Five ways to spend your tax return to your advantage

If you’ve done your tax return for the year, and find yourself with some extra cash at your disposal as a result, you may be wondering what to do with it.

While there is something to be said for blowing it all on a once off treat, if you’re looking for ways to make your windfall work to your long term advantage here are five options worth considering.

Also read: How Aussies are missing out on millions in unclaimed tax

1. Pay off some high interest debt

If you’ve got credit card debt, personal loans or car loans outstanding then using a bonus lump sum like that from your tax return to reduce the amount you owe interest on should be priority number one. The sooner you pay off this sort of bad debt, the less you will be paying in interest and the freer you will be to consider other financial decisions. Tackle your debts by considering which lender is charging the highest interest rate and trying to pay down these debts first.

2. Make an extra mortgage repayment

If your mortgage allows extra repayments, then why not use your return to chip away at your home loan. While it may not seem like much, depending on your return and how much you still owe, paying down your debt faster has long term benefits as you will end up paying less interest over the total life of the mortgage. Sure, you won’t get any instant gratification from making an extra repayment but future you will appreciate it.

Also read: The beginners guide to income tax

3. Emergency fund

If you don’t have an established emergency fund, then you’re asking for financial trouble. An emergency fund is approximately 3-6 month’s salary stashed in a savings account that is not to be touched unless you find yourself in a bona fide crisis. This is for those rare occasions when you unexpectedly lose your job or suffer a health set back and need extra cash to keep going. Without an emergency fund, you run the serious risk of being caught short when you need cash the most. 

4. Grow your savings

Without a direct debit transferring some of your salary into your savings each month it can become easy to neglect your savings account all together. Each month brings with it a new temptation to spend money on so if you’ve been a less than wonderful saver of late, depositing your tax return into your savings could be a much needed boost. Even if you are a regular saver, why not save more? Especially if you have your money in a high interest savings account and can use it to increase the amount of interest you earn.

Also read: Six ways to tone down your tax bill

5. Consider an investment

If you don’t have any outstanding debts and your savings are looking pretty healthy then it may be appropriate to consider a foray into investment. Using a small amount of money to dip your toes into the share market may be the start of something wonderful. Keep in mind that with investment comes risk and there are no guarantees of success. However, if it’s something you’ve always wanted to try, using some “bonus” money like a tax return may be a good way to start.