Are you wondering what to do what your tax refund this year?
These clever money ideas could make you more financially comfortable.
This year, before you race off to the shops on a spending spree, consider a few smart ways to use your tax refund. At Etax we hear from lots of Australians (and tax accountants) about ways they plan to spend their tax refund. Here are a few of their ideas.
1. Super contribution top-up
According to ASIC, a single person who retires at 65 with a ‘modest’ lifestyle (with annual living expenses of about $23,000) will need $300,000 in today’s money to retire. Those who want a ‘comfortable’ lifestyle (with living expenses of $41,830 per year) will need at least $544,000 to retire.
For most of us, those are big numbers. Boosting your super early-on means there’s more time for your super savings to grow.
Just contact your superannuation fund or advisor for advice and learn how to transfer your tax refund into your super fund – your “future self” will thank you when you retire!
2. Buy work related equipment items that cost over $300 now, for a better deduction on next year’s return
If you’ve been holding off on purchasing any big-ticket work related items like computers, tools and work equipment, using your tax refund could be a good option.
Work related items that cost you more than $300 need to be depreciated over the “effective life” of the item. If you buy these items at the end of a financial year, the benefit on your next tax return will be very small. But if you buy the item early in the year – July or August – your depreciation calculation will cover more time and this means a bigger deduction on your next tax return. Your tax agent can help make that simple for you.
3. Save your tax refund in a term deposit for your children
You can put aside your tax refunds, year after year, so in the future you can cover future big-ticket expenses for your children. Save your refund in a long term deposit or another safe long-term, interest-earning investment – later you can use it for your kids’ university education or their first car.
When your children are older, you can give them a good leg-up without a hard hit to your wallet.
4. Pay off credit card debt or loans
Do you have a credit card debt or a personal loan you seem to be paying off forever?
Consider using your tax refund to lower your credit card debt or pay it off. Your interest repayments will drop as soon as you lower your outstanding balance. Once you’re debt free, start using your money for you, rather than contributing to the bank’s profits by paying credit card interest repayments.
5. Put your tax refund into a mortgage offset account
If you’ve got a mortgage, your bank or mortgage provider probably offers a mortgage offset option.
A mortgage offset account is basically a savings account. Instead of receiving interest on your savings each month, your offset account balance is subtracted from your outstanding mortgage loan balance to calculate the interest component of your mortgage payment.
You’ll end up paying less interest on your mortgage, leaving more money in your pocket. You can pay your home loan off quicker and pay less of your money in interest charges, while your offset account balance is still ready for you to use in an emergency.
By Simone Gielis, Senior Tax Agent and General Manager at Etax.com.au