As tax season arrives, many individuals and families start looking forward to receiving their tax returns so that they can start purchasing random wants and not use this money towards needs. If you are excepting a refund this year, you may already be dreaming on how you want to spend this money. While new clothes, a holiday, or a new TV all sound like good ideas, this may not be the best way to spend this year’s tax return. While all those things may provide temporary happiness, they will not help stabilise your finances.
The truth is, if you use your tax return to secure your finances and pay down some of your outstanding debt, this will put more money into your pocket each month. This will allow you to save up for the things you want, while still controlling your finances. Below is a look at some of the best ways to disperse this year’s tax return and manage your finances responsibly.
Take Care of Any Emergency Needs
The first thing you need to look at is any emergency needs you have right now. If you are behind on your rent, mortgage or bills, these issues must be dealt with first. Get caught up on your repayment obligations and if there is any left over money, go to point 2 – establish a savings account.
Set Up or Top Up Your Emergency Savings Account
If you do not currently have a savings account designated for emergencies, now is the time to start one. Put a portion of your refund into a special savings account that you can use for emergency situations, such as the loss of a job. Once you establish this fund, you want to set aside a bit of money out of each pay to grow this account. Even if you can only spare a few dollars from each pay, it will add up over time. If you already have an account, top it up or work on paying down debt or investing.
Reduce Your Overall Debt
Outstanding debt is one of the hardest things for people to overcome. This is because most people only make the minimum repayments each month. Its a vicious cycle that is hard to get out of and generally gets worst as additional expenses always seem to pop up. Beyond setting up an emergency savings fund, debt elimination should be the second highest thing on your list on how to spend your tax return.
Increase Your Super Account
If you still have money left over after setting up a saving account and paying down your debt, you can contribute some of your return to your superannuation account. This is one of the greatest investment vehicles for Australians and has some great tax benefits as tax on gains within super are lower than that of other investments.
These methods are great ways to spend your tax refund this year or any other. The most important thing is to have a plan in place on where you are going to utilise your money before your tax return arrives. Write down a list or have an exact plan on how you plan to use your money. This will prevent impulse shopping once you money arrives and help you spend the money wisely.
Image by Grant Cochrane