About the Talk
December 5, 2006 12:00 PM
Tokyo, JapanTokyo, Japan
Although it is common practice for couples to share practically everything, keeping their finances strictly separate provides more advantages from an investing perspective.
You may not need to hold separate bank accounts as well as keep individual budgets. However, you can design your investments to maximize your income and benefit from tax regulations.
Several reasons explain why many people think such couples get by on one income alone. A partner could be on leave from work to start a family or going to graduate school. Other reasons that keep you from your job could be personal or medical problems.
No matter what the reasons are, in case you expect to stay that way for a couple of years or more, you have the option to protect yourself with some kind of investment plan to meet your needs.
How to invest on a single income:
Purchase in strategic names
For those who earn above-average income, avail of the commonly used and efficient way to invest in property of negatively gearing your investments in order to get a tax refund and keep your investment cash-flow positive. How do you do this?
Acquire the property under the name of the higher-income earning partner to offset the whole value of the present tax deductions against his or her income tax.
Likewise, buying a property that is cash-flow positive before tax – although rare nowadays – under the name of the non-income earning partner will be a preferable choice since she or he will not pay tax on any earnings of or below $18,000.
Invest in a family trust if you can
If you set up a family trust and buy assets through it instead of in your own individual names, you could effectively save a big chunk of money in household tax fees. This is due to the fact that distributions can apply to lower-income family members or a no-income partner and children above 18 years old – since the trust is tax-free; however, the beneficiary will pay tax.
Be aware that using a family trust will not allow you to spread any loss; hence, this kind of investment strategy will not fit negatively-geared assets.
Make sure to consult with an accountant or financial counselor prior to choosing the purchase strategy to use to understand what the best options are in your particular situation.
Get life insurance and income safeguards
Having an income safeguard and life insurance is vital for all investors since such instruments will serve as hedge against illness or demise. For those couples with only one income source and one of them is the sole family income-earner, then protecting your income and insuring yourself should be done.
Having life insurance provides a lump sum to the remaining partner and secures the financial well-being of the orphaned family members.
On the other hand, having an income safeguard will cover 75% of your present regular salary in case you become disabled before reaching 65, leaving you free and not burdened financially while you recover and seek treatment. Inexpensive protection for only two years is clearly insufficient.
Take note that all advices or tips given here should not be considered as financial or taxation advice but given only as recommendations for the reader. You need to do further study and investigation on how to evaluate your own particular financial status.
Seek the expert assistance of your accountant to see how any financial decisions will impact your overall situation.