With the Government passing the Low to Middle Income Tax Offset, over 11 million Australian taxpayers are expected to receive a refund of up to $1,080. With the average refund at $2,574; there is no better time to have a good plan for your money. Remember that your tax refund is just that; money that you have earned. Think carefully before you spend your entire tax refund. Assess your financial situation and determine the best possible use for your refund.
Here are some smart ways to use your tax return and improve your financial situation.
Save your money
If you have not established a budgeting plan; now is the time. Before you place your refund into a goal saver account; make a budget. Treat your tax refund like a normal payslip. The first step involves assessing your expenses and income to establish how much money you can save per week.
If you have not yet established the purpose of your refund, you can park the cash in a savings account. By placing your tax refund into a savings account you can gain bonus interest for the first few months. Alternatively, if you have not set up an emergency cash fund; you can use this just in case.
A term deposit is another great option for holding down your cash. Term deposits work on the basis that you can’t typically access the money for a set amount of time. This will ensure that you are not tempted to spend your tax on something unnecessary. In the meantime, you will develop great long term money habits, as you are more familiar with budgeting and being frugal with your income.
Pay off debt
According to the Australian Bureau of Statistics, 13% of money smart users used their tax refund to pay off a loan or credit card payment. A further 9% of users allocated their refund towards a home loan repayment.
If you have a credit card debt, personal loan, debt consolidation loan, student loans, outstanding bills or a mortgage consider using your tax refund to reduce your debt stress. The trick is to start with high-interest rate debts. By reducing your outstanding balances, your interest repayment will drop. This will mean that you can start saving your money or start spending it on yourself.
If you can get into the habit of making extra repayments to your mortgage you will end up owning the property much quicker than you expected.
Grow your super
Whilst it is often easy to overlook the long term journey, super contributions early on can help you better prepare yourself for retirement. If you can spare the money, consider increasing your super by adding a personal contribution. In the long run, you will worry less as you will be prepared for retirement.
Home Renovations
If you have received a hefty tax return, consider renovating your property. Home improvement can immediately increase the value of your home, whilst at the same time making your home more comfortable to live in. Changing the kitchen, tiling the floor or fixing the roof can refresh your home and increase the appeal. Make sure that any renovations comply with council regulations. If you need a loan to cover any additional costs, consider Australian lending centre.
Refinance your mortgage
For many borrowers, your monthly mortgage repayment is typically the largest repayment that you have. A Lower interest rate, lower monthly repayment and improving your credit score are some of the benefits that motivate people to refinance their mortgage. Unfortunately, there are some closing fees and upfront costs that restrict people from refinancing.
In this case, you can use your tax refund to pay for the closing fees and refinance. In the long term, you will benefit as you can save thousands of dollars. These saving will usually come from a lower interest rate and better term conditions.
The bigger picture
If you are in control of your finances, then consider using your tax refund to evaluate your long term financial goals. If you stick to smart budgeting and allocate the right amount of money to spend you can reap the financial rewards in the future. Consider using your tax refund to start the step towards purchasing an investment property or investing a share portfolio.
