It’s tax time and most people will be looking forward to a tax refund. What are you going to do with yours? Save it? Spend it? A bit of both? Here are six different ways to make your tax refund REALLY work for you.
More than four out of five Aussie tax payers get an annual tax refund and the average value works out to be $2574 (which is the number we’ve used for the calculations in this guide) — a very tidy lump sum! That’s a lot of money when you consider its buying power.
Alternatively, you could put your end of financial year (EOFY) cash injection into reducing debt or building up savings. Is saving and investing boring? Maybe. Or perhaps it’s exactly the financial boost you’ve been looking for! This could be your chance to upgrade your financial outlook for years to come.
Let’s compare the numbers:
1. Spending spree
Spending your tax refund isn’t a bad thing if you’re buying things you really need. Come July, retailers are going to be bombarding cashed up shoppers with EOFY sales and it could be a great opportunity to grab a bargain.
If so, use it to your advantage. Make sure you shop around and don’t be shy about asking for a cash discount, especially on big ticket items.
2. Reduce your credit card balance
Do you have a credit card balance? Tax-time could be your lucky break. Consider this: Paying off the average credit card balance of $3200 by making only minimum repayments would take over 26 years and more than $10,000 in interest charges (ouch).
But if you were to pay a lump sum off your balance equal to the average tax refund ($2574), you would halve the total repayment time and save over $7000! Wow. That’s because paying off your credit card balance is the equivalent of earning savings of 18 to 19% interest per annum.
3. Pay it off your mortgage
Imagine we told you that you could double this year’s tax refund over the life of your mortgage. Well, you can! On a 30-year $400,000 mortgage at 3.08% per annum (average variable interest rate at 1st March 2021) making a single lump sum payment of $2574 could save you around $3600 over the life of the loan.
Not bad, but we can hear you thinking “$3,600 over 30 years isn’t exactly earth shattering”. Fair enough. So, consider this instead: If you were to take the same mortgage and make an extra $2574 lump sum payment into it every year for the next 10 years, you’d cut multiple years off your mortgage and save around $25,000. That’s a lot of holidays.
Couple that with a meagre 0.5% reduction in your mortgage interest rate and you could save nearly $40,000 more. To see how much time and money you could save by making lump sum voluntary payments or a better deal on your mortgage, use our home loan calculator or talk to the MyBudget Loans crew.
4. Create an emergency fund
One of the foundations of financial fitness is having a savings net to fall on when things go wrong. Perhaps your dog needs surgery, your car breaks down or life just happens. Rainy day savings can be the difference between having cash to fall back on or going into debt. Having an emergency fund is also how you build flexibility into your budget.
The way to build up your emergency savings is to automatically transfer a small amount of funds from every pay into a dedicated bank account – preferably an online account that makes it more difficult to access your savings from an ATM.
If you’re finding it hard to get your emergency fund started or struggling to keep enough spring in your safety net, your tax refund is the perfect way to give your savings a rocket boost. Discover how much money you need in your emergency fund and the best way to save for it.
5. Boost your super
What about investing your tax return? You don’t have to hire a stockbroker or financial advisor or know your fixed rate bonds from your pink sheet stocks to invest your tax refund.
Most working Australians have a superannuation account. Super is a way of saving money while you are working, so that you will have money when you retire. Boosting your super can have amazing benefits for your retirement outlook, as well as potential tax advantages. Your super fund will be able to help you with the tax implications of a lump sum investment.
6. All of the above
It’s not as if you have to commit to just one of these strategies. Why not set aside some of your tax refund for spending, some for saving and some for debt reduction?
Wondering how to put your tax refund to the best use? MyBudget can help to design a customised budget plan that shows exactly what you can achieve with your money over the next 12 months and beyond.
MyBudget is the worry-free way to manage your money
Whatever your financial goals, there is a MyBudget solution to help you reach them.
To find out more, call 1300 300 922 or enquire online today.