With the budget rapidly approaching, millions of Australians find themselves awaiting a decision that could impact their finances to the tune of $1,080.
The Low-Middle Income Tax Offset (LMITO), which was first introduced in 2018-19, provides Australians earning up to $126,000 with a tax offset of up to $1,080.
What this means is that those Aussies have an extra $1,080 in their pockets come the end of financial year – for most, a welcome boost.
The offset is due to close at the end of the 2020-21 financial year but many experts believe the scheme will be extended in Tuesday’s Federal Budget.
“For Australians relying on the offset to provide them with some much-needed support, its removal may be cause for concern,” MyState Bank general manager of digital marketing Heather McGovern told Yahoo Finance.
“The potential extension of the scheme’s life for another year serves as a strong opportunity for some Australians to take beneficial action on their personal finances.”
McGovern has given Yahoo Finance MyState’s four top tips to help Aussies maximise the LMITO or deal with its removal.
If the LMITO is extended
1. Pay down small debts
McGovern said if you are in a position to do so, utilise the full capacity of the LMITO to pay down small debts, like credit card balances or Buy Now Pay Later debts.
“For couples, this could be up to $2,160, so being able to chip away at larger totals will help with any interest being accrued on these balances,” she said.
2. Pay yourself
It can be easy to forget to add in to your own rainy day fund when you’re focusing on
paying for other things.
But, McGovern said, once the debts are paid down the next most important thing is to focus on building a solid savings nest egg.
“This way, if you are faced with any unnecessary expenses, it won’t come as a shock to your credit card,” McGovern said.
3. Treat yourself
The Government has been encouraging Aussies to travel domestically to help boost the local economy while borders are still closed.
There are plenty of deals being offered by state governments to boost tourism, so McGovern said the LMITO could be put towards a nice getaway.
“For Australians itching for their next holiday, the LMITO could act as a handy boost
to the travel fund, enabling the purchase of flights and accommodation at short notice,” she said.
4. Channel your inner DIY professional
Heading into winter, McGovern suggested now might be a great time to focus on those DIY projects at home Aussies may have been considering.
“Whether it be a quick re-decorate, a new coat of paint, or you’re looking to plough some extra cash into your mortgage offset account, now is the time to consider it,” she said.
If the LMITO is not extended
1. Keep a water-tight budget
McGovern said it’s important to track your spending each month and determine the things that you are able to cut back on to limit spending.
This, she said, may help to reduce the impact of the LMITO’s disappearance.
“A good way to assess your finances is by using the 50-30-20 rule; 50 per cent of your salary goes to things you need like rent or mortgage, 30 per cent on wants like clothing, hobbies, weekend plans, and then 20 per cent to be stashed away in savings or investments,” McGovern said.
2. Let your bank app do the heavy lifting
Make use of any technology your bank offers to help with budgeting and finances,” McGovern said.
“If your bank offers automated budgeting in its app, take a look at your budget categories and consider where you might be overspending,” she said.
“This will be a good indicator if you’re unsure of where to cut back on spending; you might be spending more on food delivery than you realise.”
3. Find a good savings account
McGovern said it’s alway important to make sure there are some extra funds in your rainy day account, but this can be maximised by using a good savings account.
“Although it might seem counterintuitive, for those with savings already, find a good savings account that has a good interest percentage on it,” she said.
“It might not seem it now, but without the LMITO payment, putting your money to good use in a higher interest savings account may be beneficial further down the track if you don’t need to access your money.”
4. Consider cutting up those extra credit cards
McGovern said now is the time to consider ditching those extra credit cards that you don't need to avoid building up excess debt.
“Keeping debt low is always beneficial and if you rely on credit and struggle to pay it back, getting rid of any unused credit would be beneficial,” she said.