5 Smart Things to Do with Your Tax Refund
Now that you’re getting your affairs in order ready for tax time, have you given any thought as to how you’ll use your tax refund?
The tax return for an average Australian is $2,112. With that kind of money, you have a few options about what you can do with it. While it’s common to use the refund to splurge on a holiday, a new car or to pamper yourself, you can use it in other ways to improve your finances in the long term.
1. Reduce your debt stress
It’s a good idea to use your tax refund to pay off any outstanding credit debts or personal loans. With all high-interest debts, the sooner you pay them off, the less interest you’ll pay and the more money you’ll save in the long term. It’s also great to think about settling any outstanding fines or bills before spending more.
You can also use your refund to funnel money into your mortgage. If you have a mortgage offset account, consider putting your funds into it. A mortgage offset account is essentially a savings account where instead of receiving interest on your savings each month, the balance is subtracted from your outstanding loan amount. This means that you’ll end up paying less interest on your mortgage, it’ll leave more money in your pocket and help you pay off your loan more quickly.
2. Start or increase an emergency savings fund
It was found by a survey into Australia’s financial health that one in three Australian households live pay cheque to pay cheque – with no savings to cover an emergency. Having a cushion to fall back on when emergency strikes – either from job loss or illness – is incredibly important. If you haven’t started an emergency fund already, using your tax refund to start a high-interest savings account could benefit you in the future. Not only will your savings grow from the compound interest, but you’ll feel more comfortable knowing that if something happens out of the blue, you’ll be covered.
3. Refinance your mortgage
Have you seen a better rate or package on the market, but are unsure whether the fees of closing your current mortgage make it worth changing? When you refinance your mortgage, you might be subject to paying for exit costs no matter how confident you are. By refinancing, you could save thousands of dollars per year on mortgage interest.
4. Home Improvements
If you are happy with your current mortgage rate, perhaps have a long good look at the state of your home and consider whether it needs any improvements. Have you been thinking about getting new cupboards or applying a fresh coat of paint? Making improvements can increase the value of your home, which is something to consider if you intend to sell it in the future.
5. Top up your Super or consider investing
According to ASIC, a single person who retires at 65 with a modest lifestyle (average annual living expenses of approx. $24,250) will need $300,000 to retire. Those who want to live comfortably (average annual living expenses of approx. $43,665) will need at least $545,000 to retire. Nurturing your super earlier means you have more time for it to grow. It’s also useful to note that from July 1, you can start depositing money into your Super for a deposit on a home. Our previous blog discussing the First Home Super Saver Scheme can be found here.
On the other hand, you could consider investing in shares or stocks. By doing this, you have the potential to benefit from capital gains if the asset grows in value over time, gain income from dividends or experience lower tax rates on long-term capital gains.
At Select, we offer no-obligation, quality and free advice to help you reach your financial goals. Give us a call on (08) 9417 3399 to talk with one of our brokers.