Top 5 Ways NOT To Spend Your Tax Cut

The federal budget is handing down a tax cut of around $30 a week to families, fulfilling their election promise and taking some of the strain off families who are struggling to make ends-meet. Some experts have warned that this could contribute to inflation, as it is giving people more money to spend. The theory is that if everyone goes out and spends the money on luxury items and other goods and services they don’t need, inflation may increase further and interest rates could be pushed even higher. If you don’t want that to become a reality, here are the top 5 ways not to spend your tax cuts!

1. Venti caffe vanilla lattes for breakfast, Paris Hilton style

It’s so easy to spend that extra $30 a week on low-price luxury items such as good coffee, donuts, a new CD or even just a couple new t-shirts every month. But in doing so you’d be contributing to inflation, and needless spending is not only bad for a high-inflation economy, it’s bad for your hip pocket as well.

Solution: Put $30 a week into a high interest online savings account. At current rates of up to 8.25% interest, your interest savings over the course of just one year would add up to a whopping $61.10 and you’d end up with over $1,561 in the savings account!

$30 per week Savings Over 1 Yr at 8.25%
closing balance: $1,561.10
total deposits: $1,500.00
total interest: $61.10

monthly interest scheduleinterest paidsavings total
1$ 0.37$ 120.37
2$ 1.24$ 241.60
3$ 2.11$ 363.72
4$ 2.81$ 486.52
5$ 3.69$ 610.21
6$ 4.59$ 734.80
7$ 5.49$ 890.29
8$ 6.40$ 1,016.69
9$ 7.31$ 1,144.01
10$ 8.23$ 1,272.24
11$ 8.97$ 1,401.21
12$ 9.89$ 1,531.10

based on interest calculated everyday, paid every 30 days and 365 days in a year

2. Strapless heels that put Carrie Bradshaw to shame

Extravagant clothing is a definite no-no if you want to use tax cut money responsibly. Avoid the boutique stores if you can’t control yourself! An extra 30 bucks a week might make you feel richer, but putting an extra 300 bucks a week on the plastic will land you in debt.

Solution: Ditch the materialistic obsessions and set up a regular savings plan to put those tax cuts into a term deposit account.

3. Culinary pleasures of Gordon Ramsey calibre

Dining out; we all love it! But can we afford it? If you do it often, and you’re still having trouble making ends meet, you need to cut back. An occasional trip to your favourite restaurant is fine, if you can afford it. But burning that extra $30 a week from the tax cuts on the world’s finest cuisine will only end in tears when the credit card bill arrives and you realise you’re worse off than ever.

Solution: Become one with your savings - investigate more lucrative options for investment such as a cash management account or shares.

4. Giving the gift of debt

We all love to lash out when it’s mothers day or a friend’s birthday. Over-spending on gifts might make you feel good, but if you’re in the governments line-up for tax cuts chances are you could be better off putting some of that money elsewhere.

Solution: Select gifts that are within your budget, and set aside any extra money you’re receiving after the federal budget lands. Look at putting that money into a separate savings account for Christmas gifts, for example. That way when January rolls around you won’t have such a huge credit card bill to face up to.

5. Donning the dance shoes like John Travolta

Going out to night clubs and bars is all very well and good, but don’t fall into the trap of spending an extra $30 a week on cocktails and canapes. It may be fun at the time, but you’ll wake up with a hang over next year when you realise you’ve whittled away that $30 a week and have nothing to show for it other than faded memories.

Solution: Put the extra $30 a week into your mortgage. You’ll save a huge amount in interest over the life of the home loan, and when you look back you’ll realise it was in your own best interest to spend your tax cut windfall responsibly.

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