For those fortunate to expect a tax refund each year, there are wise ways to spend your tax refund. For many, it can be an exciting time waiting for those hard-earned dollars to hit your bank account and planning what to spend their refund on. This can often be an opportunity to treat yourself with something you may not otherwise be able to afford or a chance to spend it in ways that are smarter in the longer term.
This financial year in particular, you may receive a bigger than normal refund due to the income offset for low-to-middle earners and claiming work-from-home deductions due to COVID-19.
In this article, we detail five ‘wise’ ways to spend your tax refund and make it work for you.
Contribute to your super
You may be eligible for government co-contributions if you choose to make a voluntary contribution to your superannuation fund. Not only does it boost your fund balance now, it means more cash for your future at no cost to you now. While it may not be the fun way to spend your windfall, it can be a lucrative move for your future.
Obviously, the younger you are, the more time your super has to grow. A voluntary contribution now however big or small, is likely to increase exponentially in time for your retirement.
Contribute to your ‘rainy-day’ account
Regardless of how much you earn, it is very important to have a rainy-day emergency fund.
Points to ponder: what if you are made redundant, your employer goes out of business, you or someone in your family becomes unwell, or an unplanned emergency repair is required on your home? Your pot of emergency funds may well come in handy should this happen to you.
You can use your tax refund to start your fund or you can give it an extra boost. Then you can continue to save something from each pay into this account for those ‘just in case’ situations. It is often recommended to have around six months’ worth of funds tucked away to cover your basic living expenses like mortgage, rent and bills.
If you have an offset account attached to your home mortgage, this can be a great place to keep your funds so they’re working for you even when you don’t need them.
Pay your debts
Paying off your personal debts can feel good especially if you’re having trouble paying them otherwise.
You should consider paying down debts with the highest interest including credit cards, store cards or personal loans. Following that you could pay off any bills that you owe.
Make smart investments
You can use your tax return money to invest in shares or similar. If you have a considerable amount, you may be in a position to buy or renovate an investment property.
You may consider insurances for extra protection too. Ensure you have adequate levels of asset insurance (home, contents, and car) as well as those that allow you to earn a living (health, income protection, life and total and permanent disability). Often, you’ll get a better deal if you pay insurances up-front annually.
Plan for your future
If you’re not sure what to do, your tax refund could go towards receiving professional financial advice from a financial planner.
You should consider all of the options available to make your tax return monies work for you. While a personal splurge may feel good, often it feels better knowing you have invested your tax return sensibly.