How to turn your tax refund into $30k
Millions of Aussies will get a welcome windfall after lodging their tax returns this year - but while many of us will be tempted to blow the lot, there is a smarter way.
News.com.au rounded up the top tips from experts to help you make the most of your 2019 refund.
And while the average tax refund tends to hover around the $2500 mark, there's a simple way to end up with much more in the bank.
PRETEND YOU DON'T HAVE IT
Finance guru Vanessa Stoykov, who is also the host of new series Secrets of the Money Masters, told news.com.au the easiest way to make your refund work for you is by investing it.
"Tax time is the only time of year you can get money you haven't had to save for, and I always say it's a great time to become an investor rather than getting your refund and saying 'I'm going to Bali' or 'I'm getting a big-screen TV'," Ms Stoykov said.
"It's not a bonus, it's an opportunity, and when people see it as an opportunity they start thinking differently about money."
Ms Stoykov said investing was an especially helpful strategy for people on contracts who don't necessarily have money put into their superannuation regularly.
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She stressed that although it was not a guaranteed return, investing as little as $50 a week - or $2400 a year, which is close to the average Australian lump sum tax refund, could add up to tens of thousands of dollars down the track.
"If you put away $2400 a year over ten years, your portfolio could be worth close to $30,000 - and that's a conservative number," she said.
"Putting away $50 a week or $200 a month is achievable, then let it compound and forget about it - don't look at the balance, otherwise you might be tempted to say, 'I've got $5000 now, let's go to Fiji'.
"You need to leave it for at least five years - even 15 or 20 - and just pretend you don't have it."
Ms Stoykov said falling interest rates meant it no longer made sense to store lump sums in bank accounts as it would no longer earn a worthwhile amount of interest.
Her tax refund advice is similar to that of legendary rich lister Warren Buffett, who famously urged people to take the "boring" option when it comes to investments.
"Just put aside a little money every month - put it in a very low-cost index fund," he said in 2015.
THINK ABOUT FINANCIAL GOALS
Financial planner, author and Sugar Mamma TV personality Canna Campbell told news.com.au any Australian with debt should put their refund towards that first, starting with those debts with the highest interest rate.
Ms Campbell, whose new book, Mindful Money, includes detailed tax tips, said those without debt should use their refunds to set up an emergency savings fund to cover unexpected setbacks like dental bills or car accidents.
If you already have an emergency fund, Ms Campbell said you should use the cash to "think about financial goals" such as kickstarting a deposit on a home loan.
Finally, if everything else is sorted, she recommended using the money to help realise your long-term financial goals, such as by setting up a share portfolio or buying an investment property.
"A tax refund is a financial blessing that's not always guaranteed - it's a windfall," she said.
"If you can capitalise proactively on that windfall and put it to good use it can benefit you significantly into the future."
Ms Campbell also urged Australians to consider putting their refunds towards their superannuation.
WIPE YOUR SLATE CLEAN
Co-founder and CEO of people management platform Employment Hero Ben Thompson agreed that paying down debt was the best use of a tax refund - but he said there were important things to consider first.
He said the first step was to "figure out exactly what you owe" by making a list of your debts and their interest rates, and working out where you sit in a net position with your finances.
Next, taxpayers should use the "avalanche approach" and prioritise debts with the highest interest rate first - or those with the lowest balance first.
If you're overwhelmed, Mr Thompson recommends consolidating your debts, and also urged Aussies to consider establishing an emergency fund with their refunds.
Finally, he said it was essential to not rely on a tax refund to "bail you out" each year.
"Take your tax return as an opportunity to wipe your financial slate clean and develop smart money habits - after all, you might not get a return every year," he said.
USE IT TO SLASH DEBT
Finder.com.au personal finance specialist Sophie Walsh said a new survey by the site had found more than one in four Australian taxpayers will put their tax refund into their savings this year, while 11 per cent will need to use it to pay household bills.
One in seven will use it to splurge on things like holidays or shopping sprees, while nine per cent will be paying off their credit card, and just eight per cent will put it towards their home loan.
But Ms Walsh said the smartest way to spend your tax return was to use it to slash debt.
"When you receive a lump sum of money it can be tempting to spend it on little gifts for yourself such as clothes or new gadgets, but this is money you've worked hard for so don't blow it mindlessly," she said.
"While putting your tax return straight into savings is a far better option than spending it, the interest you might be paying on outstanding credit card debt will outweigh the interest you might earn by dropping it into a savings account, especially with savings interest rates falling with the rate cut.
"Another great option is using your refund to make extra mortgage repayments. If you make this an annual habit it could take years off your loan and you'll end up owning your home outright a lot sooner than you thought."