Tax windfall? Resist the urge to splurge
Money Magazine - June 2008 Issue
In Your Interest by Andrew Willink
It’s that time of year again, when Australians participate in the curious ritual of surrounding themselves with mountains of receipts and burning the midnight oil, as they attempt to extricate the maximum number of claims to record on their annual tax returns. After much blood, sweat and fears, the magic dollar amount appears in the Expected Refund column.
Before you get too excited over the amount you should receive from the Taxman, it’s important to remember the money is not a gift from the government but the return of money you’ve worked hard for. It’s your money and you should now make it work for you. There’s no better time to reassess your situation and make a list of New Financial Year’s Resolutions.
The urge to splurge on a plasma, a holiday or a spot of retail therapy is powerful but is this merely instant gratification or a component of a pre-determined plan? Reminding yourself of good debt versus bad debt at this stage can be useful. Good debt is where the underlying value of the asset is appreciating. An example of this is a home loan, or margin loan used to buy shares. Over time, even though you’re paying interest, you should at least get your money back or, hopefully, make a profit when you sell. Bad debt, on the other hand, is using a credit card, store card or loan to buy something that will quickly depreciate in value. This could be a car, a flatscreen TV, or even groceries. All you are left with is the debt plus interest owed.
Minimising or eliminating bad debt is a giant step towards financial control. If you are lucky enough to be in this position already, what about saving for a rainy day, using a high interest-earning online deposit account? Aside from this year’s tax return, you may also be eligible for a little extra tax relief, courtesy of the Rudd government. While this weekly amount may be small, it will soon add up in a special purpose savings account, such as a Christmas or children’s education account.
Andrew Willink, Executive Chairman
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