calculatorFrom the 1st of October every income earner in NZ gets a pay rise thanks to a reduction in tax rates. At the same time GST is on the increase but the government reckon the overall effect is that nearly everyone will have a few more dollars in their pocket each week.

The table below shows the likely improvement to your pay packet:

Income Weekly Tax Break GST increase Net weekly change
$30,000 $16.15 $9.87 $6.28
$50,000 $29.42 $15.71 $13.71
$70,000 $40.96 $20.92 $20.04
$100,000 $69.81 $28.14 $41.66

About half your tax break gets chewed up by the GST increase. And while some people might moan about that, the rest of us are glass half-full kind of people and will realise that the balance is available to do something positive — like putting it onto the mortgage, putting an insurance backstop in place or building your savings/kiwisaver.

A typical client of ours would be a couple with a combined income of around $100,000 which implies an improvement of between $25-$30 per week or at least $1300 per year — not too shabby and definitely an amount you can put to good use. Even if your income is lower than that you will get something so why not use it wisely?

Put it on the mortgage or other debts

Using our typical client as an example, the effect an extra $30/week has on a $350,000 mortgage is

  • Knocks 4.5 years off the loan term
  • Saves about $76,000 of interest (not bad!)

Put it into life insurance

Sounds crazy right? Well, not really. If you happen to die before the mortgage is paid off you’re partner will have to do it on one income and that might not be easy, especially if you have kids at the time. But if there was enough life insurance to clear the mortgage things would be different. Think about it — would you cope with the mortgage and your other bills on one income?

A $350,000 life insurance policy for two non-smoking 35 years olds is less than $15/week. The tax break gives you money to get some insurance without changing your budget at all. Thats a pretty good investment I’d say.

Put it into Kiwisaver

Let’s assume you make use of your tax benefit by increasing your Kiwisaver contributions from 2% to 4% of your $50,000 salary (that’s roughly equivalent to the increase shown in the table above). If you’re 35 years old now:

  • Your fund will grow to about $415,000
  • If you’d done nothing your fund would only get to about $300,000

Our advice?

The point we’re trying to make is that while the extra money you get each week might not seem like much, it really adds up to make a massive difference over the long term. So find out exactly how much extra you get in your first pay after the 1st October. Take half and apply to one of the three options above by calling your bank, us or your employer. Nice one.

 

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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