It’s that time of year when all the tax paperwork is done and hopes are high for a big cash return.
The deadline for taxpayers filing their own tax returns was October 31, meaning thousands of Australians are now eagerly awaiting news of a tax bill or refund.
More than 1.4 million taxpayers had lodged their tax returns with the Australian Tax Office’s do-it-yourself option e-tax and a further 882,000 had used the ATO’s myTax.
For those lucky enough to receive a tidy windfall from their tax return, the next question to consider is what to spend it on.
A small financial boost could be just enough to afford splashing out on a family holiday or paying off a lingering credit card debt.
Financial planner Peter Horsfield says there are countless ways to spend, but knowing what to do with your cash all comes down to individual circumstances.
Here are his sensible tips for savvy money managers.
“Put it into super to receive the government co-contribution,” says Mr Horsfield.
“Not only do you move your money into a tax-effective environment the government will top up your account too, depending on your income.”
The super co-contribution scheme is designed to help low- to middle-income earners boost their retirement savings. The Federal Government makes maximum contributions of $500.
• Read more on how to maximise your super contributions at any income here.
2. House savings
Those looking to get a foothold in Australia’s pricey housing market will probably know that each dollar counts.
Like the super contribution scheme, the Federal Government also had an incentive program for first home savers, but if you haven’t already set one up, you are out of luck – it was scrapped in this year’s Federal Budget. Instead look for a high interest saving account to build your deposit.
For anyone else, putting that money straight onto your mortgage could save you thousands in interest down the track.
• If you’ve paid off your house, take a look at whether to invest in property or shares here.
3. Pay off debt
Before you start saving, consider wiping out your debt to achieve your goals faster.
Credit card debt is the number one culprit for most Australians. According to the Australian Securities and Investments Commission, Australians owe almost $33 billion on credit cards. That’s an average of $4200 per cardholder paying off about $750 in interest per year.
Even if your tax return does not pay off your full credit card debt, it will no doubt reduce your interest payments.
• Here’s Australia’s top 20 credit cards – and the ones to watch out for
4. Start a rainy day fund
Money comes and goes, but you can never be sure when it will run out all together.
An unexpected emergency such as an injury that leaves you unable to work or a string of major expenses such as car breakdowns, could see you in need of three to six months’ salary.
When the unforeseen hits you for six, Mr Horsfield says it’s much better to dip into your own funds than reach for the credit card.
“Establish a high-interest rainy day emergency account as having money for emergencies or opportunities is always preferred over getting into debt,” he says.
• Emergency money a new concept? Here’s some more tips on creating a budget
5. Reward yourself
If you have done all the above and feel your cash management is up to scratch, why not spoil yourself?
Buy those shoes or sunglasses you’ve been longing for, or start a holiday fund.
Better still, sign up for the course or training program that will earn you a promotion, says Mr Horsfield.
“If you have achieved your savings goals for the year, invest it either as a reward or further your career or education,” he says.
“Doing so often leads to increased earnings in the future.”