Written by Stefan Kostarelis
With the financial year ending on June 30th, Australians are preparing to do their taxes and may be considering how to spend their tax returns.
According to the Australian Securities & Investments Commission (ASIC), 82% of taxpayers are likely to get a refund averaging $2,112.
Surveying users of ASIC’s “Money Smart” financial guidance tools, ASIC found that Australians spend their tax returns on the following:
- 29% – Paid bills
- 21% – Saved it
- 16% – Didn’t get a refund
- 13% – Loans or credit card payments
- 9% – Home loan payments
- 5% – Holiday
- 5% – Other things (including engagement ring, education, car rego/tyres, party)
- 2% – Household appliances
If you think you’ll be getting a decent return this year, it’s time to start thinking about what to do with it. We’ll now look at 7 tips for how to spend your return based on information provided by ASIC’s Money Smart and Etax, a site dedicated to helping Australians with their tax returns.
1. Pay off debt
Unsurprisingly, ASIC recommends that you use your tax return to pay off any outstanding debts you have. Settling debts means you’ll pay less interest and save in the long run. Pay off higher interest debts like credit cards first and use this calculator to help you work out repayments.
2. Put it in a high-interest savings account
If you don’t have any outstanding debts, you could take this opportunity to start a new savings plan by putting you return in a high interest savings account. If you have children, you can use a lengthy term deposit to yield a better interest rate. Currently, Australian banks are offering around 3% on five-year terms.
3. Top up your super
If you want to really plan ahead, you can make extra contributions to your super. You won’t be able to access your it until your retire unless you are a first home buyer and take advantage of the new scheme introduced in the recent Budget. ASIC also provides a superannuation calculator, which can be viewed here.
4. Consider investing
Investing is a way to make your money go further, but will require some knowledge. If you are new to investing, ASIC suggests you start with the basics. For those who are interested in investing but don’t have large amounts to work with, Etax recommends looking into micro-investing. Investment providers such as Acorns allow you to invest small amounts of money in a diversified portfolio aimed at growing your investment nest egg.
5. Put it into a mortgage offset account
If you have a mortgage, Etax suggests you look into a mortgage offset option. A mortgage offset is essentially a savings account in which instead of receiving interest on your savings each month, your offset balance is subtracted from your outstanding mortgage loan balance. You’ll end up paying less on your mortgage and have more to spend on paying off your home loan more quickly.
6. Buy big-ticket work related items
Etax suggests that using your tax return could be well-used to purchase any big-ticket work related items such as a computer that you have been holding off on. Work related items that cost you more than $300 need to be depreciated over the “effective life” of the item, according to Etax. 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 the item early in the year – say July or August – your depreciation calculation will cover more time and this will result in a larger deduction on your next tax return.
7. Get financial advice
The above advice is all general in nature and does not take into account your specific financial objectives or situation. Once you have identified your financial needs, you may want to seek professional advice. A good financial advisor can help you work out a strategy to make the most of your money.
For more information on how the Financial Advice Center can help you, call 08 8332 4411 or email email@example.com.