With more than $10 billion refunded to four million taxpayers so far this tax season, many of us are wondering how we should best use our tax refund.
It is tempting to head straight to the nearest shopping centre and blow your entire tax refund, spoiling yourself.
But wait – other options can make your future shopping sprees more fun and easier to afford.
1. Pay off your debts
The first thing you should do when you receive your tax refund is usually to pay off some (or all) of your debts.
That’s especially true if you have a credit card debt: Credit cards can cost you 20% or more in interest – that is robbery and YOU are the bank being robbed!
Don’t keep money in your savings account if you owe anything to the credit card company – because you’re paying around 20% interest on the card but earning only about 5% on your savings. Pay off that credit card debt now and you’ll have more money to save – or spend – starting right away.
2. Voluntary Super Contribution
Superannuation may seem boring and the idea of putting your tax return into a fund you won’t see for many years isn’t a fun option today – but it is an incredibly good deal.
Not only is your Super taxed at the low marginal tax rate of 15%; you may also qualify for the government co-contribution of up to $1,000 per year – free money added to your savings. Then add the compound interest your Super earns and you’ve got a healthy head-start for a happy, early retirement.
If you’ve got a HELP debt, you can make a voluntary repayment against it. As an added bonus, the government will take an extra 10% of your voluntary payment off your remaining debt as well! This is another way our Government will give you free money! After January 2012 this discount drops to 5%. Also, if you’ve got kids at school and receive Family Tax Benefit Part A, then think about buying them that new computer or text book and receive 50% back by taking advantage of the Education Tax Refund.
4. Term Deposit
If you want to make some money for nothing, don’t leave your refund sitting in an everyday bank account. Move your money into a high-interest term deposit or high-interest savings account to maximise the money you earn. You can compare term deposits and bank accounts online using tools like these*:
Note: Be careful about advertised ‘bonus interest rates’. Some banks offer very high rates for very short periods, then your rate drops to a lower rate once you’ve forgotten about it. Better to get a good rate that will carry you forward.
*Etax Accountants has no relationship with these websites and there are many others like these – do your research and read the banks’ information carefully.
5. Plan for large bills
At one time or another during the year it seems as though all of our bills arrive at the same time. Instead of being unprepared and putting some of these bills onto your credit card, start planning now. Set aside a slice of your tax refund for that rates notice, car registration or insurance payment. This makes paying your bills less stressful, and it puts you ahead financially because you won’t need to create new debts just to pay your bills.
The above article is general information only. You should discuss your personal situation with a licensed financial planner.