As a millennial living in Melbourne, the thought of buying a house and one day retiring seems impossible to accomplish. Cost of living is going up, the economy is highly volatile and governments from both sides of politics are tightening their budgets. From a financial perspective, how can we overcome all this?
Putting money in the bank, investing in the share market or negative gearing into property seems to be the logical course of action for many. But what is often overlooked are the options available to facilitate an investment in ourselves.
Stable employment and a good salary will improve your chances of getting your foot in the housing market and funding your retirement needs in the long-distant future. Further personal development will make you more employable and hopefully translate to a better salary.
There are three options you can pursue to fund your personal development
1. OBTAIN A LOAN FROM THE GOVERNMENT
The Federal Government administers the Higher Education Loan Program (HELP) which consists of loan programs to assist you with the cost of your tuition fees. You will be eligible for HELP if you are studying at university or at an approved private higher education provider
HELP is the cheapest loan you will ever get in your lifetime. There is no real interest charged on this type of loan, and only increases annually in line with the Consumer Price Index (CPI) to maintain its real value.
If you choose to study at a Commonwealth Supported Place (CSP), the government subsidises part of your course fees. In return, you are required to make a student contribution towards that course, which you can obtain a Higher-Education Contribution Scheme (HECS)-HELP to assist with funding this contribution.
If you study at an approved private higher education provider, you can obtain FEE-HELP. Under FEE-HELP, you can borrow up to $100,879 (2017) in your lifetime and if you are undertaking a medicine, dentistry or veterinary science course the maximum limit is $126,101.
Whilst no real interest is charged under FEE-HELP, there is an additional fee of 25% for loans supporting undergraduate courses (which does not count towards your FEE-HELP limit), but no additional loan fee for post-graduate or enabling courses.
You will be asked to progressively repay your HECS or FEE-HELP loans once you earn above $54,869. This amount is net of any fringe benefits you receive from your employer, salary sacrifice contributions you make into superannuation or net rental losses you incur from your property investments.
Alternatively, you may choose to voluntarily repay your HECS or FEE-HELP loan at any time.
The Federal Government proposed in the 2017 Federal Budget to lower the repayment threshold to $42,000 and increase the repayment rate to a maximum of 10% for those earning more than $119,882 from the 1st July 2018.
Please note this reform has not yet been legislated and is expected to face some resistance from the Opposition and Senate crossbenchers.
For more information regarding rates, visit the ATO website https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-thresholds-and-rates/
2. PAY UPFRONT AND CLAIM A TAX DEDUCTION
If you are undertaking a course that has “sufficient connection to your current employment” you can pay for the course upfront and claim a tax deduction on course fees and expenses that are greater than $250. This option may provide you with substantial savings if you have the means to make an upfront payment.
To be eligible, the course must:
- Maintain or improve the specific skills or knowledge you require in your current employment, or
- Result in, or is likely to result in, an increase in your income from your current employment.
You can also claim several expenses related to self-education, such as (by no means exhaustive):
- Textbooks;
- Trade, professional or academic journals; and
- Home office running costs
3. EMPLOYER FUNDING
Alternatively, your employer may be willing to assist you in funding your studies. The key under this option is to convince your employer of the benefits that will flow to your workplace if you undertake the course you are interested in.
However, as part of this agreement there would be an expectation you would remain employed by the workplace for a period following the conclusion of your studies or you may be asked to recoup some of the costs.
DISCUSS YOUR OPTIONS WITH MORROWS
As part of our Family Tree Service Offering, we can discuss your education funding options in the context of your overall cash flow management and wealth strategies to assist you in making the best decision.
Should you wish to book an appointment, please call your MPW Adviser today.