The Average Tax Refund in Australia is $2,800. If you hate doing your tax, perhaps knowing the average refund is almost $3,000 will make the task a bit easier.
In 2020 the Australian Tax Office (ATO) refunded more than $30 billion to 10.8 million Australians. If you are part of the almost 80 percent of taxpayers who can expect to get money back, here are some tips for how to use the cash.
Pay Down Debts
One of the most valuable things a person can do to make the most of their tax refund would be paying down their debts.
With interest rates at record lows, $1,000 on your mortgage today will go further towards paying off your principal debt than it would have five years ago.
In the current economic climate, Australians are being very careful. Savings rates are very high, and Australians are using money to pay down any debts they have accumulated.
A tax refund can be the perfect opportunity to try and clear more expensive debts, like credit cards or other loans.
If you do not have enough money to cover the entire debt, you could try to negotiate with the business to offer a “full and final settlement” less than the total you owe.
For example, if you received $2,000 on this year’s tax refund and you’ve got a $3,000 credit card debt that has been owing for a long time, you might be able to do a full and final settlement. This means you offer them a reduced amount in a lump sum and they clear the rest of the debt.
Spend The Money
If you are relatively debt-free and have enough to cover your current cost of living, it might be a good idea to put the money towards your financial goals.
It could be saving for a house deposit or a car, it could be not getting behind on rent, it could be buying a new pair of shoes.
How the money is spent or saved all depends on what is important to the individual and there are no right or wrong answers in this kind of situation.
If you have been delaying a one-off expense, such as a medical procedure or updating your laptop, a tax return could be used to fill the gap.
Before you make a purchase, it is important to determine if you could afford any maintenance that is associated with your purchase. For example; if you buy a car or a pet, make sure you can sustain those ongoing costs.
Try Investing
While low interest rates are good for people with debt, they are not good if you aspire to earn money on your savings.
In recent years there appears to be a generational shift where Australians are moving away from keeping cash in the bank, with many people investing in the market for the first time.
Australians who would typically be in term deposits are being pushed out of them into products that amass higher returns.
If you aspire to invest your tax return, it is highly advisable that you do some research and invest in businesses you have a good amount of knowledge of.
The stock exchange has plenty of introductory information. Ask yourself where you spend your money on a daily basis and are those shares listed?
If you know a business and have had good experiences as a customer, it might be a great starting point for your share portfolio.
It is also a good idea to invest in shares that are great value for money. “If you have only a few dollars to invest, the area of opportunity today in the Australian market remains in the energy sector and covid-19 recovery stocks such as; travel, tourism and leisure. Many of the stocks that will seem worthwhile in 2021 are the stocks that covid-19 damaged in 2020.
