Salary Sacrifice Your Way To Financial Freedom

It’s no secret that we are big believers in what’s simple works. And with that being the case, there is arguably no better, and more effective way to build wealth for your future self than salary sacrificing into your super.

And with almost all of us earning an income set to benefit from July 1st tax savings, we feel it’s a great time to use at least some of these newfound savings to look after your financial future. And salary sacrificing is hard to beat!

How it works:

You ask your employer (usually via HR or payroll) to set up a salary sacrifice arrangement where $X of your income each pay period is sent directly to your super fund, instead of being paid into your bank account. Yes, this means there will be a reduction to your take-home pay, but as mentioned above, with the new tax savings coming into play, perhaps this is a viable strategy for you.

You can easily stop, start, and amend salary sacrifice setups by liaising with your employer. This is one of its many benefits whereas common alternatives like buying an investment property can often leave people feeling trapped with an inflexible financial strategy.

How much can we contribute: 

The real value of salary sacrifice is that the money goes into super at a tax rate of 15%, instead of into your bank account at your marginal tax rate, with the latter often much higher than 15%.

When deciding on how much to salary sacrifice you need to consider two things:

(i) How much can you afford? i.e., how much cashflow surplus each pay period can you spare? Noting the savings you stand to benefit from come 1st July

(ii) From 1st July 2024 you can contribute up to $30,000 into super at the 15% concessional rate of tax (except for those earning over $250,000 [where tax is 30%]) – this $30,000 cap INCLUDES the mandatory 11.5% of your income your employer has to contribute by law. As an example, if your employer already contributes $10,000 pa that leaves you up to $20,000 pa to salary sacrifice

What are the benefits: 

It’s automatic (and very low maintenance), it can be started and stopped at any time, the money is invested directly into growth assets (if you’ve chosen such), you potentially save a lot of tax now (15% versus your marginal rate of personal tax), you potentially pay no tax later on once you retire and are age 60+ - this is where you might have an Account Based Pension where there is then no tax on capital growth or income. 

What are the negatives:

As we’ve said on many occasions, the negative of salary sacrifice is also its benefit, being that (apart from a few specific exceptions) you cannot touch the money you contribute to super! So, if you envisage that you might need the money you salary sacrifice before such time then putting it into super is likely not suitable (at this time). 

Conclusion:

We are not aware of a simpler, more cost-effective and smart financial strategy to build financial wealth for your retirement. And with most of us set to receive more take-home pay, this could be your chance to make a smart decision for your future self.

If you wish to learn more, we have two entire (and of course exciting) modules within our Wages to Wealth program on super, with more detail on salary sacrifice including case studies.  And we are always happy to take your emails if you need a helping hand.

Cheers,

Dan and Dave