Basic Rules for Saving

Basic Rules for Saving

Don’t know where to start?
Here are some basic guidelines to follow when saving:


Pay down higher-interest debt first

If you’ll be paying more in interest than you’ll earn with a savings plan, it makes sense to pay the debt before you start saving. The habit of regularly paying down debt can then be used once the debt is cleared to regularly contribute to a savings plan.


You come first

We all are tempted to live beyond our financial means. Pay yourself first by setting up a regular contribution to your savings plan. The amount you save and the frequency are totally dependent on your circumstances, but even small contributions made each month will grow. The greater value is the beginning of a habit.


Start early

Nothing helps your savings grow quite like time. The earlier you start saving, the more time your money has to grow and benefit from compound interest and growth. This also means smaller savings can have bigger compounding effects.


Use tax advantages

Take advantage of the tax benefits the government offers to encourage saving. Spouse contributions to low-income spouses and low tax rates on Extra super contributions, Saving your first home deposit inside your super, or taking greater control of your retirement planning with a SMSF, all means you can get further ahead on your savings goals. Stay connected to your financial adviser to stay in the loop.


Work with an expert

Working with an advisor is proven to help save you more money over time and they’ll help build a plan that fits your needs and support you through managing greater self control in uncertain times.


Manage your Unexpected Wealth events

Inheritances, Redundancy, Financial Windfalls, or Insurance Payouts are all financial events that can also bring with them powerful and isolating emotional responses.
Most people are unprepared (or simply inexperienced) with managing surprise wealth and its accompanying life transitions.
Many mistakenly try to recreate their past environment pre-unexpected wealth, with many soon losing their new wealth and its opportunities. The result can leave many dealing with feelings of shame, regret, and secretive misery — feelings often unfathomable to others. Always reach out to a financial professional to support you through this major life transition event.

young girl and mother both wearing a pink party paper hat

Savings & Investment Bonds — insurance bonds

What is an Insurance Savings Bond?

Insurance bonds are a saving and investment vehicle that can help protect and build your wealth, (and firewall your inheritance planning) – without increasing your personal income tax. This is because insurance bonds are generally considered tax-paid investment structures that combine the special provision of Life Insurance legislation and a 10-year investment rule to provide a host of unique protection and tax concessions.

How do you use an Insurance Bond

Investment Bonds can be particularly suited to investors who want to invest on a consistent regular basis, but who

  • lack either the time, focus or discipline to do that monthly, or
  • who find regular new expenses to deplete their mortgage offset account balance, or
  • who for a variety of reasons, can't seem to save for the long term in the traditional way
  • who may be looking to put funds aside for a worthwhile cause or future plans, outside the reach of creditors or other interested parties.

Traditionally, investing relies on a person transferring money to their online brokerage account and then there are a number of additional steps to complete, before they actually own an asset.

  • An Investment Bond automates the process where it comes out of your account like a mortgage repayment, or a direct debit repayment every month. 
  • Clients often report forgetting they actually have a long term savings bond in place, because they don't have to report interest earnt on their personal tax return unless they make a withdrawal on the bond.  Many simply adapt to live on their remaining available funds after paying their bills, and forget about the money automatically allocated for long term savings and investing.

How an Insurance Bond works 101

The bond issuer life insurance company pays the tax on earnings within the bond and, after 10 years, you're able to withdraw the value of the bond with no further tax payable.

How an Education Bond works 101

In a similar fashion, Education Bonds are a unique tax-advantaged investment that clients, whether parents and grandparents, use to meet the financial challenges of the next generation and or fund their own life long education while maximising education affordability.

Professionals - who are required to undergo continual education (CPD) as part of their career - may also benefit from an Education Bond's additional 'purpose of education tax' component, that can help pay for education related costs for life — a useful option for knowledge worker professionals with continual professional development (CPD) as a mandated part of their career.

A distinction has to be made, you could say, while all Education Bonds are also Investment Bonds, not all Investment Bonds are Education Bonds. Different structures produce different results so speak with a Sapience advisor about your options.

Estate planning and Insurance Bonds

An insurance bond structure is also a life policy. This means the bond owner is also the life insured. Like a life insurance policy, if the life insured passes away, this triggers the payout of the bond to either their nominated beneficiary or to the policy owner's estate, if no beneficiary is nominated.

