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Tax Refunds: How to use yours to get ahead

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Tax Refunds

After tax time every year, a special kind of excitement can come from hearing you’ve got a tax refund coming your way. While that’s not always the case, even getting a little bit back (or not owing anything!) can be cause for celebration.

But remember, a tax refund isn’t a bonus – it’s money that should’ve been yours during the last financial year so don’t immediately run off and splurge on something special. Take the time to see how you can gain the biggest benefit with your tax refund.

ASIC’s MoneySmart website recommends looking at three categories for using your tax refund:

1. Reduce debt stress

If you’re carrying debt you’d rather not be, the most beneficial thing to do with your tax refund is use it to clear away some of that stress. Check which is your highest-interest credit card or loan (and that there’s no deterrent to making extra repayments) and put it towards that.

Another option here would be to put the money into your home loan offset account. This means you’d still be able to access the money in an emergency (see #2 below), but it will reduce the interest you pay while the money is in that account. Winning both ways!

2. Stash it away

If you’re debt-free, the next best option is to put your tax refund away for a rainy day. One idea we love is the ‘Emergency Fund’. Every household should work towards having an ‘Emergency Fund’ in an accessible savings account. It can alleviate a lot of stress knowing you have a pool of money to reach into in an emergency. The account should, in an ideal world, equal three months’ household salary and could be used in the case of illness or redundancy. It can also be the fund you dip into when you need a new washing machine or an unexpected bill arrives. Your tax refund can either top it up nicely or kick off the fund for you.

Your superannuation fund could also use the top up. You may also consider a term deposit. With a term deposit, you won’t be tempted to dip into it which can help if you’re considering buying your first home or saving up for school fees down the track.

3. Reward yourself

Congratulations! If you’ve made it down to this option without saying “you’re right, that’s what I should do with my tax refund”, you’re living a debt and stress free life with a healthy bit of money stashed away.

It’s only natural that rewarding yourself with your tax refund is the first option most of us go for. There are always things on our list of ‘wants’. However, it’s important to remember that your tax refund is not a bonus, or free money and, if we have no savings behind us or debt we’d rather not have, those should be the priorities.>

Of course, if you’re comfortable with your debt and savings then by all means – splurge away! Our favourite tip is to splurge on education. Putting yourself through a course or degree, or even buying a few new books in your area of expertise, is a great way to reward yourself. You’ll learn something new and increase your skills to work toward a promotion or higher income.

Everyone loves a nice, chunky tax refund. No matter how much you receive, there are plenty of great options for using it to your benefit – reduce stress, plan for the future or splurge just a little. Consider which will best suit your circumstances and try to be smart about which is going to have the biggest impact.

 

  Important Information

The information on this page is of a general nature and is not intended to be a substitute for personal advice. This information has been produced without taking into account your personal financial circumstances, objectives or needs. You should consider the appropriateness of the information to your financial situation and seek personal advice before acting on any of this information. Qudos Mutual Limited trading as Qudos Bank ABN 53 087 650 557 AFSL/Australian Credit Licence 238 305.

 

Article published August 2017