Article by Finn Kelly. Originally published on SmartCompany
Superannuation is likely already one of our largest assets and for many of us it’ll most certainly be our largest asset one day.
My question to you is, if you know it’s your largest asset, then are you taking it seriously? And if not – why not?
I know what you’re probably thinking, so let’s get it out of the way right now… as a Gen Y, we can’t access it for many years. However, just because we’re unable to reap the benefits for many years, certainly doesn’t mean we should neglect it.
Approximately 10% of our hard earned income goes into our super funds. If this wasn’t the case currently, and as of tomorrow 10% of our monthly salary was suddenly taken away from us, I bet we’d want to know what was happening with it and try to find a way to control the outcome – I know I would!
Well this is exactly what we should all be doing.
Something I’ve learned in life is that it’s a lot easier to focus on something when you find a way to love it, rather than hate or resent it (and many of us do resent the fact that almost 10% of our income must be put into super).
I can tell you that I now love my super, and here’s why:
1. I’ve moved my wife and my balances into our very own self-managed superannuation fund (SMSF), so we’re in complete control of it, and of the investments we choose to make. Knowing we can purchase a property or take advantage of attractive start-up investments is especially appealing to us.
2. Every time money goes into our super from any salary our companies pay us, we know we’re keeping money from the taxman because super contributions are taxed at a flat rate of 15%. This is effectively giving us an instant 15% – 33.5% return (depending on our taxable income that year) in the form of tax that we’ve managed to retain and that would have otherwise had to be paid.
3. Our money is building in what is essentially a tax haven. The maximum tax we pay on the income that any of our investments earn is 15%.
4. Our fees are fixed. This means that as our total SMSF balance grows the fees we’re paying don’t also increase.
5. We have access to funds that we know we can’t touch for a long time, so we can afford to take some big long term bets in relation to the investments we make.
6. We get to invest in start-up companies that we’re very interested in and believe in their future.
7. We get to invest in property without tying up a lot of our own personal funds.
8. Our investment knowledge and experience increases with our involvement in our own SMSF, and this helps me become a better investor overall.
9. Our SMSF is the only asset we have that is really protected should we be sued or anything like that (although unlikely, this is an important consideration as we start to build wealth).
10. Ultimately the biggest reason I love it is that our balance is already quite large (as we have maximised our concessional contributions for several years now) and will continue to grow each year. This makes me feel wealthy and I know no matter what happens we’ll be fine in the second half of our lives.
Of course I understand why you may not be connected with your super, however I hope the above reasons trigger you to become more involved and connected with what will likely end up being your largest asset.
During all my years as an adviser working with high net worth individuals it was when they set up their own SMSF the light bulb went off for them. Suddenly they could understand super more, and started realising that this was their own money and that they have complete control over it.
There are now 600,000 SMSFs in Australia, with the average balance now being over $1.1million. The “smart money” is in SMSF’s, and don’t you want to be smart?
Disclaimer: all information contained within this article is of a general nature and should not be relied upon when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.