Make your savings work harder
If you have worked hard to save $10,000, make sure your money is
working hard for you. We explain how can you get the most from your
savings, whether it’s reducing debt, creating an emergency fund or
starting an investment portfolio.
Don’t forget to revisit your goals first so that whatever you
decide to do fits within your overall financial plan.
- Check your investment goals
- Pay off your debts first
- Build an emergency fund
- Consider an exchange traded fund
- Boost your super
The first step in any financial plan is to set some goals. What
are you trying to achieve? How long will it take? The investment
you choose should suit your investment timeframe.
If you have already set your goals, your financial decisions
should support those goals. Check out our web page on goals
and risk tolerance to help you get started.
If you have credit card debts or personal loans think about
using the $10,000 to pay them off. Interest on these types of debt
is not tax deductible and is usually quite high, so these debts
should be your first priority.
Credit card debt usually carries the highest rate of interest,
so the sooner you get them paid off the better.
Work out how you can pay off your card faster and how much
you can save.
Personal loans are also often high-interest debt and, depending
on the amount of the loan, the repayments can take up a large chunk
of your income.
See how much faster you can repay your personal loan.
If you have a mortgage that has a redraw facility, paying
$10,000 off your mortgage will not only reduce your monthly
interest but will also help pay your loan off sooner.
See how much interest and time you can save by making
Putting at least some of the $10,000 in an emergency savings
fund will give you some breathing space to deal with life’s ups and
downs. This money could help a lot if, say, you are temporarily
unemployed, your car needs major repairs or you need to do some
urgent home maintenance.
How much you need in an emergency fund will be different for
each person. We suggest working out how much you would need to
cover all household bills and expenses for 3 months and use that as
a starting point.
Make sure your emergency savings are in a high-interest savings
account you can access when you need to, but try not to dip
into it unless it really is an emergency.
See our webpage on building an emergency
fund for tips on how to create a savings
Exchange traded funds
(ETFs) can be a low-cost way to gain exposure to growth assets like
shares or property without a large up-front investment, and without
having to choose individual assets. This sort of investment has a
higher risk than a savings account but will usually provide higher
returns over the medium to long-term.
ETFs can be bought and sold like shares on a stock exchange,
through your stockbroker or online trading account. ETFs in
Australia are passively managed investments, meaning they track an
asset or market index (such as the ASX200), and usually have lower
fees than traditional managed funds.
They are available for assets such as Australian shares,
international shares, property, fixed income products, foreign
currencies, precious metals and commodities. Read the product disclosure statement (PDS)
carefully before you invest to make sure you understand the
An index fund is a type of passively managed ETF or managed
fund that invests in a portfolio of assets that mimic an
index, such as the ASX All Ordinaries index or the S&P200
index. An index fund generates a return, before fees, that is
almost the same as the index it is tracking and is an inexpensive
way to gain exposure to a large portfolio of assets.
Many index funds are traded on the Australian Securities
Exchange (ASX). Read the PDS carefully before you invest.
If you want to retire with a similar standard of living to what
you are used to while you are working, your employers’ super
contributions are probably not going to be enough. Adding to
your super can be tax-effective and because the money is locked
away until you retire, you will reap the benefits of compounding
returns over time.
There are two ways you could contribute your savings to
- Salary sacrifice through
your employer – this will reduce tax and you can top up your income
from your savings
- Make an after tax contribution to super – this can be a good
option for low income earners as they may also be eligible for a government co-contribution.
There are plenty of smart things to do with
$10,000. Consider your current financial position, your goals and
what’s most important to you, so you can work out the option that
suits you best.
Last updated: 27 May 2019