How to turn your tax return into savings
With tax return season just around the corner, it’s time to start thinking about how you can make the most of any extra cash. If you’re expecting a nice refund after lodging your tax return, it can be tempting to dream of a sun-drenched holiday or shopping spree. However, it’s worth considering some other uses for your tax return that can reward you in the longer term.
A tax refund snapshot
Australians pocket $2,112 on average through their tax refund, according to research from ASIC’s MoneySmart, with only 16% of us missing out on this once-a-year windfall. Nearly one in three people use the refund to pay off bills, while one in five add it to their savings. Just nine per cent of people put the money towards their home loan.
A smart investment
While it’s not something that always comes to mind, putting your refund towards your home loan can end up saving you further down the track if you consider the figures. Say you’re two years into a 30-year loan, after borrowing $350,000 at an interest rate of 4.9%. Over the term of that loan, you’ll pay back the borrowed amount plus another $318,716. By putting the average tax refund of $2,112 towards that loan, you could save around $6,134 in interest payments and shave four months off your loan’s lifespan. Keep in mind some home loans don’t permit extra repayments and fees may apply.
For that rainy day
Of course, it’s great to have money set aside for a rainy day. If you have an offset account or redraw facility you can still benefit from interest savings while having access to the funds. While it’s nice to treat yourself at the end of the financial year, putting just some of your refund towards your home loan can mean long-term savings.
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