NICK BRUINING: Starting your first proper job? Here’s the personal finance hacks that will set you up for life

Nothing beats the excitement of your first real payday after many years of study and work.

A new year usually sees thousands of graduates and qualified tradies finally starting their careers in a full-time, professional capacity.

Hopefully, the days of scratching around to makes ends meet are behind you, but now is a great time to set things up for the future.

By all means, blow you first pay cheque on something stupid, wasteful and reckless. You deserve it.

The trick, however, is to limit the splurging and set up some basic habits that will reap big rewards later down the track. It’s all about balancing self-control and the opportunities ahead.

If you tend to smash the ATM at 3am on a Sunday to buy a kebab, help is at hand.

Set it aside

A simple trick is to set up a special no-touch auto transfer bank account that whisks a set amount each payday off to a high-interest online savings account. Comparison site Canstar shows a stack of online-only accounts that pay bonus interest rates to regular savers. Many are well over 4 per cent a year.

Investing

Avoid the “investment apps” that seem all the rage right now. They can easily expose you to high-risk, quick-trade “investments”. Some experts warn many of these apps behave in a similar way to highly addictive gambling apps.

Successful long-term investing is not about how smart a “trader” you are, but by picking good, long-term and quality assets to put your money into.

If you want to genuinely invest, perhaps take the time to learn about investing and markets through excellent free online courses available on sites like Khan Academy. It starts with the real basics, but you can end up with the really advanced portfolio management theory used by investment pros on a daily basis.

Superannuation

Your first job might expose you to superannuation for the first time, or you may already have one set up from part-time jobs.

Now is a great time to take notice of what it can do but also to understand a really neat trick that will effectively allow you to save for your first home using savings that are tax-deductible.

The First Home Super Saver Scheme allows you to save a deposit using tax-deductible contributions to super.

Voluntary contributions you make to super of up to $15,000 a year can be accessed when you buy your first home. You can opt to claim them as a tax-deductible concessional contribution — which, in simple terms, means you’ll probably get a bigger tax refund when you lodge your income tax return.

The downside is that a contributions tax of 15 per cent comes out. But, hey, that’s likely to be much less than your marginal tax rate of about 30 per cent plus the 2 per cent Medicare levy.

You can only use the money for your first home, and nothing else. The maximum you can withdraw is $50,000 plus earnings, which are determined by a rate set by the Australian Taxation Office. The current rate is 6.65 per cent, which is much higher than you’ll get at a bank.

That amount is not paid by the Government. It represents the notional earnings on your super.

Withdrawals are taxable but essentially come with a 30 per cent tax credit which wipes out most of the tax for many.

Recognise that, barring life’s tragedies, your super will be inaccessible to you for at least 40 years or so. That means now is a great time to match the time line of the investment with the underlying assets of the fund.

This works on the theory that any share market crashes or corrections will be mere blips over four decades. On that basis, there’s nothing wrong with investing your super in aggressive, risky-ish investment options like “high-growth”. Over 40 years, that investment option is likely to do better than the vanilla-flavoured “balanced” option which many funds use as a the default.

You can change the investment selection online at no cost.

Insurance

Superannuation is also the cheapest and easiest way of buying life insurance. That’s simply because commissions to salespeople are prohibited. The bottom line is you can sometimes save 40 per cent or more on the cost of cover, compared with life cover outside of super.

Don’t ignore the importance of life insurance. It’s very cheap when you’re young, and sometimes difficult to get later in life if your circumstances change.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association