Olivia Maragna - CEO Magazine - Managing Money
The phrase ‘time poor’ is used freely nowadays to describe our busy lives. However, if you’re a successful executive, your workload alone can mean finding time to manage your own financial affairs can be seriously challenging.
Having a strong income is undoubtedly a huge benefit in terms of living today, but executives often don’t realise that they are giving away money unknowingly through paying unnecessary tax, interest, or costs because they aren’t taking advantage of strategies to keep their wealth in the family.
In some instances, executives may also think that they should know what to do with their own financial affairs as they run the businesses of much larger companies. This can inevitably have an effect on your own long-term wealth creation. Executives need to look out for these tips and traps.
Simply putting a bank account in your spouse or partner’s name isn’t good tax-effective investing. Nor is it about investing in trees or the likes of many tax-structured products where you are essentially paying for the tax deduction yourself.
Tax-effective investing is about being smart with your salary package, your share options, your superannuation, the entirety of your wealth, and keeping as much of it in the family—not unknowingly giving it to the tax office. It’s about who owns assets, whether you accumulate assets in your own name, your spouse’s name, a family trust, or even your own superannuation fund. Build wealth with a long-term time frame in mind. Don’t just think about what is best for today because it can end up being worse in the long term.
Getting the correct structure of how you hold investments can generally outweigh the performance of investments themselves because it assists in minimising income tax and capital gains. Good tax-effective investing can add up to tens, if not hundreds, of thousands of dollars over your lifetime, so getting some strategic advice around how to best accumulate your wealth pays off in the long run. Minimising tax is just one way to keep the wealth in the family, and is something that is overlooked and too often not optimised.
We all know about good and bad debt. Good debt is debt where you claim the interest expense as a tax deduction, such as when you borrow for shares or investment. On the other hand, there is no tax advantage on the interest you incur with bad debt, such as in the situation of owning your own home.
When you accumulate assets or investments, you want to always have the ability to keep the investment long term. Your loan structures will assist with this and can lead to a substantial amount of dollars in tax benefits each and every year if structured correctly. Be wary of banks who ideally want to cross-collateralise your assets to keep a hold on all of your investments. This has the potential to destroy tax benefits long term and can be avoided.
Maximise your good debt and concentrate on reducing the interest on your bad debt. This doesn’t necessarily mean repaying the principal loan amount of your bad debt. The strategic use of an offset account can reduce your interest on your bad debt but maintain the principal debt amount, which can potentially be used later on to claim tax benefits from, should you wish to.
Working with a financial adviser who has a strategic knowledge around these is essential in making sure you are structured correctly and also using your funds in the most efficient way. Loan structures are important: they will help avoid paying unnecessary tax and will allow you to keep your investments long term and avoid missing essential tax benefits for years to come.
You work hard in your role, so why risk it?
As an executive, there are lots of offers or opportunities that you can take advantage of or invest in that will come across your desk. Be mindful of these and look at them with cautious eyes.
Don’t underestimate the value of an independent financial adviser who can be objective and recommend what is suitable and appropriate for you to invest in, and, more importantly, what not to invest in.
Understanding what you invest in and having control around this is important. For ultimate control over your retirement funds, consider a self-managed super fund once your superannuation is around $250,000. Not only do you get a say in how your retirement funds are invested, but you can also pay your tax later, which allows you to hold onto your funds and earn money on this in the meantime.
In relation to investments you hold outside of super, if structured correctly, you can effectively become your own bank and pay interest to yourself. This is one of the best ways to keep the wealth in the family.
Seek expert, independent advice
As a professional, it makes sense to use the expertise of an expert financial adviser to work with you to establish great foundations, growing your wealth and protecting your interests. Put aside some time for a discussion to establish what you really want and where you really want to be financially inthe future.
It seems so simple, and it is. By clarifying these goals, developing a clear direction for your situation becomes much easier.
Just like managing a company, managing your wealth and planning for your retirement helps prioritise what’s really important.
Olivia Maragna is the CEO of Aspire Retire Financial Services. Visit aspireretire.com.au for more information.
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