- Reduce debt, save, or invest
A disciplined approach to systematically reduce debt, save money, or invest based on your life stage and circumstances.
This strategy is fundamental because:
- Bad debt (credit cards, BNPL, personal loans) actively destroys wealth
- Non-tax-deductible debt like mortgages limits wealth building potential
- Regular automated payments aligned with pay cycles create sustainable habits
How can I do this?
- Prioritise paying off bad debt first
- Reduce mortgage to less than 50% of dwelling value
- Then direct savings to wealth building through super, shares, or property
- Automate payments to match pay cycle
Considerations
- What if you don’t address bad debt? Compound interest works against you
- What if you automate payments? You’ll adjust to reduced discretionary spending quickly
- What if you balance debt reduction with investment? You create multiple wealth streams
2. Maximize deductible super contributions
- Strategic use of superannuation contributions to maximize tax benefits and build retirement wealth.
- Offers significant tax deductions to reduce personal income
- Builds retirement savings in a tax-effective environment
- Can contribute up to $30,000 in FY2025 (concessional limit)
- Potential to use carry-forward provisions for up to $162,500
How can I do this?
- Contribute up to the concessional limit ($30,000 in FY2025)
- Use carry-forward provisions if super balance is under $500,000
- Claim personal tax deductions for contributions
- Aim for the tax-free pension cap of $1.9M per person
Considerations
- What if you earn $140,000? A $10,000 contribution could save $3,550 in tax
- What if both partners maximize contributions? Could achieve $3.8M in tax-free pension
- What if you ignore super? Miss out on significant tax benefits and retirement savings
3. Have an appropriate investment strategy
- A balanced approach to investment based on market conditions and long-term forecasts.
- Markets have shown strong performance (ASX 200 up 20%, MSCI World ex-Australia up 31%)
- Different asset classes offer varying risk-return profiles
- Long-term forecasts help optimize portfolio allocation
How can I do this?
- Consider 10-year return forecasts (e.g., 5.8% p.a. for Australian equities)
- Take profits on strongly performing assets
- Rebalance towards less volatile investments when appropriate
- Consider global infrastructure for diversification
Considerations
- What if markets change? Long-term forecasts help maintain perspective
- What if you don’t rebalance? Portfolio might become too concentrated in certain assets
- What if you diversify? Reduced risk and potentially more stable returns
- 4. Diversify and consider liquidity
Strategic diversification across asset classes while maintaining appropriate liquidity.
- Reduces risk from market downturns
- Balances lifestyle and investment assets
- Ensures adequate cash flow, especially approaching retirement
- Different assets provide different yields and liquidity profiles
How can I do this?
- Spread investments across multiple asset classes
- Balance between income-producing and growth assets
- Consider liquidity needs at different life stages
- Compare yields (e.g., property at 3% vs balanced portfolio at 4.5%)
Considerations
- What if all wealth is in property? Might face cash flow challenges
- What if you need quick access to funds? Diversification provides options
- What if markets decline? Different asset classes may perform differently
- 5. Use debt to build investment wealth
Strategic use of debt for investment growth while managing risks.
- Can accelerate wealth building
- Provides tax benefits through negative gearing
- Offers alternative to traditional property investment
How can I do this?
- Invest in daily priced investments for quick access
- Ensure debt serviceability without depending on investment income
- Plan to repay all debt by retirement
- Maintain appropriate risk management
Considerations
- What if investments underperform? Need buffer to service debt
- What if you need to exit quickly? Daily priced investments provide flexibility
- What if you extend too far? Could face financial stress
- 6. Protect your money
Comprehensive insurance and estate planning to protect wealth.
- Income is typically your biggest asset
- Protects family and future generations
- Ensures efficient wealth transfer
- Provides financial security
How can I do this?
- Obtain adequate income protection insurance
- Consider life insurance while carrying significant debt
- Implement thorough estate planning
- Regular review of protection strategies
Considerations
- What if you lose your income? Insurance provides financial security
- What if something happens to you? Estate planning ensures wealth transfer
- What if you don’t have protection? Family could face financial hardship
Remember this article is not certified financial advice!
Your ability to earn an income earning is likely to be your biggest asset, so it is important to ensure it is protected through income protection insurance.
You should also consider life insurance – especially when you are still paying off significant debt – and other personal insurance to leave your estate in good order. While transferring your wealth efficiently, tax effectively and to whom you want can be achieved by thorough estate planning arrangements.
By considering these strategies, you could make 2025 your best year yet financially – and ensure that the wealth you build survives for future generations.