How I Make My Money Work Harder (Even While I Sleep)
Hey there! 👋 As promised, I'm kicking things off with a breakdown of how I make my money work harder for me—24/7, even while I sleep. The key? Setting up systems that grow wealth efficiently and making intentional money moves that maximise returns.
1. Investing in Income-Generating Assets
I focus on investments that pay me—whether through dividends, capital gains, or rental income. Here’s where my money goes:
Shares & ETFs: The majority of my portfolio is in ETFs like VDHG, which is diversified across global shares, bonds, and other assets. I reinvest dividends to take full advantage of compound growth. My investment portfolio grows passively, and I defer taxes on the gains until I decide to sell. If I hold for more than 12 months, I benefit from the 50% CGT tax discount.
Dividend Stocks: I invest in shares that distribute dividends. Last year, I received around $15,000 in dividends without lifting a finger (okay, I did lift a finger to buy the shares from my phone once a month, but that’s it! 😂).
Fully Franked Dividends: I also invest in ETFs that contain Australian stocks, which distribute fully franked dividends (since the companies have already paid tax to the ATO). This alone added an extra $2,000 to my tax return.
Property Investments: My long-term plan includes property investing, using strategic leverage and rental income to grow wealth. I’m currently searching for my first investment property and plan to use equity from my home loan, converting more of my mortgage into a tax-deductible investment loan for further tax benefits.
2. Debt Recycling to Boost Wealth
Instead of rushing to pay off my mortgage, I use a debt recycling strategy to convert non-deductible mortgage debt into tax-deductible investment debt. This allows me to:
Invest while paying off my home loan
Reduce taxable income through interest deductions
Build an investment portfolio without waiting to be mortgage-free, allowing me to reap the benefit of compounding interest starting now.
I plan to implement debt recycling in two stages:
In June 2023, I converted $400k of my home loan into an investment loan and purchased $400k worth of VDHG. My Vanguard investment portfolio has now grown to $550k. I do dollar cost averaging every month, and my portfolio’s gain (shares growth + dividends) is currently sitting at $117k, which means I’ve only added $33k in the past 1.5 years.
Next step: I will withdraw $130k in equity from my home to use as a deposit for my first investment property. The new $130k loan is still attached to my home, but it will be considered an investment loan, making the interest tax-deductible. The investment property will be purchased under a Trust Structure to preserve my borrowing power, allowing me to rinse and repeat this process as my property appreciates in value.
3. Keeping Cash in an Offset Account
Instead of keeping my cash in a low-interest savings account, I store it in an offset account against the portion of my mortgage that hasn’t been converted into investment debt. This helps me:
Reduce interest payments on my home loan
Increase liquidity and flexibility for emergencies
Avoid locking funds into a low-yield fixed deposit
For my investment loans, I keep my offset balance at $0 (most of the time). This maximises the interest deduction I can claim against my dividend income, effectively reducing my taxable income and ensuring I pay $0 tax on dividends for the next few years.
4. Strategic Tax Planning
I leverage smart tax strategies to legally minimise tax and maximise my earnings. Some key approaches include:
Franking credits: Benefiting from tax-preferred Australian dividend stocks.
Deductions on investment loans: Claiming interest payments on investment debt.
Superannuation contributions: Making voluntary contributions to reduce taxable income while growing my retirement savings.
5. Automating My Finances
I automate my savings, investments, and bill payments to ensure my money is always working efficiently. My system includes:
Automatic investment contributions every month to ETFs and shares.
Scheduled extra repayments towards my mortgage.
Direct transfers to sinking funds for expenses like travel and annual bills.
6. Diversifying Income Streams
Beyond my 9-to-5 engineering job, I’ve created additional income streams that provide flexibility and security:
Dividends & capital gains from my investment portfolio.
Bytesize Finance as a passion project and potential side hustle.
Future rental income from investment properties.
The Key Takeaway: Setting Up Systems That Work
By structuring my finances intentionally, I ensure my money is always working—whether I’m at my desk, traveling, or sleeping. My goal isn’t just to build wealth but to create financial freedom, where I control my money rather than letting money control me.
How are you making your money work for you? Let’s chat in the comments! 💬
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With love,
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