Tax Refund Ideas

It is the start of the new financial year – we all know this as the constant bombardment of TV and print ads tell us all about the sales and the discounts available. You have just spoken to your accountant and lo behold you are due a refund – for argument’s sake let us say about $1,000. You now have a decision to make – is that new 4K Hi definition TV appealing or are there other more boring ideas. Let us investigate.

The Dream of Home Ownership
​​Interest rates are low – great. What is an extra $1,000 going to do to help you pay off your dream faster you may ask yourself? Well, a once off payment may not be of much benefit but if you make a regular habit then the compound effect is as follows:

1. You pay off the home loan approx. 2 years faster.
2. You save approx. $20,000 in interest.
3. You feel a sense of accomplishment!
4. Your life is relatively unchanged.

You lend the money to your future self!
All this means is that you contribute the money to your superannuation. Your 30 something self is screaming, but should I? Surely, I could be doing something right now. Well, all these questions are valid – the issue is that over the last how many ever years you have received the refund you may not have done any of the above great ideas you just proposed; so, will this year be different? Contributing to superannuation is a forced savings mechanism – out of sight, out of mind! So, is it worth it?

1. You have an additional $66,000 in superannuation at age 60.
2. You are self-funding an additional 2 years in retirement.
3. You received an additional refund of approx. $345 each year – approx. $8,625 by age 60 from the ATO – take that tax man!
4. Your life is still relatively unchanged!

Pay off that pesky credit/ store card
So you have some lingering debt from Christmas or that time you needed something ASAP. It happens. Rather than paying some ludicrous interest rate you are best to use the refund to simply pay out that pesky debt. If you can pay out that debt fast, then you release more cashflow to use towards the above options. The average credit card rate is 19.94% so any money towards paying down this bad debt is well worth it.

1. You pay off pesky debt faster.
2. Your cashflow improves faster.

As with all decisions there are always pros and cons. This article is not meant to lecture in what is the best option for the refund money. It is merely to provoke the readers thought process to understand that the refund did not exist till the time you lodged your tax return – if you had no plan or need for the money 5 minutes ago make sure that you use the money in an endeavour that you will reap most benefit from – perhaps even investing back in yourself.