• Personal Finance Basics

One question we get asked a lot is "should I saving some money if I have debt?" Is paying off debt the priority or is saving? 

Lots of personal finance writers encourage people to build an "emergency fund" before focusing on paying off your debt. I think a lot of this advice comes from the US where they have limited access to welfare. I used to disagree with this because it makes no mathematical sense to build savings where you'll get 1% interest while your paying 10-30% interest on your debt. My thoughts have changed however.

Australians have access to an amazing savings tool through salary sacrificing into superannuation.  If you earn over $45,000 it's almost the same as earning 25% interest on your savings! For example. If you didn't salary sacrifice $100 into super, you would pay 32.5% tax leaving you with $67.5. If you did salary sacrifice $100 into super you pay 15% tax leaving you with $85.

Another benefit of putting money into superannuation is that it is protected from creditors. Superannuation in Australia is protected in bankruptcy. If you saved that money in a bank or cash under the bed it would be taken and given to your creditors in bankruptcy. Small regular payments made with the intention of saving money for retirement are protected. If you make a couple of very large deposits into super just before you go bankrupt these will likely be taken.

Australians in general and in particular women don't have enough super. If you don't want to survive on just the pension you need to put some extra away.   Salary sacrificing into super a small amount every pay, for example 5% of your income is a great idea regardless of whether your in debt, regardless if you're bankrupt or not.

You might find these interesting

Ready to become debt free?

Speak with one of our specialists to start your future

About Beyond Debt
Get Help