Is it really worth getting a second job?
Susan Edmunds Stuff’s Money editor. Send your questions to email@example.com
Is getting a second job worth it – or is secondary tax high?
This is a question that I’ve had a few times lately, presumably as people deal with the rising cost of everything.
The answer is pretty straightforward – you don’t pay extra tax just because you’re working a second job. But you might find that your extra earnings are taxed at a higher rate because they push you into a higher bracket.
New Zealand has a marginal tax system. At the moment, you pay 10.5% on income up to $14,000 a year, 17.5% on income between $14,000 and $48,000, 30% between $48,000 and $70,000, 33% on income between $70,000 and $180,000, and 39% on any income above $180,000 a year.
So, for example, if you earn $70,000 a year in your day job and you take a second job paying $20,000, that $20,000 will be taxed at 33%. But you'll still be better off overall.
If you don’t get pushed up into the next tax bracket, the income will be taxed at the marginal rate that your income was already reaching. So if you earn $60,000 a year and make another $5000, that $5000 will be taxed at 30%.
When you take a secondary job, you can choose a secondary tax rate that is appropriate for your level of income – if you end up paying too much tax on this income you’ll get a tax refund at the end of the year but if you don’t pay enough, you’ll get a bill.
If you don’t elect otherwise, you’ll be put on a rate of 30%.
Are there things that one can do daily to ensure that the mortgage is fully paid earlier than expected?
The only way to make sure that your mortgage is paid back earlier than expected is to make repayments beyond the minimum required!
There are a few ways you can do this. You can set your repayments at a higher level, so that extra goes on to the mortgage each fortnight or month. This can make a big difference. Say, for example, you have a $450,000 home loan with a 7.45% interest rate. You’ll pay $3132 a month to clear that over 30 years. If you can pay an extra $200 a fortnight you’ll save more than nine years off your mortgage.
You can also choose to make one-off lump-sum payments to your loan. It’s easy to do this when the loan comes up for refixing, but you may be able to make extra payments during a fixed term, too, up to a certain level. Check with your bank on this.
You can also choose to pay your mortgage fortnightly rather than monthly. If you take the monthly minimum payment and divide it by two, you’ll get 26 payments, and the equivalent of an extra monthly payment a year.
Another option that works well for some people is a revolving credit facility. This is a bit like a big overdraft, representing part of your home loan. When you’re paid, your income goes into that account and sits there, offsetting interest. You do your daily spending on your credit card, then clear that card at the end of the month, hopefully leaving a bit extra sitting in the account, reducing your home loan balance. If you’re disciplined, this can be a good way to pay off your loan faster.
This is something it could be a good idea to talk to a mortgage broker about to get some personalised advice about your options and what might work for you.
What is the ideal KiwiSaver contribution rate young people should be on when starting out in fulltime work?
This will depend a lot on your individual circumstances and your priorities. If you’re trying to save a deposit for a first home, it may well make sense to push up your contribution as high as you can handle. If you can cope with paying 10% of your salary when you start out, any pay rise you get over the years will boost your savings – and you won’t miss what you’ve never had.
It's a lot harder to increase your contribution rate once you’ve got used to a certain level of income.
When you’re young you have time on your side, which is a fantastic asset because it means you have the space to allow compounding to work on your returns, giving you much better outcomes than someone who started later in life, even if you’re contributing less in dollar terms.
But I think it’s really important to be realistic – keep some money aside for holidays and other things you want to do. Being young is fun and saving shouldn’t make you totally miserable!
Will I be charged interest on my student loan if heading overseas?
It depends how long you go for. Inland Revenue says if you’re outside New Zealand for around five out of six months, you could be counted as overseas-based, which means interest will be applied from the day you left. At the moment, the interest rate is 2.9% but that could change on April 1.
Interest is calculated daily and added at the end of the tax year.