  • Any amount received as a result of the death of the life insured is completely tax-free, irrespective of the 10-year rule.

Pro Tip: Understand the value of a Non-Estate Asset: The Bond's ‘Will-like’ estate planning features can enable tax-effective distribution to nominated bond beneficiaries without the cost and complications (and inherent legal challenges) of traditional Wills and estates. This is because non-estate assets are distributed outside the traditional Wills and estate-asset methods.

What can an Insurance Bond be used for?

Funds can be invested in the range of investments provided by the different bond managers and used for any purpose.

Possible uses for an investment bond can include:

  • saving for a significant future cost like home renovations or children's weddings
  • saving for special anniversary holidays or events
  • to supplement retirement incomes
  • as a complement to your superannuation savings (if you’re capped out),
  • provide for a child’s future education or for any long-term financial expectations
  • saving for small business long service requirements
  • savings of a small businesses to fund a future planned ownership buyout or acquisition 
  • paying an Aged Care Accommodation Bond for people moving into aged care

Insight: While an insurance bond can be a tax effective way to build wealth, for many people its unique estate planning and child advancement capacities make it an important consideration for long term set and forget investment needs.

What is the 10-Year rule?

The 10-year provision is a key part of the unique structure that investment bonds offer over other traditional savings products. When a bond owner holds an investment bond for 10 years, they can withdraw their funds (and its earnings) with no personal income tax to pay on the interest earned.

No TFN needed

As an investment bond is a tax-paid investment structure, no personal tax file number (TFN) is required to identify the bond owner so there is no requirement to declare interest or capital gains in your tax return.

Control of the Bond

One of the most frequent questions we're asked about Insurance Bonds used as part of planning for future education needs of a child is 'Can I make this investment on behalf of a child?

  • You can invest on behalf of a child while retaining full ownership and control, of your funds.

As part of a strategy, you may elect to transfer bond ownership to another at a specified age or at a specified event. As the options and their combinations of use are wide and varied, this is a conversation to begin with your Sapience Financial advisor.

Insurance bonds can be established by parents, grandparents, godparents, uncles and aunts to provide a child with a helping hand at the start of their adult life

Some General Benefits

tax effective investment portfolio management
estate planning
bankruptcy protection
safeguarding your wealth transfer
complementing your superannuation savings
set and forget investing for a child’s future
secured deposit for a first home buyer deposit
saving for the unexpected future

For people who like more detail about how tax on investment earnings

Insurance Bond Taxation 101

All earnings in an insurance investment bond are taxed at the life insurance company rate of 25%. The life insurance company may also receive the benefit of franking credits and tax deductions that may reduce this effective tax rate. No amount is included in your assessable income unless a withdrawal is made within 10 years from the date of commencement, in which case you may be eligible for a tax offset on a portion of the assessable income.

Key takeaways

  • Insurance bonds can be a ‘set and forget’ type of investment because earnings generally do not have to be included in your tax return.
  • The tax paid on investment earnings is the company tax rate not the individual tax rate and will be less than your marginal tax rate (if your marginal tax rate is higher than 25%).
  • For small business owners and people in vulnerable occupations like engineering, medicine, construction and consulting, the bankruptcy protection of a bond is a significant advantage over traditional exposed personal deposit sources.
  • For small business owners and their familes in vulnerable business structures like sole traders and general partnershsips , the bankruptcy protection and creditor protection of a bond is a very significant advantage over traditional exposed personal deposit sources.
  • No annually-generated taxable ‘assessable income’, so they can convey benefits when holding investment assets inside a family and testamentary trusts
  • No CGT or income reporting in individual tax returns
  • Insurance bonds can provide important estate planning benefits because the bond can be paid directly to a nominated beneficiary instead of having it go through your estate. This makes it a non-estate asset and an important part of an asset protection strategy.

How we can help

Insurance Bonds and strategies for their use are an important part of providing for your family and your business. Leveraging their protective structures makes them strong financial tools to be aware of.

Contact us for a confidential chat about your needs.

Related: Saving & Investing 101

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