Tax season is upon us, and while filing your tax return may seem like a chore, it brings the potential for a financial boost. With the average tax refund reaching around $3,600 last year and most taxpayers expecting a refund, now is the time to consider how to make the most of this extra cash. Instead of squandering it on impulse purchases or short-lived indulgences, here are some smart and practical ways to optimise your tax refund.
- Eliminate Credit Card Debt and Loans
According to ASIC’s MoneySmart poll, nearly a third of individuals who receive a tax refund choose to put it towards paying bills. While it may not be as exciting as a vacation, paying off your debts is wise. Start by tackling high-interest debts like short-term loans and credit cards. If you have multiple credit cards, prioritise paying off the one with the highest interest rate first. By reducing your debts, you’ll save money in the long run by paying less interest.
- Establish an Emergency Fund
Life is unpredictable, and unexpected expenses can arise at any time. Rather than relying on high-interest credit cards when emergencies occur, having a financial safety net is essential. Consider opening a high-interest savings account dedicated to your emergency fund and make regular contributions whenever possible. You’ll be surprised at how quickly your fund grows, providing peace of mind during challenging times.
- Boost Your Superannuation
Retirement may seem far off, especially if you’re young, but it’s never too early to start planning for the future. As life expectancy increases and the cost of living rises, retirees will require more substantial savings to maintain a comfortable lifestyle. By making additional contributions to your superannuation fund now, you give your savings more time to grow. However, be mindful of contribution caps and potential tax implications. Consult with your accountant before making any extra contributions and secure a brighter financial future for yourself.
- Leverage a Mortgage Offset Account
If you have a mortgage, you’re likely paying significant interest over the long term. A mortgage offset account is a savings account linked to your home loan that helps offset the interest charged on your mortgage. By utilizing an offset account, you can reduce the overall interest you pay, leaving more money in your pocket in the coming years.
- Consider Investing in Shares
Investing in the stock market can be a viable option to grow your wealth. However, before jumping in, conducting thorough research and making informed decisions is crucial. Depending on the amount you have available to invest and your investment expertise, there are numerous options to explore. Seek advice from financial professionals or educate yourself to make sound investment choices.
- Make Charitable Donations
If your financial situation is stable, and your debts are manageable, using your tax refund to contribute to a worthy cause can be immensely fulfilling. Not only does donating allow you to make a positive impact, but many charitable donations are also tax-deductible, offering potential benefits in next year’s tax return.
- Invest in Personal Growth
Investing in yourself is always a wise choice. Whether it’s enrolling in a course that enhances your skills or pursuing a new hobby that brings you joy, personal growth is an invaluable asset. Depending on the course and its relevance to your profession, you may even be able to claim tax deductions in the future.
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