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Tax time: How to get the most value out of your return

Will you spend, save, invest or pay off debt with your tax return?

Composite image of a woman sitting at her laptop thinking, and Australian money, to represent tax
Your tax return can go a long way towards providing for your future. (Source: Getty)

Tax time has many Aussies hopeful of a deliciously large return, but beware, spending the imagined amount in your head on a holiday or something equally as fun before it lands in your account can be a trap.

Why not make this year’s return (assuming you get one) a way to move yourself forward? At a time when interest rates are rapidly rising and the cost-of-living pressures are very real for most Aussies, is it time to be more strategic with your return?

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The first thing to highlight is that your tax return isn’t free money. When you work, you are swapping your time in return for an income. And time really is our most valuable commodity. It can never come back, so seeing it as a giant windfall of ‘free cash’ to spend aimlessly is not the way to go.

I am a big fan of splitting a tax return by percentage so it can be used for different purposes.

For example:

50% - Fire up your financial goals

Whatever your goals are, it's likely the rise in living costs has made it harder to make them a reality. Earlier this year, I surveyed more than 1,000 Aussies. The top financial goals they were working towards this year included paying off debt, starting a side hustle and building emergency funds. So, I suggest putting a large chunk of your return to whatever financial goals you are working towards.

30% - Invest in you

No, I don’t mean spa days or new clothes. I mean your skills and knowledge. You, my dear, are your greatest asset, and if you are young and have a long career ahead of you, learning extra skills will be vital to enhancing your income opportunities.

But also consider using it for upskilling in other areas that will add long-term value, or capabilities that could bring in wealth. Maybe you want to complete some training to give you skills to get that promotion or invest in a program to teach you how to invest and build wealth, or even start a business.

20% - Joy money

It would be cruel and possibly unjust if I said there was no allocation for anything that brought you happiness in the here and now. So, here it is. This is money to use on things that are going to bring meaningful value to your life. This isn't the sugar-rush-high hits of buying the latest ‘must have’ thing. Consider what would give you longer-lasting happiness.

Maybe you do something meaningful with someone you love? Perhaps you take a class in something that has always been an interest for you? I bought an expensive doona recently, every single time I crawl into it I let out a small squeal of excitement. Embarrassing? Probably. Worthwhile purchase? Definitely.

You are always going to have things competing for your cash. This method makes sure you give your goals a jumpstart, funds for upskilling yourself - important in this economic environment - plus still have an allocation for things that bring fun and joy (and perhaps a cosy night's sleep) to your life.

Jessica Brady is a licensed financial adviser and founder of online financial-literacy program the Greenhouse. Jess is on a mission to help all Australians manage money better and empower Australians to control their finances. For money tips, you can follow her on Instagram or LinkedIn.

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