3 things you can do with your tax refund

“Buy me, Lady,” said the frock and I will make you into a beautiful and whole human being. “Do not be silly,” said the man, “for a frock alone cannot do that.” 

“TRUE,” said the Lady. “I will have the shoes and the bag as well.”

From the comic genius Edward Monkton, this joke comes dangerously close to the truth for some of us and when the tax refunds come in and the sales beckon it can be a slippery slope downhill.

If you’re in any way a shop-a-holic you may well already have a good idea of how to spend this year’s tax refund and most likely it’ll involve indulging in some well-earned retail therapy.  But beyond the hallowed lights of the shopping malls there are several other options for how to use a tax return that are well worth considering.  Who knew?!

SAVE

For shorter-term goals, it’s hard to go past a high interest savings account. Online savings accounts are on offer by most banking institutions and credit unions, and term deposits also offer competitive interest rates.

For any savings option, it’s important to shop around for the right product, remembering to compare fees. With so many great deals around and consumer awareness at its peak, banking institutions have come up with enticing deals to stay competitive.

Also look at the fine print and keep in mind the deadline for your short term goal. Term deposits typically have a penalty for early withdrawal and some high interest deposit accounts require minimum monthly deposits or zero withdrawals in order to ‘earn’ the higher interest rate for the month.

Paying off debt is also a form of saving. An extra lump sum payment towards your credit card debt, personal loan or mortgage can save you significant amounts in interest and reduce the overall time it takes you to pay these off.

INVEST

Investing your tax return may be more suitable for your medium and longer-term financial goals.

Investing into your super fund may be a smart option if you are eligible for the Government Co-contribution. For those eligible, the Government will match 50 cents** to each $1.00 of your non-concessional (personal after-tax) contributions to super up to a maximum of $500. There are not many other investment strategies that can achieve a 50 per cent return within one year.

Other investment strategies that can benefit from the extra annual top up include managed funds, growth bonds and share portfolios.

Your investment decisions should take into account your expected timeframe to access the funds and should always relate back to your goals. Your personal risk profile should also factor in to your decision making.

Speaking to a financial planner will help you identify your level of comfort with respect to investment market volatility and the risks of investing versus the expected returns. Knowing where you sit on the scale between conservative and aggressive can help guide your decisions when it comes to investing your hard earned money in the stock market.

SPEND

Unfortunately (or fortunately depending on how you look at it!) getting our tax return back the same time as stocktake sales can be too tempting for many.

Some spending is necessary to ensure we have the basics, like household items or insurance (or sometimes that new pair of shoes!), so play it smart and think about those top five financial goals that you need money to achieve.

Being able to direct some or all of your tax return to a spending goal might enable you to tick a top five item off your list and provide some motivation towards planning for the other four goals.

** pending legislation

Claire Esmond is an AMP financial planner in Western Australia.  She works with a wide range of clients, from single parents struggling to make ends meet right through to high flying executives with money to invest, and is passionate about helping people achieve their life goals.  When she’s not at the office, Claire loves to relax with a glass of red wine, her partner and their two dogs – in no particular order of preference!

Any advice given is general only and has not taken into account your objectives, financial situation or needs.  Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.