Tax time can often feel like a hassle, but it’s all worth it when that tax refund lands in your account. So, what’s the best way to spend it?
With last year’s average refund being $2,574, it’s no small question.i And if you are one of the lucky ones to receive a refund your options are endless. From paying down debt to investing in your future to blowing it all on a big holiday, the choice of how you spend your refund will depend on your goals and your circumstances.
Pay down debt
It may not be particularly glamorous, but paying down any debts you have can be a very wise way to spend your tax refund. Especially because you’ll probably save even more on the future interest you won’t end up paying.
Australians have a whopping $45 billion in credit card debt.ii Consider clearing any overdue balance, and while you’re at it why not reduce your limit so you’re not as likely to go that far again.
You might also consider putting some of your tax refund towards your home loan. Again, a $2,000 reduction in what you owe now could mean a much bigger saving over the lifetime of your loan.
Invest in your future
Your tax refund could also be a fantastic way to pay for an investment in your future.
A good way to start is by putting a little more towards your super. Superannuation is still the most tax effective way of saving for the retirement you dream of, and the interest on the additional contribution now could compound to make a big difference to the overall size of your nest egg.
Investing in your future might also mean taking a short course to upskill, or diversify your talents. There are TAFEs and adult education facilities across the country that offer a plethora of short courses from the vocational, to ones that purely play to personal interest. Have a google and see what’s going on in your neighbourhood.
If you’re feeling generous, you might even consider directing some of your refund towards the future of a loved one. This might include starting a fund to help your kids towards a house deposit, a first car or their future education. Talk to us about what your options are.
Save for a rainy day
It’s awful to think about, but you never know what the future holds, so having a little money aside for a rainy day is never a bad idea. It might help with future medical expenses or a loss of income, or even those everyday unexpected expenses such as a broken fridge or car repairs. Getting in the habit of putting a portion of your tax refund towards a rainy-day fund could make a real difference if life takes a turn for the worse.
Have a little fun
You work hard, and there’s nothing quite like the feeling of having a few extra thousand in the bank. So, you’ll be forgiven if you want to have a little bit of fun. From a weekend away to a retail binge, there are many ways you can blow a tax refund. Our advice to you: be cautious. By all means splurge on some pampering, but make sure you get the mix right by either reducing any unpaid debt or investing in your future.
The right mix
The truth is you can use your tax refund in a number of ways and none of them are right or wrong. Perhaps the wisest thing to do then is mix it up, spending the bulk of it prudently while saving a little bit just to do something that really makes your heart sing.
If you need any help with your tax return, give us a call.
i https://www.moneysmart.gov.au/managing-your-money/income-tax/how-australians-spend-their-tax-refunds