit card debt, then any personal loans, followed by the mortgage if you have one on the property you’re living in. There may be tax implications, so speak to your accountant or financial adviser to find the best approach for you.
- Get tax ready
Go to the ATO website and review the marginal tax rates and how your income level is taxed. If you have a higher level of income you may incur additional Medicare levies if you don’t have required levels of private health insurance. It may be worth keeping a little money aside for tax time.
- What to do with extra income
If your salary has increased, you can consider setting up a regular super top up payment, called “salary sacrifice”. You may not even miss the smaller, regular and direct payments into your super account, but your super account will grow much faster. And effective salary sacrifice payments made by your employer to your super fund are treated as concessional contributions and therefore, only taxed at 15%1 up to the concessional contribution caps2 as opposed to your normal marginal tax rates. Super is likely to become one of your biggest investments that will help you enjoy more lifestyle flexibility once you have retired.
- Super-charge your retirement investments
If you have requested your new employer to pay your super contribution to your super account, check that you are receiving your new employer’s super contribution into your super account by logging-in online and viewing your transactions. This will ensure it’s going to the right place.
- Update your income protection insurance
Income protection provides you with an income if you become ill or are injured and can’t work. You should carefully consider whether to take out income protection or salary continuance insurance if you don’t have it already and if you do, then now is the time to consider whether to update it with your new income level. If you leave it at your current level at claim time, you may quickly realise the shortfall.
1 Broadly, an additional tax of 15% is payable on concessional contributions (CCs) by individuals ‘earning’ more than $300,000pa.
2 For 2015/16 the concessional contribution caps are $30,000 for those 48 or under on 30 June 2015 and $35,000 for those 49 or over on 30 June 2015. For 2016/17 these age based concessional contribution caps remain the same, based on ages as at 30 June 2016. Any excess CCs are treated as assessable income and taxed at your marginal tax rate plus with a 15% offset for the tax already paid by your super fund. You will also need to pay an excess CC charge. You have the choice to have up to 85% of the excess CC amount released from your super fund to assist you in paying the additional tax liability. Other implications may arise if the excess CC amount is not refunded. Refer to ato.gov.au for further information.