On 31 July 2024 the changes to the New Zealand personal income tax bands announced in the budget came into effect. As a result of these changes, employees will receive an increase in their net income. The amount of increase depends on the individual’s income with a maximum amount of approximately $20 per week for employees on an annual income of $80,000 and higher.
What are you going to do with the extra income you receive? While $20 per week may not seem like a significant amount, it is important to put some thought into strategically using this to enhance your financial well-being. Here are some ideas on how to make the most out of this extra income:
- Debt Repayment: The last 3 years have been difficult with the sharp rise in food and general living expenses. If you have taken on additional debt (personal loans, credit card debt, etc), applying the $20 per week towards repayment can help reduce the principal amount, potentially saving you money on interest in the long run.
- Emergency Fund: Allocating the $20 to your emergency fund can help you build a financial cushion for unexpected future expenses, providing peace of mind and financial stability. Ideally an emergency fund should hold 3-6 months regular expenses in a savings account that is more difficult to access.
- Education: Use the $20 to invest in yourself to enhance your income-earning potential. Whether this is to purchase a book, enrol in a course/workshop, or subscribe to a magazine that can enhance your knowledge or skills. Investing in yourself can yield substantial returns in the future.
- Savings Account: Are you already saving for something? Increasing your regular savings amount by $20 will get you to your savings goal sooner.
- Investing/Retirement: While $20 per week may not seem like much for investing or for retirement, remember investing is about discipline, time in the market and perseverance with your investment strategy. Over time, small investments accumulate and grow.
- Charity: Donating $20 to a charity or cause you care about can have a positive impact on your community and provide a sense of fulfilment.
- Small Indulgence: Sometimes, it’s okay to treat yourself. Use the $20 for a small indulgence, like a nice meal, a movie, or a hobby-related item, as a reward for your financial diligence.
Even with a modest amount like $20 per week, thoughtful allocation can contribute to enhancing your financial health and personal satisfaction.