We’re often asked the smartest ways to use your tax refund – so we’ve collated a quick list of tips and ideas!
How to spend your tax refund to get ahead
1. Pay off your debts
Probably the very smartest way to use your tax refund is to pay off any bills or credit cards. While the suggestion may not be the most popular, debt can quickly mount up up. If you owe any money, it’s wiser to pay off these bills then to keep them in your savings account. Contributing extra money to any debt can be a positive and useful way of getting ahead. Start with the debts, usually credit cards, that have the highest interest rates.
2. Voluntary Super Contribution
While superannuation seems a little boring, one of the best ways to spend your tax refund is to top up your super fund. Long term, it will be one of the best investments you make. Not only is your superannuation taxed at the low tax rate of 15%; you may also qualify for the government co-contribution of up to $500 per year (if you’re on a low income). That’s 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 HECS-HELP debt, you can make a voluntary repayment against it. From 1 January 2020, your voluntary repayments become a credit to your ‘HELP balance’. This can be re-borrowed in the future, up to the current HELP loan limit. For more information go to: https://www.studyassist.gov.au/help-loans/combined-help-loan-limit
4. Term Deposit
The smartest ways to use your tax refund, include not spending your tax refund at all! You can make it make you more money if you move it into a high-interest term deposit or high-interest savings account. This maximise the interest 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. One of the very smartest ways to use your tax refund? 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. After paying off your high interest debts, one of the smartest ways to use your tax refund is to set aside a slice of it. If you have the cash in the bank for that rates notice, car registration or insurance payment, you’ll have less need to use your credit card. This makes staying on top of your bills so much esier.
The above article is general information only. You should discuss your personal situation with a licensed financial planner.