Come July every year, many employed Australians find themselves receiving a lucky bonus from the tax office in the form of a tax refund. Whilst it can be nice to treat yourself to a holiday or gift, it’s also a great opportunity to start working towards some financial goals.
In this article, we share 5 smart strategies to use your 2020 tax return to invest in your future.
1. Pay off high interest debt
Credit cards, car loans and other unsecured personal loans can attract interest rates of more than 20%. Using your tax refund to reduce the balance on high-interest debt can have an immediate impact on your interest costs for the future. Reducing a loan of $5,000 to $3,000 can save you over $600 a year (based on an interest rate of 20%)!
Another option may be to consolidate your lending into a single, lower-rate personal loan. Not only can this significantly reduce the interest rate, it also makes repayments easier with just one monthly contribution rather than many.
2. Make additional contributions to your superfund
Additional superfund contributions have a snowball effect. Investing your tax refund of just $1,500 this year could give you tens of thousands more in your superfund when it comes time to retire. Make sure you speak with a registered accountant before making additional super contributions as there may be tax impacts in future years.
3. Make home improvements
Whilst your tax refund is probably not enough to completely renovate your home, it could be used towards minor improvements to make your home more comfortable or increase the value of your property. For larger works, you may wish to consider a personal loan or to redraw on your home loan (if the option is available to you).
4. Deposit into your mortgage offset
An offset account is a savings account linked to your mortgage that reduces the interest you have to pay. The balance of the account offsets your mortgage, so interest is only payable on the remainder. For example, if you have a loan of $200,000 and an amount of $15,000 in your offset account, you will only be charged interest on the difference of $185,000.
Don’t have an offset account? Speak with an Assembly Finance broker to find out how to set it up and access great home loan rates at the same time.
5. Start a business
Most small businesses require some form of investment to get off the ground, from a simple website to investing in stock and equipment. Your tax refund could be used to kick-start investment, and you may wish to obtain extra business finance to get up and running quickly.
If you are looking for advice on how you can use your tax return to minimise debt or invest in a business or property, contact an Assembly Finance broker to discuss a solution that will work for you.