ME Bank: Tax time – what to do with the all-important financial boost
As the end of the financial year approaches, planning for a little boost to your wallet (tax return) provides a good opportunity to focus on your financial goals. In 2020, ME saw that the COVID-19 pandemic changed the way people used their return, choosing to save instead of spending.
Surveying 1000 Australians in 2020, ME’s research found more Australians were wary of spending their tax return. 58% of respondents expecting to receive a return, said they would use it to add to cash savings. When the same question was asked in 2019, only 49% of respondents said they would focus on saving.
ME also found that 21% of respondents indicated they would use their tax refund to pay down their home loan, (up from 17% in 2019) and 18% would invest in shares or superannuation, (up from 16% a year ago). But some were willing to splurge, with 22% of respondents looking to spend their return on items such as clothes, holidays or eating out.
So, what does ME think about this year’s opportunity for a financial boost? Use it wisely. Here’s how.
A tax refund is a great opportunity to establish or bolster your emergency savings. Ideally, you’d have enough emergency savings to cover at least six months of expenses, but even having a small stash of cash can help you weather life’s unexpected events or outlays. Just leaving it in a transaction account, makes it too easy to dip in, even unintentionally, for nonessential expenses. Consider locking it away in a separate savings account or term-deposit.
A tax refund can also provide a good opportunity to maintain assets such as your home, car or health, possibly postponing bigger expenses later on.
Reduce debt stress
Paying down debt is a great strategy for debt stress reduction. It reduces an ongoing cost to free up your monthly budget. Start with higher rate debt first, such as credit cards, personal, student and car loans or leases, and consider hunting around for better rates. While a home loan has one of the lowest rates of any type of debt, it’s also a long-term affair and any sum you can tip in today, can knock years off the term and save you a bundle in interest along the way.
Add to your super Using a tax refund to grow your retirement savings is a smart move. Given the power of compounding returns, the more you contribute now to super the more you’ll have for retirement.