If you are submitting your Tax return shortly or have already done so, you will be receiving you tax refund in the next few weeks – depending on your deductions and amount paid- you could end up with a sizeable portion back in your bank account. Just remember this money is something you have still worked hard for and should be used wisely instead of seeing this as play money.
The average refund tends to hover around the $2000-$3000 mark depending on your position.
As tempting as it is to go out and buy the latest TV or a go on a budget holiday, there are ways you can put the extra cash to better use.
Here are five simple and smart things you can do with your refund that will see you still reaping the rewards years down the track.
- Put it on the mortgage an save approx. $3400-plus
This is the best way to save interest and take months of your loan in the long run.
For example, if you have a $400,000 mortgage and are paying 4%pa interest over a 30-year term and you received a tax refund of $2000 and used that to make a lump sum payment into your loan, after year five you would save over $3400 in interest and cut three months off the term of your loan.
Even if you wanted to keep $500 to put towards a splurge item, putting $1500 into the loan will save you just over $2500.
- Contribute the money to Super – boost your balance by $53,162
Putting your tax refund into super can really boost your balance and give you are larger amount to drawdown from when you do eventually retire.
If you’re 45 and earn $70,000 and have $200,000 in your super already and make no contributions, you’d have $398,000 in your fund at age 65.
Let’s assume you were to put your tax refund of $2000 into your Superannuation fund each year as an after-tax contribution and at 65 you’d have $444,000 – that’s $46,000 more for you to use when you need it the most.
- Kickstart a small investment account – make an extra $168
This will allow you to build long term savings outside superannuation that you will have access to when needed and can be used to fund future child expenses,
If you put your $2000 refund into Exchange Traded Funds in a Growth investment style(70% growth assets 30% defensive()potentially returning 7% interest at the end of a year you’d have made $140 and over 7 years that is potentially $980
If you were really serious about building that investment up and put and extra $20 a week into the account as well, at the end of the year you’d have an extra $1040 in the account plus interest.
- Pay off high-interest debts – save $2333
Credit card debt can be a real issue once it starts building up, especially if you’re paying high interest of 18%+
If you have $3500 outstanding on a card charging 18% interest and were putting $250 a month towards the debt, you’d pay $3892 in interest and it would take you one year and four months to clear.
And this assumes you make no purchases on the card during that time. Whack $2000 on the card immediately and keep paying the $250 a month and you’d save $2333 in interest and pay it off nine months earlier.
- Invest in yourself and your future
Improving your skills and knowledge could result in a pay rise or new job if you want it and know what you need to do to get it. Sometimes this involves being proactive and forking out money that will lead to long term gains.
Either way it may mean more money in your pocket in the long run and a better lifestyle if you achieve the right balance. Look for courses that will give you skills that are in demand and set you apart from the rest or are relevant to the next stage in your career.
If you are looking at a complete career change than use the funds to get the required skills and knowledge necessary before you make the leap.
Also, if it’s a course that helps you with your existing job you’ll also be able to claim a tax deduction.
For any of the above strategies, always seek the advice of a qualified professional or tax agent to understand the tax implications before proceeding with anything discussed.
If this article has left you feeling like it’s time for a discussion – and maybe even a change – get in touch with us. We’re here to assist you in planning your investments in order to achieve your goals.
Our office is located in Oran Park and we also service the wider Macarthur region including Narellan, Harrington Grove, Harrington Park, Gregory Hills, Campbelltown, Liverpool, Fairfield region and all of Sydney. Please email admin@rpwealthmmanagement.com.au or call us on (02) 9188 1547 to discuss your options further.
