5 clever ways to get your tax return to work for you

Wondering what to do with your tax return? You might feel like treating yourself to a vacation or a kitchen renovation. Or you might want to put the money towards your financial goals – from paying down your debt to avoid squandering money on interest to getting on top of your utility bills.

1. Downsize your debt

Borrowing money can give you much-needed cash upfront. However, it does typically come with interest. But not all debt is created equal.

If you’re looking to pay off your debt, a good rule of thumb is to start with the one with the highest interest rate or associated fees. Or consolidate your debts into one, potentially securing a lower interest rate in the process.

It’s also important to remember that the interest rate on a debt is nearly always higher than the interest rate on a savings account. So, if you’ve been thinking of saving your tax return, then repaying your debt might make more financial sense – especially if you already have a healthy emergency fund.

2. Hide it away in a high interest savings account

If you don’t have any debts, or would like to use the money down the track, then you could pop your tax return into a savings account with a high interest rate, or take it one step further with a term deposit. Term deposits remove the temptation of spending your savings, by locking them away for a fixed period.

The emphasis here is on a high interest rate. If you leave your tax return in a savings account with a low interest rate it may lose value over time due to inflation.

3. Establish or expand an emergency fund

Everyone could benefit from an emergency fund. It’s a special savings account to draw on when something unexpected happens and you’re unable to work – like losing a job, getting sick or needing to care for a loved one.

A common recommendation is that your fund should contain three to six months’ worth of living costs.

If you’ve already got an emergency fund, then you could consider topping it up. If you haven’t, then you could use your tax return to get it going.

4. Banish your buy now pay later bills

If you have buy now, pay later accounts, you could use your tax return to pay them down and avoid missing repayments and their accompanying late fees.

5. Use it on your utilities

Utility bills, along with other living costs, have been rising. Though inflation has slowed down, we’re not out of the woods yet.

You could get on top of your utility bills early with your tax return – by either paying in advance or setting up a dedicated account.

Money-smarting your future

As seductive as it might be to splurge your tax return on a shopping spree, using it to put yourself in a better financial position can give you greater peace of mind – whether that’s from knowing you’ll have the money to pay your utilities all year-round or looking forward to reaping the rewards of a high interest savings account.