The money you are refunded as a result of your tax return could be used as an opportunity to eliminate debt, increase your savings or do something ‘long-term’ to support your children.
Here are some tips to better utilise the money you get from your tax refund as opposed to going straight to the shops to spend the money.
Top Up Your Super Contribution
It is estimated that a single person who retires at the age of 65 will need to have at least $300,000 to retire if they wish to live a modest lifestyle. A modest lifestyle means that they will on average spend $23,000 on living expenses each year.
Making super contributions each year at tax time when you are young is a great investment to make. The earlier you start making contributions to your super account the more time you have for your super savings to grow over time as you get older.
Purchase work related equipment items which cost over $300 now, so you get a better deduction for next year’s tax return
If you have been holding off on purchasing any big-ticket work-related items like computers, tools and work equipment, using your tax refund might be a great option.
Work related items that cost you over $300 need to be depreciated over the “effective life” of the item. If you buy these items at the end of a financial year, the benefit on your next tax return will be very small. However, if you buy these items early in the year for example during July or August your depreciation calculation will cover more time and this will result in you gaining a bigger deduction on your next tax return. Your tax agent can help make that simple for you.
Save your tax refund in a term deposit for your children
Each year you can put aside your refunds, so that in the foreseeable future you can purchase a future big-ticket expense for your children. If you save your refund every year you will eventually have enough money saved up to make a huge deposit or purchase something such as your child’s first car or their university education.
Pay off loans or credit card debts
If you have any major credit card debts or any personal loans which you have kept resisting to pay off, it would be highly advisable to use your tax refund as any opportunity to repay them.
Your interest repayments will decrease as soon as you lower your outstanding balance. Once you are debt free, you can start using your money to benefit you, rather than contributing to the bank’s profits by paying credit card interest repayments.
Put your tax refund into a mortgage offset account
If you have a mortgage, your bank or mortgage provider will most likely offer a “mortgage offset” option.
A mortgage offset account is pretty much a savings account. Instead of receiving interest on your savings each month, your offset account balance is subtracted from your outstanding mortgage loan balance to calculate the interest component of your mortgage payment.
You will consequently end up paying less interest on your mortgage, this will leave more money in your pocket. You can than pay your home loan off quicker and pay less of your money in interest charges, while your offset account balance is still ready for you to use if it is required if you experience an unexpected emergency.
Latest posts by Craig Dangar (see all)
- Australians Are Using Early Access to Super to Pay Mortgages and Credit Card Bills - May 4, 2021
- Some of the Best Ways to Use Your Tax Refund - May 3, 2021
- CGT and FBT Exemption Draft Legislation Released - May 2, 2021
- Tax Deductions for Hospitality Workers - May 1, 2021