Beyond the Boundary: Juggling options to balance the books

The rising cost of living is silently shrinking household budgets.

This is a live issue for young professionals starting their journey on the property ownership ladder. Further, with debt often part of farming, higher repayments are a primary consideration.

With the next generation returning to the family farm, young farmers are having to wear multiple hats, learning the farming operation while navigating the balance sheets with a renewed focus on serviceability of debt.

This problem is compounded by the farm now having to feed an additional mouth, and the recent fall in the value of sheep and cattle, where farmers are 25 to 75 per cent worse off in livestock prices, has added further pressure to the profitability.

With the lower interest rates in recent years, I've seen many young people build small portfolios of various shares.

Higher interest rates pose a new proposition for wealth management.

Reallocating your savings or investments to reduce the outstanding debt can ease some pressure.

Thinking more deeply, reallocating your funds to offset debt can provide a tax-free return.

Conversely, if that debt remains outstanding, the interest repayments are serviced with after-tax funds.

Therefore, the interest saved is not just the headline rate but includes the tax saved on the fund required to make the repayments.

An alternative way of thinking about it is if that pool of funds was invested, the interest or dividend income received would be subject to tax at the investors' marginal tax rate.

For someone earning more than $45,000 a year, the tax payable on the investment income could be at least 32.5pc.

The problem is all-encompassing. Everyone is in the same boat.

Agri professionals, such as your banker or accountant, are willingly looking to help.

There are several tax incentives or reliefs that can be utilised.

I recently learnt about the Regional Investment Corporation (RIC), which is an Australian government agency established to support regional and rural communities by providing financial assistance and facilitating access to loans for farmers and agricultural businesses.

Borrowers can attain loans at preferential rates and on interest-only terms allowing them to get ahead. In this environment, every saving can make a large difference.

The new Governor of the Reserve Bank recently alluded to the possibility of further tightening of monetary policy, which means higher interest rates.

Taking control of your personal cash flow is king.