When tax season is just around the corner, it makes sense to start planning how to spend the money you will get back from the government. In 2016, there were a total of 13.9 million people, along with 970,000 businesses that lodged their income tax returns on time. In the same year, it was estimated that eight out of 10 Australians received a tax refund, averaging $2,112.
According to ASIC, the average tax refunds in the country today reached $2,574. More and more Australians are learning that they can get refunds. The Australian Taxation Office (ATO) confirmed that about 90,000 taxpayers called the agency due to the tax cuts. Millions of people in the country are set to receive tax refunds once again this year, and you can be among them.
Before you get too excited and start planning to go shopping, partying, or any kind of splurging, you can put the money you get into good use. Here are the best ways to spend the tax refund:
- Start an emergency fund.
If you already started your emergency fund, take the chance to increase it. Surveys showed that millions of Australians could not afford to pay for an emergency that could cost them $5,000. According to experts, you should have at least six months’ worth of savings. The funds should be kept in an interest-bearing account that you can easily access.
It does sound like a lot, especially if you are just taking bit by bit out of your paycheck, which is why using your refund can kickstart this goal.
- Pay off your debts.
Another great thing that you can do with your refund is to eliminate or at least lower your levels of debt. If you have many debts, choose the one with the highest interest rate. Some of the debts to consider are the different types of loans you may have, such as debt consolidation payday, title, or student loans.
If you have credit card debt, you may want to start reducing it as much as you can. According to the Australian Securities and Investments Commission, there are almost two million Australians that carry a high-interest credit card debt.
- Buy something you really need.
It is easy to get tempted to buy something lavish with the extra money you have. However, if you plan to spend it smartly, you should make sure the purchase is worth your while.
For instance, if you have a problem with your car, you may want to use the money to have it checked and fixed. Perhaps you put off essential dental work because you were short on funds. Now is the best time to use the money that will truly benefit you. Deal with the essentials first once you collected the refund.
- Refinance your mortgage.
The Australian Bureau of Statistics said that about 22,000 Aussies refinanced their mortgages in 2015. This number is considered the all-time high in the country. However, the number went down to 18,000 a year later.
Refinancing your mortgage has many benefits. Sadly, not all individuals know about what they can gain out of refinancing, such as:
- Getting better mortgage rates
- Consolidating debts
- Cancelling mortgage insurance
- Borrowing money
- Shortening your borrowing term
Refinancing still requires you to pay closing costs and other fees. It is one of the reasons why Australians try to avoid it as much as possible even though the long term benefits outweigh the initial costs. If you recognise that refinancing your mortgage is beneficial for you, you can use your tax refund to fund the closing costs. It will provide you with thousands of dollars of savings each year on interest.
- Renovate your home.
You may already be happy with your mortgage rate, which is why you do not want to refinance it. Getting your refund may be one of the best ways to pay for a renovation project. Take a good look around your house. Perhaps you need a new roof or a better kitchen. You may also want to switch to energy-efficient appliances, which will help you lower your power bills.
Some people may think that home improvement projects are a waste of time and money. However, it can provide you with numerous benefits, including increased property value. At the same time, you can make your home more comfortable and even presentable to your guests.
- Donate to charities.
Pick the charitable institution that is closest to your heart. Make sure it is reputable and has a good cause. Often, when you are on a tight budget, you may not immediately think about donating to charities.
Research suggests that giving back to these organisations can benefit you as well. Donating can increase positivity and feelings of comfort, happiness, and overall well-being. Keep the receipt after you have donated to charity, which will give you a tax deduction as well.
Donating to charities is not the only option here. You can practice random acts of kindness, such as giving financial aid to those who need it to get the same positive feelings as contributing to a non-profit organisation.
- Start a business.
If you already have a venture that you have in mind, it is a great time to kickstart it. With the help of your refund, you can get moving in the right direction. You may have a small business up and running. Your refund can also help you add more to it. For instance, you can buy certain pieces of equipment that will benefit the small company.
Your tax refund can become an opportunity for you to have extra income for the next years to come. Additionally, you can benefit from this type of spending, thanks to small business tax deductions.
- Invest in yourself.
If you think about it, you will agree that your biggest asset is yourself. You produce income that you can spend on the things you like and need. Your talent, experience, expertise, and reputation can add value to yourself.
You can use the refund in many ways to improve your skills. For instance, if you have always wanted to learn how to use Photoshop, you can enrol in classes that will let you understand its basics or even master its functions and features.
You can further your education as well by taking something related to your college degree. Your tax refund can pay for your training or tuition fees. You can even join a conference that is related to your work or you can become a member of a professional organisation. Education is an investment that can benefit you in a few years. You can earn bigger paychecks and improve your job stability.
- Spend it on something you want.
If you have saved a lot of money, you should not feel guilty about spending the extra cash you have. You can go on holiday or even treat your friends to a fancy dinner. However, it is important to never get carried away, which is one of the biggest mistakes you can ever make. Just because you got a $1,000 refund does not mean you should pay for a $3,000 trip.
- Invest in tax advice from real experts.
The influx of cash can be beneficial in many ways. You should take the opportunity to learn, discover, and understand more. With the help of a tax advisor, you can get recommendations and even a tax forecast. These services can aid you in maximising your tax deductions while reducing your liabilities in the future.
To receive your refund, be sure that you revisit your forms, including your PAYG withholding variation and tax return for individuals. You have to be smart when handling your financial situation, including your tax refund. You can treat yourself a little but do not spend the money on an unnecessary splurge.
If you’re ready to lodge your tax return, we can help. TaxReturn.com.au are the experts you need to lodge your return and get the most out of your taxes.