Save or splurge? How to use your tax refund

This month we look at simple ways to put this year’s tax refund to good use, brought to you by your industry super fund owned-bank, ME.

How good is tax time? In exchange for a few hours filling out your tax return, you could receive a handy refund cheque. And with a bit of planning, you could make the tax man’s refund go a lot further.

Receiving any lump sum of cash can make a spot of retail therapy look very appealing. But there is a whole range of clever strategies that can give you more bang for your tax refund buck. Try one – or all – of our suggestions below to maximise the value of this year’s tax refund.

Add to your super

Using a tax refund to grow your retirement savings is a smart move. Given the power of compounding returns, the more you contribute now to super the more you’ll have for retirement.

If your other half is a low-income earner, consider using your tax refund to make a contribution to their super fund and you could find yourself eligible for a tax offset worth up to $540.  

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.

A stitch in time

A tax refund can also be used to pay for minor repairs before they turn into much bigger expenses. Think a thorough service for your car, some much needed dental work, or even something like repairing those broken roof tiles before they become a major liability in the next storm.

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 – by servicing your car or going for a medical check-up, for instance – which can postpone bigger expenses in the future.

Save it

“If you just leave your tax refund in a transaction account, it’s too easy to dip in, even unintentionally, for non-essential expenses. Consider locking it away in a separate savings account or term deposit to help you achieve your savings goals.

Remember, a tax refund is money that you haven’t already factored into your household budget. That makes it easier to use the cash to improve your financial wellbeing, and even a small tax refund can make a big difference to your wealth when it’s used wisely.

This article is brought to you by ME.  For more information please visit mebank.com.au

Members Equity Bank Limited ABN 56 070 887 679.