The average tax refund of an Australian taxpayer is $2381. If you spend it wisely, you can potentially end up with more.
Here are 10 smart ways to spend you tax refund to impact your financial health.
1. Pay Down Debts
So you got your tax refund? Take that opportunity to pay down your debts. Make a list of everything you owe and note down their interest rates. Start paying off those with high interest first. Prioritise further by settling payment for debts with lower balances so you can immediately tick them off your debt list.
Science has proven that the simple act of ticking something off a list is psychologically rewarding as it floods our brain with feel-good chemicals that make us want to do it again. Benefit from this fact and make paying your debts positively motivating you’ll want to do it again.
2. Build an Emergency Fund
Start an emergency fund with your tax refund. Having a fund you can dip your hand into in times of emergency significantly impacts your financial health. Emergency fund eliminates financial setbacks that sudden and unexpected expenses bring.
Aim to have an emergency fund that covers your expenses for at least six months. If you already have an emergency fund, then work towards increasing the fund so it covers more than a six-month period.
3. Set Aside a Portion for Savings
Use your tax refund to increase your savings or start one with a high-yield savings account. There are many reasons why you should save money and you probably know all of them. Some people don’t save not because they don’t understand the virtue of saving money but because saving money takes a lot of discipline and often, a great deal of sacrifice.
Set aside a small and an achievable amount first. Your goal at the beginning is not to save a lot but to instill the habit.
4. Save for a Future Purchase
Got an important and big purchase you need to make soon? Save for it with your tax refund so you don’t have to borrow when the time comes.
5. Refinance Your Mortgage
Refinance your exiting loans with your tax refund windfall. Refinance with a lower interest rate or choose a shorter loan term. With the cash rate cuts the RBA has granted, this may be the perfect time to shop around for the lowest interest rate and refinance your mortgage.
6. Spend Your Tax Refund on House Repairs
Real estate possessions contribute to a strong financial health. So if your house is your wealth, it pays to take care of it and spend for its maintenance. You also may be able to claim for house repairs.
If your house needs a new roof or your kitchen is outdated, why not spend your extra cash on improvements? Whether it’s a repair or improvement, it’s a good way to spend your tax refund on.
7. Buy a Seed and Plant a Tree
Did you know that you can increase the value of your house by an average of $50,000 by simply having trees in your property? So if you’re serious about achieving a good financial health, plant a tree around your house to build its value. Aside from property value, green infrastructure also provides energy-savings benefits.
Planting a tree around your house has a direct financial benefit and the cost involved is only minimal.
8. Save It for Your Retirement
Spend your extra cash and divert a portion of it towards your retirement. Do you have a retirement savings goal? Achieve it faster or boost your retirement savings with your refund.
Saving money is always easier said than done and it’s harder still with refunds because most people think of it as an opportunity to splurge or a way to finally pay for a vacation they’ve been putting off for years.
Money-saving gurus recommend you forget you have the money or look at your extra cash as an opportunity to save rather than to spend. If you change the way you look at money, your financial health will change.
9. Put Your Tax Refund Into an Investment
Look around for low-risk investments that do not require a minimum and invest your extra cash in it. It is a much better way to spend extra money on rather than spend it on expensive shoes or gadgets everyone is raving about.
10. Invest in Yourself
Invest in yourself and learn a new skill particularly if you’ve stashed enough funds for all the other necessities.
Using your tax refund for additional training, education, or conference to increase your knowledge is an investment that can pay off for years in higher salaries, position or job stability.
While the above may not be a fun way to spend you tax windfall on, they sure contribute to your financial health. So go ahead, spend wisely and spend your tax refund the smart way.
Got a smart idea on where to spend your tax refund on? Tell us on the comments section. If you need help with tax returns and refunds, or you need accountants in Mornington, get in touch with us here at Sphere Accountants & Advisors. We’ll help you reduce your tax and find deductions you’re eligible for. Contact us today!