If you’re looking at a tax refund this year, then you’ve probably already thought of dozens of ways to spend it. From holidays to a new car, it’s easy to get caught up in a buying frenzy when confronted with a large sum of money received in a nice single payment.
Before you burn through it though, consider the following ways in which you can put that money to good use — not just as a quick fix but to improve your financial situation for now and the future.
Pay off debt
Whether you believe in good debt or not, one thing we can all agree on is that there are some forms of debt that should be shed as soon as possible. Credit cards, car and unsecured loans that come with high interest rates can quickly increase your total payments to twice as much as the original balance and beyond.
By cutting out this debt, you can save significant amounts of future interest. Do your homework though, as some contracts may stipulate exit fees that may exceed the remaining interest charges.
Build an emergency fund
Putting money aside for a rainy day is well established method to building a more stable financial position. Having savings to cover unexpected expenses can massively reduce financial stress in the future, such as unplanned bills and family emergencies.
If your work is contract-based, what happens when an industry downturn leads to extended periods without work? Even a salaried job is not guaranteed, so having some padding for those times where you’re caught between jobs will give your budget some much-needed breathing room.
Top up your super
It’s not particularly exciting, but superannuation is still one of the most of tax-effective investments. Consider putting your tax refund to work in the tax-friendly environment of your super account to help fund the retirement lifestyle you desire.
Be careful though, as there are limits to how much you can put into super. If you’re unsure whether you’ve reached your cap, then it’s worth seeking professional advice to avoid hefty tax implications.
Improve your home
Renovations can be useful to build equity in your property and keep it in a reasonable state, as well as creating a more enjoyable living space. If you’ve been considering doing repairs on your home or an investment property, why not use that tax refund to get it done?
Remember to budget appropriately — as with any project, allow some conservative margins around initial quotes to ensure you don’t over extend yourself.
Invest in yourself
This is an often-overlooked area when it comes to building a strong financial position. Can you upskill your current career to find new, higher-paid opportunities? What training is required to take this step?
Maybe you’re interested in changing careers entirely but require certification? It might be a personal hobby that you’d like take to the next level. Whatever the case, using your tax refund to gain a new skill can provide long term gains both financially and to your lifestyle.
This year when your tax refund is deposited into your account, take the time to consider how you can use this money to improve your financial position before you splurge on those impulse buys.
Maybe a car is the right purchase for you now, but if you don’t take in all the options before you make the decision, then you could end up wasting your refund instead of being one step closer to your financial goals.
Why not increase the financial savviness of those around you – pay it forward and pass on these tips to your family, friends and kids.
Article Source: SMH