Meanwhile, 64% are expecting to save and 42% are planning to pay off debts such as a home loan.
For many Australians, a tax refund is a significant financial boost. In 2014-15, the Australian Tax Office issued an average tax refund of $2,564, and out of 13.2 million taxpayers, 10.3 million received a refund.
ME’s findings suggest many Australians are using their tax refund to get their financial house in order and improve their financial security. Rightly so, because a tax refund is money you haven’t factored into your household budget and can make a big difference to your long-term wealth when used wisely.
Below are four smart ways to put your tax return to good use:
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.
Add to your super
Using a tax refund to grow your retirement savings is also a smart move. Around 31% of households worry how they’ll maintain their standard of living in retirement, according to ME research. Given the power of compounding returns, the more you contribute now to super the more you’ll have for retirement.
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.
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.
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