Sort out how to make the most of your tax cut

The first of the tax changes announced in this year’s Budget kick in from 1 October. But now is the time to think about how to make the most of that extra cash in your pocket.

The information and calculators on Sorted will help you make an informed decision about the best option for you and your family.

Whenever you get some extra income, whether from a reduction in the amount of tax you have to pay, or from a pay rise or any other source, you should give priority to paying off debt.

The longer you have debt that charges interest, the more you pay. First, pay off your high interest debts, like credit cards and hire purchase.

Paying an extra $16 a week above the minimum repayment onto your credit card will wipe out a $2,000 debt at 21% interest in 18 months.

Repay your mortgage as fast as you can, and you'll end up paying thousands of dollars less overall.

For example an extra $16 a week onto an average 25 year mortgage of $250,000, where the interest rate is 9.25%, will save you $36,000 in interest and shorten your mortgage by 2 years and 9 months.

If you don’t have high interest debt, think about saving the extra money. Putting away $16 a week will quickly create a nice nest egg. A savings account, with compounding interest at 2.5% (after tax and above inflation), will give you $840 after one year, $2,500 after three years and $4,400 after five years.

Or now might be the time to consider KiwiSaver - if you can afford it, and you don’t mind your savings being locked in until you’re 65, or older.

If you’re struggling with rising prices or increased mortgage rates, and you don’t think you can afford to pay off debt or save, start by making a budget using the Budget calculator on Sorted or call 0508 BUDGET (0508 283 438) to talk to a trained budget advisor.

You’ve got time, before you get the money in your pocket from tax changes, to do your financial planning. It could make a much bigger difference than you think.

Published 3 June 2008