A family that saves more than it spends will do well in its quest to achieve financial security. However, knowing how to save alone isn’t enough. Families should also arm themselves with updated knowledge on family tax, smart investments and insurance cover.
Avoid Paying More Tax Than Necessary
Most Australian taxpayers know how much tax they paid the year before and how much refund they got but not all know exactly how the taxes are calculated. A registered tax agent will often be able to help out here but it’s crucial to know a few things about taxation.
- Know the personal tax rate. Usually, the higher the income, the higher the tax rate.
- Know the best tax deductions for the family. Many families are entitled to claim for education and healthcare costs.
- Find out if income splitting works for the family. If income is shared with a spouse in a superannuation fund, both partners may enjoy a lower rate of income tax.
- Claim work-related expenses. Some generic items like union fees, trade magazines or books are claimable items.
- Learn about franked dividends. This applies to Australian shareholders who essentially enjoy a tax rebate for the dividends they receive when the company paying the dividends has already paid tax on the money.
Make Smart Household Investments
Put simply, investing is using money to make more money. But making a sound investment takes effort and patience. The investor’s income tax bracket, access to money in emergencies, returns of investments and reviews of investments are important considerations.
Families who have invested in shares and managed funds should also recognize financial cycles, which fluctuate through the years. There are events that can boost or dampen the market. While no one knows exactly when these will happen, it helps to be ready to face the changes. Read up on investments and how the current economic climate is affecting investments.
Protect the Family and Income With Insurance
For families with young children and dependent, ample insurance cover is a must. The three major types of insurance are:
- Life insurance. This provides a lump sum of money for the family in the event of the death of someone important, often an income earner, in the family.
- Income protection insurance. This provides a regular income if the income earner unexpectedly falls sick or is injured and not able to work for a long period of time.
- Trauma or disability insurance. This provides a lump sum to pay mortgages and other debts while the policy holder recovers from a critical illness such as a heart attack, stroke or cancer.
It’s true that premiums for insurance can be quite high. So it helps to shop around and compare rates from different insurance companies. Read the fine print carefully as well. Those already with an insurance policy should review it whenever there is a life-changing event such as the birth of a new baby or a job promotion.
Household financial matters involving tax, investments and insurance should always be a priority for families. Learn to avoid paying more tax than necessary, make sound investments and give enough insurance cover for the family.