Where Paul Clitheroe would invest $10,000

If you had a spare $10,000 in your pocket today, what should you do with it?

This is a very handy amount of money and where I would invest my $10,000 may be quite inappropriate for someone else. If you had credit card debt, clearing the typical card debt at around 19% would be a terrific plan.

It could be a great start to a home deposit and, in that case, I'd pop it into a nice, safe term deposit.

If I was a younger Australian, maybe at university or new to the workforce, I'd see it as money I could use to enhance my education, provide additional work skills, or possibly a trip to open my eyes to opportunities around the world.

But I am 55, and what I do know is that the $10,000 should be used based on my situation and goals.

I am a maximum-tax payer, and this year I can salary sacrifice up to $50,000 into my super. So I would use the $10,000 to pay for my living expenses and then get my employer to take $19,000 from my salary and put this into my super.

The point here is that $19,000 from my pre-tax salary at my tax rate will reduce my take-home pay by about $10,000. The $19,000 will be taxed at 15%, but this still leaves me with $16,150 after a year.

This is a very nice start. I've used the $10,000 to live on. But I have effectively turned it into $16,150 before I even invest the money, a 60%-plus return. Now I can think about investing it.

Whether I was in my employer's fund, a fund of my choice or a self-managed super fund, I would opt to have the money invested in Australian shares with highly franked dividends.

Yes, I know there are excellent opportunities in Asia and emerging markets, but leading Australian companies such as our banks are paying franked dividends of around 6%, meaning my super fund gets the dividend and can use the franking credits to offset high-interest income from other income the fund is earning. Very nice indeed.

At 55, the other big issue is that when I turn 60 I can access my super tax free, or convert my fund to a pension fund so that it pays me tax-free income.

So as you can see my strategy is highly dependent on my age and taxable income, but even if I had a mortgage, this strategy is still better than putting the $10,000 into my mortgage: $16,000 or so in my super fund is a lot more powerful than $10,000 in my mortgage.

My best-ever call

I can point to tips I have given over the years that have worked out.

But the real wealth secrets have been simple things done on a regular basis. Spend less than you earn, pay down debt, buy a home in a growth location and pay it off and top up your super.

Always increase your money knowledge and work skills and, if you have the right temperament and skill set, keep an eye out for the chance to grow your own business.

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