4 ways to get your tax refund working for you

17th July 2017 11:45 AM
Tax form with pen, glasses, dollars and calculator Tax form with pen, glasses, dollars and calculator LIgorko

MOST Australian households will choose to save their tax refunds instead of splurging on clothes, entertainment or a holiday, a survey of taxpayers' intentions reveals.

In a sign of increasing austerity, just 13% of Aussies intend to to fritter away their tax refund the Members Equity Bank Tax Back Survey found.

Meanwhile, 64% of Aussies are expecting to save and 42% are planning to pay off debts such as a home loan.

For many Aussies, a tax refund is a significant financial boost. In 2014-15, the Australian Tax Office issued an average tax refund of $2,564, and out of 13.2 million taxpayers, 10.3 million received a refund.

ME head of deposits and transactional banking Nic Emery said ME's findings suggest many people are using their tax refund to get their financial house in order and improve their financial security.

"And rightly so, a tax refund is money you haven't factored into your household budget and can make a big difference to your long-term wealth when used wisely,” said Mr Emery.

He suggested four smart ways to put your tax return to best use.

Reduce debt stress

"Paying down debt is a great strategy as it reduces an ongoing cost, freeing up your monthly budget. Start with higher rate bad debt first, like credit cards.

"While a home loan has one of the lowest rates of any type of debt, it's also a long-term affair and any lump sum you tip in today can knock years off the term and save you a bundle in interest along the way.

Add to your super

"Using a tax refund to grow your retirement savings is also a smart move. About 31% of households worry how they'll maintain their standard of living in retirement, according to ME research. Given the power of compounding returns the more you contribute now to super the more you'll have for retirement.

Futureproof yourself

"A tax refund is a great opportunity to establish or bolster your emergency savings.

"Ideally you'd have reserves to cover at least six months of expenses. But even having a small stash of cash can help you weather life's unexpected events or outlays.

"A tax refund can also be a good opportunity to maintain assets like your home, car or health, which can postpone bigger expenses in the future.

Save it

"If you just leave it in a transaction account, it's too easy to dip in, even unintentionally, for nonessential expenses. Consider locking it away in a separate savings account or term-deposit to help you achieve your savings goals.

Note

ME's Tax Back Survey was completed by 1,000 Australians expecting a tax refund in June 2017.