Ask the Expert: Improving financial literacy and juggling home loans
Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
Question: I am concerned about my lack of financial literacy, where is the best place to get educated without bias from a big company or bank?
I am from a low socio-economic background and am single. If I don’t set myself up now, I have no one to help me later in life.
Answer: It’s great that you are taking an interest in your finances. Just being interested puts you on the right path towards meeting your financial goals.
In fact, a recent survey found that low financial literacy usually translates to poor financial health. For instance, poverty rates among the least financially literate are twice as high as the most literate group.
Moneysmart has a large selection of articles, tools and tips that I use and would recommend to anyone. Moneysmart is run by the Australian Securities and Investments Commission (ASIC), and the purpose of its website is to help Australians make the most of their money.
Another website managed by ASIC, Financial Capability, provides a comprehensive list of government, business and non-profit organisations that deliver initiatives that empower Australians to be in control of their financial lives.
Super Guru provides some useful information and education regarding superannuation and does not accept advertising or try to sell any particular product.
The Financial Planning Association of Australia (FPA) runs a website, Money & Life, that is dedicated to helping Australians improve their financial wellbeing. This site can also put you in touch with a licensed financial adviser who could provide personalised advice.
Question: Due to being a social hermit and a hard worker, I have built up $100,000 in savings. I have a mortgage of $130,000. How would you recommend splitting my savings over early mortgage repayments, extra super contributions, investing etc?
I don’t know enough about personal finance to know if it’s a good idea to just pay off my mortgage early or split my money over multiple areas.
Paying down the mortgage is a popular strategy, especially because it’s a forced form of savings and many people don’t have the discipline to save for other purposes.
However, it sounds like financial discipline is a strong suit of yours. Therefore, building wealth across multiple sources may be appropriate for you as you also pay down your mortgage.
Superannuation is a very tax-effective way to build wealth and save for your retirement. That’s because all earnings on superannuation are taxed at a maximum of 15 per cent, which I assume is a lot lower than your marginal tax rate.
If you can contribute additional funds to superannuation on top of your employer SG contributions, via pre-tax contributions i.e. salary sacrifice, then it becomes even more tax effective.
It’s important to be aware of the contributions caps that are applicable to superannuation. For pre-tax contributions, the cap is $25,000, which includes both salary sacrifice and employer SG contributions.
Contributions above the caps are taxed at higher rates.
However, I would still suggest investing some funds outside superannuation, to give you additional flexibility and access to your savings.
This could be via bank accounts, term deposits, managed funds or direct shares.
As superannuation is ‘preserved’, it cannot generally be accessed until you have attained your preservation age and met a condition of release, such as retiring.
Weighing all this up, splitting your savings across your mortgage, your super and other non-super investments/savings vehicles, may be the way to go.
In terms of how much you should allocate to each area, that would depend on your current circumstances, including age, income and importantly your financial goals. This is where seeing a licensed financial adviser may come in handy, as they can provide you with personalised advice based on your individual circumstances.