IT'S TAX REFUND TIME!
Unless you have any tax debt, you’re bound to get some tax back, even if a small amount. Have you thought about where it should go?
Each year, my tax refund is my saving grace, pardon the pun. As I have 3 kids, the government family assistance supplement of $2400 each year is my favourite payment, it helps me out every year and gets me back on track. Any tax refund from work on top of this is a bonus and enables me to spread it even further. I'm sure all of us parents on a low income will cry when the government stop this supplement. I check the federal budget each year with anticipation.
My tax refund allows me to either catch up with any outstanding payments like any credit card balance I may have found myself in (I’m not perfect with money), spend it on home maintenance, or my favourite, put me in front for the year ahead. 8 times out of 10 though, it becomes family holiday money. An instant half needed for an overseas trip which I top up over the next few months to allow us to create memories and open the kids eyes up to the world they live in.
Because it's a small or large lump sum, you might be tempted to treat yourself using your tax return, but try not to let the temptation get you. I wouldn’t advise running out to buy a new wardrobe, a huge TV or piece of furniture but think of where it would benefit you for the next year.
You’ll want to get the most out of it so wring out it’s value over time for maximum gain. Where can you allocate it to make your life easier and your domestic economy run smooth? Even if you’re only going to receive a few hundred dollars, it should be used in the best possible way.
Make a list of any amounts that you might still owe to companies, or future payments you foresee over the rest of the year. Prioritise these and pay the most important one. By being ahead, you'll be prepared and in control of your finances.
If you’re wondering where it could be allocated, maybe one of these five ideas will help you decide. If you can set yourself up for less stress about money, why not? Treat yourself with savings in a few months time , but for now…
SET UP AN EMERGENCY FUND IN A SEPARATE BANK ACCOUNT
I think this is the best small investment you can make. I recently wrote an article about having an emergency fund and how beneficial they are when an emergency strikes. Having this fund will stop you from using a credit card or dipping into other money because you have to and all other money continues to go where it needs to while any emergencies are covered and that means less stress.
Open up another bank account to hold this emergency fund so it's separate from all other money. Make sure this account has an EFT card but I recommend keeping the card in your filing system to use only for an actual emergency.
PAY IT OFF CREDIT CARD DEBT OR STUDENT LOAN
Once you're free from credit card debt, or any debt for that matter, you have the ability to put that debt repayment each month somewhere else, where it can grow or be available for another area of your budget. If your student loan is slowly rising each year because you haven't reached the $54,869 threshold to start paying it back, why not use your tax refund to reduce the balance of this loan? The faster you repay it, the less you will pay over the life of the loan. This is also relevant to credit card debt.
Any debt is bad and ultimately costs you more. Pay it off and be free. It feels great.
PAY THIS AMOUNT OFF YOUR MORTGAGE TO REDUCE INTEREST CHARGED
Try to put most or all of your tax refund on your mortgage to reduce the capital. Any extra you pay off this will ensure your interest is lowered because the capital is instantly less. Plus, paying more off the capital at any time will reduce the life of the mortgage. Housing is one our biggest expenses whether it's rent or mortgage. Take steps to be mortgage free sooner.
The faster you're able to pay off your mortgage the better. Imagine what you could do with all that mortgage repayment when you've paid off your house... Oh, what I could do with mine and my mortgage is quite low.
USE IT FOR CAR OR HOUSE MAINTENANCE
Do you need to repair something on your property? Any area that is getting worse or ruining another part of the house? If you're able to fix this then you can tick that off your 'some day' list and move on.
We need to keep our properties maintained to hold and even increase the value for the future. You don't want to let your car or house fall down around you. Fix it over the years to make selling easier. By keeping up with any maintenance, you will be paying out less in the long run. It's much more economical to do this rather than a lump sum needed on something that's turned into a renovation.
START SAVING FOR A BIG HOLIDAY
My favourite tax refund allocation and the most frequently allocated for. We love holidays and overseas trips are better but any holiday costs a lot of money. I seem to go without in other areas to be able to achieve this but I still need a lump sum to get me going. By having this lump sum to add to, I'm more likely to keep adding to it over time to pay for all parts of our holidays. I don't ever recommend putting a holiday on your credit card so put a chunk of your tax refund away to start your holiday fund and start dreaming and planning where you can go. Click here to read my article 'Saving for a holiday on a budget'
Add your comment below if you have another great location your tax refund could be allocated to for maximum benefit.