This tax time, it pays to remember my ‘guaranteed’ secret for wealth

Thirty-seven years ago, I released Making Money Made Simple, a book that has helped thousands of Australians and been named one of the 100 most influential books of the 20th century. Even now, seldom a day passes when I don’t receive emails from people telling me how much it changed their lives.

As of today, the book has sold over 2 million copies, and we’ve just released the 25th edition. The information is as relevant now as it ever was.

In a few weeks, everybody will have a fatter pay packet because the tax rates are changing. Smart money managers will put the extra to good use.Credit: Louie Douvis

One feature of that book was the suggestion that people pay their loans fortnightly instead of monthly. The banks scoffed then, but they had missed the main point – if you’re paying $2000 a month and move to $1000 a fortnight, you increase your repayments from $24,000 a year to $26,000 a year. That’s an extra $2000 a year off your mortgage and you haven’t even missed it.

This led to my next concept – which I call the guaranteed secret of wealth. Put simply: you never miss money that you don’t see. That is, you don’t miss money that is deducted from your account automatically.

Back in 1993, to practise what I was preaching, I opened a savings account with Heritage Bank. In it, I captured all the money I received that was not salary or investment income. This included things like tax refunds, automatic payments from health funds on the rare occasions I went to the doctor, and even the one-off $1000 payment I got from Centrelink when the 2011 floods hit Brisbane.

Noel Whittaker has been writing about money for decades.Credit: John Shakespeare

It was fun to use the passbook, as I also enjoyed going into the Heritage Branch and chatting to the staff about my guaranteed secret of wealth while I watched the balance rise as they updated the passbook.

Every time the balance hit $10,000, I withdrew that amount and paid off a loan I had for an investment property. Using that strategy, the investment property was paid off effortlessly – I would probably still have that loan if I had not used this method.

Recently, reflecting on this, I decided to find out exactly how much money had gone through that account in those 20 years. It was just a matter of going through all the old passbooks and adding up the withdrawals.

Can you believe, in 20 years I had banked and withdrawn over $283,000? That’s how much I had managed to put away just by capturing all those relatively small amounts that normally end up in the everyday bank account and get frittered away.

In a few weeks, everybody will have a fatter pay packet because the tax rates are changing. Good money managers will put the extra money to good use by immediately increasing their home loan repayments by the amount of the tax cut, or by boosting their tax-deductible superannuation contributions. Remember, on 1 July the deductible contributions cap rises from $27,500 a year to $30,000 a year.

But before July has even finished, most people will have automatically increased their expenditure to soak up the tax cut, or will be wondering how they ever existed before the tax cuts happened.

This is why whenever I discuss budgeting I say: make investment your first expense. If you just give it a go, I promise you will be amazed by the result.

You won’t be stuck – nothing stops you from pausing or ending the deduction. You could consider the money an emergency fund, if it helps, but unless you try it for yourself, you will never see how this concept really does work a kind of magic.

Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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