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How to turn your tax refund into $40,000 (and other ways to make your refund work for you)
By MyBudget Editor

It’s tax time and most people will be looking forward to a tax refund. What are you going to do with yours? Save it? Spend it? A bit of both? Here are five different ways to make your tax refund REALLY work for you.

More than four out of five Aussie tax payers get an annual tax refund and the average value works out to be $2574 (which is the number we’ve used for the calculations in this guide). That’s a lot of money when you consider its buying power. Alternatively, you could put your End of Financial Year (EOFY) cash injection into reducing debt or building up savings. Is that boring? Maybe. Or perhaps it’s exactly the financial boost you’ve been looking for! This could be your chance to upgrade your financial outlook for years to come. Let’s look at the numbers…

1.         Spending spree

Spending your tax refund isn’t a bad thing if you’re buying things you really need. Come July, retailers are going to be bombarding cashed up shoppers with EOFY sales and it could be a great opportunity to grab a bargain. Use it to your advantage. Make sure you shop around and don’t be shy about asking for a cash discount, especially on big ticket items. When you consider that retailers pay around one to five-percent (sometimes more) on credit transactions, they’ve certainly got some wiggle room.

2.         Reduce your credit card balance

Do you have a credit card balance? Tax-time could be your lucky break. Consider this… It would take a person making minimum repayments on the average credit card balance ($4200), over 30 years and $10,000 in interest charges before they paid off the card in full (ouch.) If that same person were to use their tax refund to reduce their card balance with a once-off payment of $2574, they would halve the total repayment time and save over $7000! Wow. What would you do with an extra $7,000?

To work out your potential savings, use the Smart Money credit card calculator.

3.         Pay it off your mortgage

Imagine we told you that you could double this year’s tax refund over the life of your mortgage. Well, you can. On a 30-year $400,000 mortgage at 3.99% per annum, making a single lump sum payment of $2574 could save you around $5,500 over the life of the loan. Not bad. But we can hear you saying “$5,500 over 30 years isn’t exactly earth shattering”. Fair enough. Consider this instead... If you were to take the same mortgage and make an extra $2574 lump sum payment into it every year for the next 10 years, you’d cut multiple years off your mortgage and save nearly $40,000! Yes, $40,000. 

To see how much time and money you could save by making lump sum voluntary payments off your mortgage, use our home loan calculator.

4.         Create an emergency fund

One of the foundations of financial fitness is having a savings net to fall on when things go wrong. Your dog needs surgery, your car breaks down or life just generally happens. Having an emergency fund is also how you build flexibility into your budget. With savings to fall back on, you can cover unexpected bills without needing to reach for a credit card. The way to build up your emergency savings is to automatically transfer a small amount of funds from every pay into a dedicated savings account. But if you’re finding it hard to get your emergency fund started or struggling to keep enough spring in your safety net, your tax refund is the perfect way to give your savings and financial fitness a rocket boost.

Discover how much money you need in your emergency fund and the best way to save for it.

5.         All of the above

It’s not as if you have to commit to just one of these strategies. Why not set aside some of your tax refund for spending, some for saving and some for debt reduction? If you’re a MyBudget client, give us a call and we can help you to factor your refund into your budget. If you’re not a MyBudget client, call us anyway! We can help to design a customised budget plan that shows exactly what you can achieve with your money over the next 12 months and beyond.

To fast-track your financial goals and help you live a life free from money worries, call MyBudget today on 1300 300 922 or enquire online to book a free budget consultation.

Download a free budget template, discover how MyBudget works, sign up for money tips on the MyBudget Blog or follow MyBudget on Facebook.

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