ax season is a time of year many people look forward to. Tax refunds are a great opportunity to supplement your savings or make a big purchase. But not all purchases are created equal. Here are five smart ways to get the most bang for your buck with your tax refund.
1. Put the money into your super fund
Were you one of the Aussies that had to have an early withdrawal from your super fund as part of the government’s COVID-19 Superannuation Early Release Scheme? If so, you’re not alone. In fact, 3 million+ Australians had to do the same.
Adding this year’s tax refund back into your super is a great way to rebuild your nest egg and make sure you’re on track for a comfortable retirement.
Even if you weren’t affected by the early release scheme, putting your tax refund into your super is still a good idea. Doing so will help you take advantage of compound interest and grow your nest egg even more.
2. Add the refund to your mortgage
Another option is to add the refund back onto the mortgage. In fact, there are some good reasons you might want to do this. First, even a small increase in your monthly mortgage repayment will reduce how long it takes for you to pay off your home loan. That means lower interest costs and smaller repayments later on down the track.
Secondly, most lenders offer a discount on your interest rate if you have a mortgage offset account. This is an account that’s linked to your mortgage and you can deposit money into it whenever you want. The interest on the money in the offset account is then used to reduce the amount of interest you pay on your mortgage.
As an example, adding $2500 into a $500 000 home loan could potentially save $3,927 on a 30-year loan.
3. Pay off your credit card
Paying off your credit card is another way to use your tax refund. If you’ve got a high-interest card and do this, the savings on the interest charges could be huge.
Credit card debt is notorious for their high-interest rates and can add up over time. So maybe you may want to consider using your tax refund to pay it off completely.
4. Invest in an Australian shares ETF
Another option to consider is using your tax refund to start investing using an Exchange Traded Fund (ETF) which is a pooled investment option that can be traded on the sharemarket. Australian shares have had a great run in the past few years. Australian shares have returned about 9.83%pa (including dividends reinvested) over the 10 years to July 31, 2021.
5. Spoil Yourself
If you have no debts and have a solid emergency fund in place, you might use your refund to spoil yourself a little bit. Perhaps you could spend it on a holiday, or buy yourself something meaningful. However, if you do this you need to make sure your financial foundation and emergency fund are in place and strong before spending your tax refund.
Takeaway
Spending your tax return wisely can be a challenge, but it doesn’t have to be. To help you make the most of your refund this year (or next), we’ve outlined five smart ways to spend your hard-earned money. Whether you’re looking for some extra savings or want to put something special on credit card debt, these options may work well with any budget and lifestyle.
To maximise your tax returns for next year, it may be worthwhile to consider the service of a qualified taxation accountant in your area.
We hope these ideas help put some more money back into the pockets of our readers during tax season!