To splurge or not to splurge, that is the question for Aussies when they get their tax refunds this financial year.
ME’s Tax Back Survey has found that frivolous spending is seemingly the last thing on the mind for a majority of Aussies, with only 13 per cent of those surveyed planning a spending spree on clothes, entertainment and/or a holiday for their tax refund.
In fact, 64 per cent are planning to save their refund and 42 per cent are also planning to pay off debts, such as a home loan.
ME Head of Deposits and Transactional Banking, Nic Emery, believes this research suggest “many Aussies are using their tax refund to get their financial house in order and improve their financial security”.
“A tax refund is money you haven’t factored into your household budget and can make a big difference to your long-term wealth when used wisely,” said Emery.
Nic Emery believes there are four core areas to focus your tax refund on:
- Reducing debt
“Paying down debt is a great strategy as it reduces an ongoing cost, freeing up your monthly budget. Start with higher rate bad debt first, like credit cards.
“While a home loan has one of the lowest rates of any type of debt, it’s also a long-term affair and any lump sum you tip in today can knock years off the term and save you a bundle in interest along the way,” said Emery.
- Additional super contributions
“Using a tax refund to grow your retirement savings is also a smart move. About 31% of households worry how they’ll maintain their standard of living in retirement, according to ME research.
“Given the power of compounding returns the more you contribute now to super the more you’ll have for retirement,” said Emery.
- Growing your nest egg
“A tax refund is a great opportunity to establish or bolster your emergency savings.
“Ideally you’d have reserves 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.
“A tax refund can also be a good opportunity to maintain assets like your home, car or health, which can postpone bigger expenses in the future.
- Locking it away
“If you just leave it in a transaction account, it’s too easy to dip in, even unintentionally, for nonessential expenses.
Consider locking it away in a separate savings account or term-deposit to help you achieve your savings goals,” said Emery.