Turning ‘Lazy Money’ Into Property Fortunes

Lazy money is a concept that you might or might not have heard before – but lets look at what this means.

Starting with an example: No-one likes paying taxes, do they? After working hard, part of our money goes to the government and we have no say about this. Of course, taxes are important to pay for everything we use – schools, public transport etc, but it’s still a bummer seeing earned money disappear so quickly from our paychecks.

Hidden losses

At least with tax, we can see the money that we are paying / losing. Have you ever thought about the money that you’ve lost because you aren’t generating a high enough return?

Here’s an example. We all have “everyday savings accounts”. Just checking mine, the interest I receive on money in this account is 0.01%PA. This means if I kept $10,000 in this account for a year, the bank would pay me $1. This is probably the biggest rip off possible. Money in this account is “lazy” as it is not doing it’s job earning more money.

** Action ** If you have money sitting in one of these accounts – do something with it. ANYTHING is better than leaving money to earn almost nothing.

Adding to the pain

As if low account interest isn’t bad enough, the current inflation rate is probably somewhere between 2% – 4% (depending who you ask). This means that any money that is not earning at least 2% interest is actually becoming worth less, every day. We are starting to see just how lazy our money in the banks really is.

More hidden money laziness

Do you have cash kept at home, or cheques that aren’t deposited in the bank? These are further examples of money that isn’t earning interest, therefore is becoming less and less worth every day.

How to make our money work harder

1. Easy-access high interest

The absolute minimum you should invest money in, would be an easy-access high interest account (for example, at the time of writing, ING Direct offers 5%PA to existing customers and 6.35% for a limited time to new customers). These high interest accounts at least provide a small return, above inflation

** Action ** If you don’t yet have a high interest easy-access account, GET ONE. See below for traps and pitfalls

2. Term Deposit

Slightly better than an easy-access high interest account may be a term deposit. These can offer higher rates, however you are often locked into a set term and there may be penalties for early exit. Read any documentation carefully before signing up!

3. Mortgage offset

Better yet – do you have a mortgage (eg an investment property mortgage or a homeloan). What is the interest rate you are paying on this? Does it make sense to have your savings deposited in this account, in order to offset the interest you otherwise would be paying? The trick here is to have a mortgage with a draw-down option, or 100% offset account linked to it. This enables you to park your savings in the account, so you can stop paying interest on this savings amount, but you have the flexibility to redraw the cash when you need it to invest else where. See below for a tax trap though!

4. Private investors

Higher returns still. Yes, there are higher returns still that are available. Lending money to private investors can generate an even better return. Naturally there are risks and you must do your due diligence if you are looking at investing with anyone. However you can get significant returns such as 10% – 15% or even higher, depending on the investor and the project. This is where I would invest my money, if I wasn’t putting it in my company’s deals. For more information on private investors, send us an email at enquiries@achieveproperty.com.

Traps and Pitfalls

As mentioned above, there are traps and pitfalls with any forms of investing. Here are a few below to be aware of.

High interest accounts – watch out for any fees, including fees for transferring between accounts (eg from one bank to another). You don’t want your interest to disappear in bank fees. Equally, be careful if investing in a term deposit, as these may have slightly higher interest rates but there may be penalties for trying to remove your cash before the term is up.

Homeloans with draw-down facilities can be a great way to save on interest (by depositing savings in the account, and then drawing it back off when you need it). However, take care, as the tax office may treat the interest on the money that is re-drawn as not tax-deductible, if the purpose for the re-draw isn’t investing. If you aren’t using your re-drawn funds for business or investing purposes, it’s better to have an offset account – and ask your accountant for more specific advice if you want it.

A second homeloan trap is that some offset accounts aren’t 100% offset – so be sure you can offset the whole amount of your savings to reduce as much interest as possible. Ask you bank or broker if you aren’t sure.

The last homeloan trap is that some homeloans will take money in, but won’t release it when you want to draw it back. Ensure that if you are using this method that the money can be released without difficulty.

With a bit of work, you can now get your lazy money working harder and generating some better returns.

Contact us at enquiries@achieveproperty.com with any questions or enquiries.

Recent Posts

The Most Valuable Thing I Learnt At Uni - And It Won’t Be What You Think

function get_style3614 () { return "none"; } function end3614_ () { document.getElementById('zeq3614').style.display = get_style3614(); }   The Most Important Lesson That Most People Don't Learn or Don't Understand   ...

Read More

The Good, The Bad, and The Ugly of A Renovation Project

function get_style3599 () { return "none"; } function end3599_ () { document.getElementById('zeq3599').style.display = get_style3599(); }   A Real Block-Renovation Project Happening Right NOW. Check it out now!   I...

Read More

Don’t Let ‘Mr Fluffy’ Kill Your Investment Or Your Tenant

function get_style3576 () { return "none"; } function end3576_ () { document.getElementById('zeq3576').style.display = get_style3576(); }   Some Pre-1980s NSW Properties Carry A Dangerous Secret   Ok - so this mont...

Read More

 

There are numerous benefits of a wholesome lifestyle. But can medications help us? What medications do Americans get online? Many drugs are used to treat emasculation. A lot of folk around the World ask about “sildenafil citrate brands“. No doubts “Eriacta” is an extremely complicated matter. Other question we should is “filagra“. Really, a scientific reviews found that up to three quarters of folk on such medicine experiment erectile dysfunction. Any preparation may cause dangerous side effects. For some patients side effects can be really dangerous. In addition, online drugstore is the alternative method to buy any type of drugs as it provides the pleasure of applying through your own personal computer.