Most Aussies plan to save their tax return. Here’s what to do with yours

As a grim economic outlook looms with nearly 1 in 10 Australians forecasted to be unemployed by December, it’s no surprise many are tightening their purse strings. The latest figures show most Aussies won’t be spending their 2020 tax return.

ME Bank research released this week found that 58% of Aussies plan to add their tax return to savings, compared to 49% last year. 

There’s also been a switch in gears to more mindful spending. ME reveals a growing number of Aussies are looking to boost their financial position with their tax return, rather than splurge it on discretionary items. 

For instance, 21% intend to use the money on home loan repayments (up from 17% a year ago), while 18% want to invest it in shares or their super (up from 16%). 

But a small segment (22%) still plan to use their tax return on non-essentials like eating out, entertainment and travel - 1% lower than last year. 

These findings were based on surveys with 1,000 Australians in June 2020. 

The report comes as ANZ-Roy Morgan numbers released today indicate consumer confidence has dropped back down to 90.2 points (or 24.2 pts less than a year ago), following new COVID-19 outbreaks in NSW and Queensland. 

ME’s general manager of personal banking, Claudio Mazzarella said the current climate is propelling this shift from spending to saving.

“The pandemic is clearly changing the financial habits of the nation. This survey illustrates how wary Australians are feeling in this economic climate,” he said.

Aussie spending during COVID-19

Mozo data also shows our money habits have come a long way since the start of COVID-19 restrictions, when Zoom meetings and couch commutes were still a novelty. 

Back then, 38% of Australians admitted to spending more while being cooped up at home. 

The survey with 1,107 Buy Now Pay Later users conducted by Mozo in April found that while some opened their wallets wider to support local businesses impacted by the pandemic, others online shopped to stave off boredom. That included pouring hundreds of dollars into gym gear, console games and alcohol. 

A whopping 40% of respondents were also purchasing up to $100 worth of clothes and shoes. Meanwhile, 22% spent $50 a week on takeaway, while 22% paid between $20 to $40 for streaming services. 

But flash forward to June and another Mozo survey revealed Aussies had begun reining in on their spending. 

In fact, 61% said they were now saving more while working from home, with people waving goodbye to domestic travel, gym memberships and eating out.

What to do with your tax return

So, is saving the way to go with your tax return? The short answer is yes, but there are a few tips to keep in mind before stashing the cash away.

1. Don’t forget about debt

Prior to pouring your entire tax return into savings, it could be worth dedicating a portion to paying down your personal loan, credit card or home loan

“Paying down debt is a great strategy as it reduces an ongoing cost, freeing up your monthly budget,” says Mazzarella. 

Need help deciding which debts to prioritise? There are two common methods, and the right one depends on your situation and preferences:

  • Start with the highest interest first: Higher rate debt also piles up faster. So by ridding the biggest killers first (usually credit cards), you can dodge this snowballing effect. 
    Start with the lowest balance first:
    Clearing debt can be overwhelming, which is why small wins can help you stay on track. This method means you’ll hit debt repayment milestones quicker, keeping you motivated.

2. Futureproof yourself

If COVID-19 has taught us anything, it’s the importance of having a crisis cash back-up. An emergency savings fund is a separate bundle of money you keep in your hip pocket just in case. 

Previous Mozo research has shown only 25% of Aussies have enough savings to stay afloat in unforeseen circumstances, so your tax return could be a great opportunity to bulk up that emergency fund. 

“Ideally, you’d have emergency savings to cover at least six months of expenses, but even having a small stash of cash can help weather life’s unexpected events or outlays,”  Mazzarella says.

3. Build up your nest egg

If you’ve got your rainy day fund covered, then your next port of call might be building some meat into your retirement savings. Besides salary sacrificing, you can also add to your super by making personal contributions, such as your tax refund.

Where to stash your savings

Whether you’re growing your emergency fund or working towards a long-term savings goal, a good place to park your money would be inside a high interest savings account

Many of these accounts come with monthly conditions (like a minimum deposit or number of card transactions), but as long as you can realistically meet their requirements, you could be looking at rates as high as 3.00% with Westpac Life (18-29 years old) and 1.75% with HSBC Serious Saver.

Scroll down below for a list of other high interest options, or jump on over to our savings account comparison table for more deals.

Compare high interest savings accounts - last updated February 26, 2021

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