According to the Australian Taxation Office in the 2014/15 financial year the average tax return was around $2,500.
If you’re like many Aussies either preparing to lodge your tax return or eagerly awaiting that lump sum payment, your first thought is probably on the things you can blow this new found cash on.
But…have you ever thought about the alternative ways you can use your hard earned cash to get ahead?
We have, that’s why we’ve compiled these 5 top tips to spending your tax return:
1. Save it
If you put $2,500 in the RAMS Saver Account, the highest earning savings account in our database with a high 3.60% interest rate, you’d earn yourself $91 interest over the next year. But if you’re adding it to an already healthy $5k of savings, that would boost your savings significantly and you would earn yourself $274 on your balance by this time next year.
2. Top up your Super
The beauty of compound interest means, making a cash injection to your super at a young age will deliver significant long-term returns. For example, if you’re 25 years old and make a one off after-tax contribution of $2,500 towards your super, you’ll have an extra $12,270 in your super account by the time you’re 65.
FYI – If your before tax income is less than $49,488 (in 2014-15) and you make an extra contribution towards super in the year, the Government will contribute up to $500, depending on your income and amount contributed.
3. Put it in your offset account
Putting a lump sum payment towards the mortgage can be a good way to get ahead on payments, buffer against upcoming rate increases or build accessible equity in your home. Putting $2,500 in your offset account could save you over $2,600 in interest and shave 3 months off the life of the loan (based on an average 25 year, $300,000 loan with the average home loan rate of 4.69%).
4. Pay down debt
If you have a personal loan charging 10% interest on a 5 year, $30k loan, paying a lump sum in the first year of $2,500 would mean paying it off 5 months sooner and you would save yourself $1,150 in interest. If you’re signed up with a fixed rate loan, just make sure you won’t be penalised for making extra repayments or the savings may outweigh the penalty.
The same goes if you have debt accruing on a credit card, as putting any extra cash towards this debt is going to save you big bucks in interest.
5. Spend it…wisely
While a tax refund can feel like ‘free money’, it doesn’t mean you should spend it any differently to your own. If you’re wanting to upgrade an appliance, splurge on a new wardrobe or book an around the world trip, think about it wisely. For example, instead of a new wardrobe, are you better off breathing new life into your favourite items with smart alterations and updating some key accessories?
Also think about any purchases you can make that will bring down your taxable income this financial year, such as making donations to charities that are registered with the Australian Charities and Not-for-profits Commission (ACNC) or upgrading your home office with new furniture and stationery. See what other things might be tax deductible by reading our Things you could be claiming at tax time guide.
A bit of research and some time to think them through your purchases could change your mind or at least spread that cash a little further.