How do you use your tax return?

Every year, thousands of Australians receive tax refunds. While some refunds might barely cover the cost of a pizza to celebrate, many can be quite substantial. If you find yourself among the lucky recipients, how will you make the most of your tax windfall?

If you decide to spend it, remember that part of that money will go back to the government in the form of GST. While it’s nice to treat yourself occasionally, there are smarter ways to invest your cash for long-term benefits. Here are some options to consider:

1. Pay Down Your Mortgage

By putting your tax refund directly into your mortgage, you instantly increase your equity in your home and lower your interest payments. Having more equity also means you can borrow against it again for investments, gearing, or acquiring other assets. This approach can continue to work in your favour over time.

2. Establish a Regular Investment Plan

Think about investing the lump sum and setting up a regular savings investment plan to grow your wealth. This strategy can help you achieve future goals, such as purchasing a new home, funding education, or buying a new car.

While having some cash on hand for emergencies is important, now might be the ideal time to consider a long-term investment plan involving assets like property or shares. You can start investing in a managed fund with an initial deposit of $1,000 and make monthly contributions. Although these investments may fluctuate in value, you can expect them to appreciate over time. Additionally, you may benefit from tax advantages such as franking credits.

3. Contribute to Your Superannuation

Your superannuation fund is likely to outperform other investment vehicles due to the benefits of compounding, and contributions are taxed at just 15%. Superannuation remains the most tax-effective option for growing your investments, although the downside is that once your money is contributed, it typically remains inaccessible until retirement.

Conclusion

The key takeaway is to create a plan and take action. Determine where your tax refund can be most effective for you, and then discuss your options with your licensed financial planner.