We all love hearing that there’s some money heading our way.
It’s that time of year again. Do you owe money to the ATO or are you in for a nice tax refund? If you have a tax refund making its way to you, now is the time to think about what you’re going to do with it.
Yes, you could hit the shops or blow it all on a special treat, but wouldn’t it be better to use it for something sensible? That way, you’ll be reaping the benefits for years to come. Here are our top five suggestions for using your tax refund responsibly:Top up your retirement fund with a super contribution
1. Top up your retirement fund with a super contribution
Retirement might seem like a long way off but that means any money you save now has years and years to grow.
Figures from ASIC show that a single person retiring at 65 and living a ‘modest’ lifestyle (spending about $23,000 a year) will need to save up $300,000 in today’s money. For a ‘comfortable’ lifestyle ($41,830 a year for living expenses) that amount jumps to $544,000.
Pretty big numbers, right? The good news is that, thanks to compound interest, every $1,000 you contribute to super now is worth a lot more than $1,000 contributed in 10 years’ time. So, do your retired self a favour and put some extra aside whenever you have the chance.
Do keep in mind that once your money is in super, you can’t access it until you reach retirement age.
2. Buy big-ticket work equipment now to maximise next year’s deductions
If you need to buy tools, computers or other work-related items, now could be a good time to do it.
Anything you buy for more than $300 for work purposes can be depreciated over the “effective life” of the item. Purchase the item in May or June and you’ll hardly notice the difference on your tax return. But if you shell out at the beginning of the tax year (that’s now), you’ll be able to claim a much bigger deduction come the end of the year.
So if you have a lump sum coming your way, this could be a great opportunity to make that purchase you’ve been holding off on.
3. Put it aside for your kids
If you already have kids or are planning to start a family, there’s no avoiding all the costs you’ll incur along the way.
Putting your tax refund in a term deposit now could mean you have enough to send your children to uni or buy their first car further down the line without it hitting your wallet too hard.
4. Clear some debt
You know that credit card bill that never seems to get any smaller? Or the loan you have been paying off for what seems like forever?
Use your tax refund to clear your debt – or at least make a big dent in it – and then you can start saving for yourself rather than waving goodbye to the money you pay in interest and fees.
5. Open a mortgage offset account
Do you have a mortgage? If so, find out whether your home loan provider offers the option for a mortgage offset.
This is basically a savings account, but instead of your balance earning interest, it is used to offset the amount you owe on your mortgage. This reduces the interest charge so when you make your regular repayment, more of that money goes towards paying back what you borrowed in the first place.
This can be a good way to put your tax refund money to work straight away without tying it up long-term.
With all these things you should speak to a financial adviser or accountant to understand the benefits, risks and tax implications of using your money in different ways. If you don’t have either of these people in your life, you can always just drop us a line instead.