When you have a large sum of money coming in, you might be tempted to spend it on unnecessary things. Once you have received your TAX refund make sure to give yourself some time before you actually start spending. We recommend planning out your spendings before you have received the money in your account. Prioritize the bank loan you are paying off, credit card bills or paying off debt before you think about treating yourself with a new handbag or unnecessarily large TV. Use your TAX return in a smart way that will allow you to leave a positive impact on your pocket.
Pay off all credit card debt or loans
If you have been stuck with unpaid bills or taken a loan and have not been able to pay off this burden – your TAX refund will come in handy. You might not be able to pay off everything at once or spend the money on treating yourself, but a TAX refund can help you lower what you owe. By paying off even the smallest amount you can get out of debt faster.
We suggest paying off the smallest debt and continue making regular payments for the rest. This method is called – “snowball“, you start by paying off the smallest bills and making the minimum payment for the biggest ones. This method has been recommended by many financial advisors as the most effective way to get out of debt.
If you have some money left after paying off your debt you can start thinking about depositing in your savings account.
Save your tax refund in a term deposit
A term deposit is a fixed amount of money that you can choose to send to a deposit account for a long or short term. It is important to note that a term deposit is not a regular savings account and you will only be able to withdraw the funds only after the selected term ends. In some cases, you can request a withdrawal, but this must be in advance and you will lose some of your savings in withdrawal penalties.
Term deposits are usually short term ranging from one month to a few years. The difference between a regular savings account and term deposit is that the money you decide to send to a term deposit is used by the bank to lend it to other individuals or businesses. If you wish to withdraw your money from your term deposit you will need to submit a formal request and pay penalties as you have agreed not to withdraw the funds for a certain amount of time.
Buy expensive items for a better deduction
After you have considered paying off your debt and depositing some of the TAX return in a savings account there might be some other smart ways to spend your money.
Consider purchasing expensive items, if you have been dreaming of a bigger TV, replacing an old fridge or that broken washing machine this might be a good time to replace those items. Replacing old electronics is not only enjoyable but also allows you to save on utility bills.
Purchasing expensive items makes the tax-deductible percentage higher. ATO allows you to deduct the tax amount you paid for more expensive items such as – cars, boats, home renovation tools, and/or materials and real estate sales. Tax return does not apply to clothes, food, and medical supplies.
If you choose to take the deduction of the sales, make sure you have saved all the receipts and proof of purchases.