Smart Ways to Spend Your Tax Return in 2021

money and savings jar

Did you know that the average tax refund in Australia is a little over $2,800? While you may not reach this amount, it’s nice to know that taxpayers like you have the opportunity to get extra cash by the end of the financial year. Not everyone is fond of doing their tax return because it does take time and effort. But perhaps knowing that you can earn almost $3,000 in refund may encourage you to ensure you get the refund you’re entitled to.

According to the Australian Taxation Office, almost 11 million individuals (out of 14+ million taxpayers) were given an average of $2,829 in refunds, totalling more than $30 billion. And if you’re among those expecting some money back this year, what do you plan to do with it? It’s anticipated that at least 10 million will receive $1,080 this year.

If you have not decided on how you will spend your tax return yet, you can take the advice from our experts here at TaxReturn.com.au. In 2020, we shared 7 smart ways to spend your tax return. This year, here are our recommendations:

    1. Pay Your Debts

      Like our advice in 2020, the first thing that you should do is to pay down any debt that you may have. It’s great to see many Australians being more careful with their money, notably their savings. The rates have gotten relatively high, prompting quite a number of citizens to focus on paying down their debts.

      Think about it; interest rates are at record lows. If you put $1,000 from your refund to your mortgage, it will go much further towards the principal debt payment today than a few years back. And if you have expensive debts, such as car loans and credit cards, it’s time to put more effort into clearing them out.

      Many people don’t know this, but you can actually pay a full and final settlement with a credit card company. Take the opportunity to pay less than what you owe in total. For instance, if you received $2,000 in tax refunds, you can use it to pay down $3,000 of your credit card debt. Negotiate with your credit card company, which may let you do the settlement because of your lump-sum payment.

working on laptop

    1. Buy Something That Makes You Happy

      You earned it, so you can spend it the way you want. Please note that this advice does not mean you should go on a shopping spree. But if you’re relatively free from any debt and you have some money to cover your cost of living, you can put some of the cash towards your financial goals. It can be anything from a car payment deposit or even payment for the rent you’re behind on. Perhaps you need a new party dress or even a pair of shoes.

      It may be time to update your laptop or even a simple medical procedure. You can turn to your tax refund to help you pay for any expense. Or you can use it to buy what you have always wanted to purchase.

new investments

    1. Try Your Luck with Investments

      As mentioned, the interest rates are at an all-time low. This situation is excellent for people who have debts to repay. Still, it’s not necessarily good for those who want to earn through their savings account. Many wise Aussies have actually shifted their interest in keeping their money from banks to the investment market.

      If you have not tried investing yet, now may be the right time to do so. Instead of choosing to have your money in term deposits, you may want to invest in a product with a much higher return. Some people may tell you to try cryptocurrency, which is exceptionally profitable yet risky. We suggest that you learn how cryptocurrency works in Australia first before getting into this form of investment.

      Using your tax refund money, invest in businesses that you know are thriving. You need to be more resourceful in this regard. But it’s easy to find out which companies are good for new investors like you. If you have no idea where to put your money, think about where you usually spend your money, especially on a daily basis. Chances are, those shares are at the top of the stock exchange lists. Another suggestion that you may want to consider is a business you have had a good experience with as a customer. It may exactly be where you should start your share portfolio.

      For a trusted area to invest in, try the energy sector, which has always been strong in the Australian market for several decades now. Other areas you may want to look into are leisure, travel, and tourism, which are industries that are currently performing well despite some setbacks.

saving money for rainy day

  1. Get Life Insurance

    Cover your bases by purchasing life insurance if you haven’t already. Having life insurance is a way to take care of the people you love. If you already have life insurance, you can use the refund to fill in any payment gaps you may have.

    Sure, it is not fun to think about what could happen if you are no longer around, but it is a reality of life. It is also helpful to have the right or suitable amount of protection ready for the future – or perhaps even for your anxieties.

  2. Save The Money

    You never know the emergencies you could face in the next few months. If you cannot decide where to spend your 2021 tax return, perhaps the best option is simply to use the refund as a money buffer. Let it go to your emergency savings so you have the cash to turn to in case of an unexpected event.

Remember that the above tips are general recommendations. You can talk to an accountant or a financial advisor to get advice specific to your actual situation. No matter how you plan to spend your tax refund, we always recommend that you put the money to good use – one that you will benefit from today and in the future.

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