5 things to spend your tax refund on (and it's not a big screen TV)

Smart ways to make your tax refund work for you.

I'll never forget, years ago in my 20s, asking a friend where she bought her awesome jeans.

"These are my tax return jeans!" was her response.

A tax refund can seem like free money. But it's not - it is your own hard-earned cash. It's money you weren't relying on to live day-to-day. Now is your chance to turn those tables and make that money work hard for you!

A few key points to remember:

Many people wait until right before the October deadline to do their return. But you could be using that money months earlier.
Don't forget that payment summaries (group certificates) are a thing of the past - you'll find all those details on your myGov account.
You may receive a bigger than normal refund this year by claiming eligible work-from-home deductions due to COVID-19. Check out our checklist here to be sure, or ask your accountant.

Here's a few ideas on how to make the most of tax time.

1. Start your emergency fund or give it a boost

No matter the size of your income, it's so important to have an emergency fund.

COVID has painfully shown us how quickly our income stream can be minimised or cut without notice.

Consider this: what if your employer goes bust? Or you are made redundant? Or your health or the health of a loved one turns south? Maybe even an unforeseen bill, such as needing emergency repairs on your home or your car.

EMERGENCY FUND

If you already have an emergency fund - well done! You could use your tax refund to give this fund a boost, knowing that you have a little extra stashed away just-in-case.
If you don't already have an emergency fund, your tax return is a great starting block! Then, if a little bit is put away every pay you're on the road to setting up a nice buffer. It's ideal to aim for 6 months worth of living expenses in your emergency fund. This includes costs such as mortgage, bills and living expenses like groceries.
If you have an offset account, or multiple offset accounts with your home mortgage, this can be a great place to store your emergency fund. Then the funds are working for you even when it's just sitting there.

INSURANCES
Consider insurances for extra protection too. Many Australians have under-insured their assets (home, contents, and car) as well as themselves and their ability to earn a living (health, income protection, life and disability and professional indemnity). Often, you'll get a better deal if you pay insurances up-front annually.

2. Pay your debts

We get it. Buying the 'tax-return-jeans' or the massive big screen TV is much more fun. But it's probably not the smartest approach.

Paying down your debts effectively wipes your slate clean. There's nothing quite like the feeling of being in low or no bad debt.

Focus on your most expensive debts first - the ones with the highest interest rates, such as credit cards
Then, look at store cards, personal and car loans if you have them.
Settle any outstanding bills such as utilities, insurances and land rates

While you're looking at debts, consider whether consolidating them may work out more cost effective and easier to manage. For example, you could refinance all of your bad debt into your home loan. Then pay down from a single, regular payment at a lower interest rate.

This approach will save you money, it's easier to track and harder to forget to repay when you only have one repayment to prioritise.

3. Top up your super

Making a voluntary contribution to your superannuation may make you eligible for government co-contributions. A nice extra slice of cash in your super that hasn't cost your household budget a cent right now but will benefit you later.

In addition, you could reduce your tax payable next year by making a contribution to your own super or your spouse's super.

The younger you are, the more time your super has to grow and earn. A voluntary contribution of a few hundred or thousand dollars now, is likely to increase and benefit you exponentially by the time you retire. Again, this is a taking the 'future-me-will-thank-me' approach. Albeit not as fun right now, but a worthwhile move to make.

4. Investment

FINANCIAL INVESTMENTS
Consider using your tax return money to invest in shares, or a growing business or start-up. depending on the amount you have, you may be in a position to buying or upgrade an investment property.

PERSONAL DEVELOPMENT
Investing in your own personal growth and well-being is arguably one of the best investments:

Put your tax refund towards education that may help boost your income
Join a gym or start a new sport to improve your physical health
Explore meaningful ways to improve your mental health and personal resilience such a yoga, meditation or personal coaching or mentoring.

5. Plan ahead

If you're not sure what to do, your tax refund could go towards receiving qualified financial advice from a financial planner.

Be sure to consider all the options available to you and think about the big picture. It's rare to be gifted a lump sum of money. So don't waste it!

Make yourself proud and invest your tax refund wisely rather than having splurged it on a new TV or a fancy pair of overpriced jeans.

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