It will soon be time to put in your tax return and if you’re lucky – and a bit savvy too – you could end up with a decent refund.
The average refund tends to hover around the $2000-$2500 mark.
Tempting as it might be to buy a new smart TV or a short holiday, there are ways you can put the windfall to better use.
Here are five smart things you can do with your refund that will see you still reaping the rewards years down the track.
1. Put it on the mortgage – save $3400-plus
This can be a great way to save interest and shave months off the life of your loan.
Let’s assume you have a $400,000 mortgage at 4%pa interest over a 30-year term.
If you got a tax refund of $2000 and used that to make a lump sum payment into your loan, after year five you would save over $3400 in interest and cut three months off the term of your loan.
Even if you wanted to keep $500 to put towards a splurge item, putting $1500 into the loan will save you just over $2500.
You can use the “lump sum calculator” on infochoice.com.au to do your own calculations on the potential savings in your situation.
2. Pay off high-interest debts – save $2333
Credit card debt can be a real killer, especially if you’re paying high interest of 18%-plus.
If you have $3500 outstanding on a card charging 18% interest and were putting $250 a month towards the debt, you’d pay $3892 in interest and it would take you one year and four months to clear.
And this assumes you make no purchases on the card during that time. Whack $2000 on the card immediately and keep paying the $250 a month and you’d save $2333 in interest and pay it off nine months earlier.
3. Stash it in super – boost your balance by $53,162
Putting your tax refund into super can really boost your balance and give you just that little bit more spending money in retirement.
If you’re 45, earn $80,000 and have $85,000 in your super already and make no contributions, you’d have $299,729 in your fund at age 70.
We’ll assume you put a tax refund of $2000 into your fund each year as an after-tax contribution and at 70 you’d have $352,891 – that’s $53,162 more.
4. Kickstart your savings – make an extra $168
This won’t have as much of an impact as the other strategies but it will put some extra cash into your pocket.
If you put your $2000 refund into an account paying 2.8% interest at the end of a year you’d have made $56 in interest or $168 in three years.
If you were really serious about saving and put $50 a week into the account as well, at the end of the year you’d have $4600 ($92.80 from interest) or $9800 in three years – $510 of which is interest.
6. Put it towards a course – increase your earning potential
Enhancing your skills could result in a pay rise or new job if you want it.
Either way it may mean more money in your pocket in the long run.
Look for courses that will give you skills that are in demand and set you apart from the rest.
Remember if it’s a course that helps you with your existing job you’ll also be able to claim a tax deduction.