As tax rates change, put your extra funds to good use

Even now, seldom a day passes when I don't receive emails from people telling me how much that book changed their lives. As of today the book has sold over two million copies, and we've just released the 25th edition. The information is as relevant now as it ever was.

One feature of that book was the suggestion that people pay their loans fortnightly instead of monthly. The banks scoffed then, but they had missed the main point - if you're paying $2000 a month and move to $1000 a fortnight you have increased your repayments from $24,000 a year to $26,000 a year. That's an extra $2000 year off your mortgage and you haven't even missed it.

This led to my next concept - which I call the guaranteed secret of wealth. Put simply: you never miss money that you don't see. That is, you don't miss money that is deducted from your account automatically.

Back in 1993, to practise what I was preaching, I opened a savings account with Heritage Bank. In it I captured all the money I received that was not salary or investment income.

This included things like tax refunds, automatic payments from health funds on the rare occasions I went to the doctor and even the one-off $1000 payment I got from Centrelink when the 2011 floods hit Brisbane.

It was fun to use the passbook, as I also enjoyed going into the Heritage Branch and chatting to the staff about my guaranteed secret of wealth while I watched the balance rise as they updated the passbook. Every time the balance hit $10,000 I withdrew that amount and paid it off a loan I had for an investment property. Using that strategy the investment property was paid off effortlessly - I would probably still have that loan if I had not used the guaranteed secret of wealth.

Recently, reflecting on this, I decided to find out exactly how much money had gone through that account in those 20 years. It was just a matter of going through all the old passbooks and adding up the withdrawals.

Can you believe, in 20 years I had banked and withdrawn over $283,000!

That's how much I had managed to put away just by capturing all those relatively small amounts that normally end up in the everyday bank account and get frittered away.

In a few weeks, everybody will have a fatter pay packet because the tax rates are changing.

Good money managers will put the extra money to good use by immediately increasing their home loan repayments by the amount of the tax cut, or by boosting their tax-deductible superannuation contributions.

Remember, on 1 July the deductible contributions cap rises from $27,500 a year to $30,000 a year.

But before July has even finished, most people will have automatically increased their expenditure to soak up the tax cut, or will be wondering how they ever existed before the tax cuts happened.

This is why, whenever I talk about budgeting I say: make investment your first expense.

If you just give it a go, I promise you will be amazed by the result. You won't be stuck - nothing stops you from pausing or ending the deduction.

You could consider the money an emergency fund, if it helps, but unless you try it for yourself, you will never see how this concept really does work a kind of magic.

If I sell an investment property and make a clear profit of $100,000 the taxable profit after discount would be $50,000 which will be added to my tax return as income for this year as $50,000. Would this $50,000 be treated as income by Centrelink and affect my pension - if so would I have to pay some of my pension back?

I have good news for you - the taxable capital gain is not counted as income by Centrelink and will have no effect on your pension.

I am a single woman in my 40s, never married, no children. Is it necessary for me to have a will?

My understanding is, when I die my assets would go to my parents if they are still alive and if they are not, then the assets will automatically go to my siblings. I don't have life insurance but I do have a house (under mortgage), super and a share portfolio along with some cash in the bank.

I am genuinely curious as to whether I need a will or not. Or am I missing something I don't know or not aware of?

My legal expert says the short answer is yes. You have significant assets so probate will be required. Distribution isn't "automatic" and requires the court to review an intestacy application which could be costly and complex to prepare for your grieving family as well as requiring them to trace all your assets including what shares you have, your superannuation and your bank details.

A probate application with a will is much easier than a probate application without a will. Why put your family through more drama? Just do a simple will.

I am keen to invest in property to help my children onto the property ladder. Is it better to buy property in joint names with my children or set up a family trust to make a property purchase? If through a trust, how does one go about setting up such a thing?

You don't want to be buying property in joint names with your children because there can be capital gains tax consequences if or when you decide your share of the property should be transferred to them. These would also apply to any purchase through a family trust.

I think a better option is to encourage them to buy a property in their own names, and you could supply a deposit, either by way of a gift or as loan. This will give them the opportunity to make choices, so they can learn.

Your accountant is the appropriate person to talk to about setting up a family trust.