Someone wise once said the best time to plant a tree is today. For most youths that’s a negligible truth; when you’re young, the last thing you want to do is put money away for a version of yourself you won’t be for a long time. Young people want cars and clothes and holidays and dinners. They don’t want to care for their retired self.
Perhaps it’s the Australian way, but most young people look at their tax refund like it’s a fortuitous windfall gain. It’s money to be spent now; it’s a lottery win. If you look at your refund instead like it’s a chance to get on top of your fiscal responsibilities, its potential usefulness increases five-fold. When your refund arrives this season, consider putting it to work and silencing the part of you that wants to fritter it away on things that expire.
1. Put it into your super
Remember the 70-year-old you gets better tax treatment. Unless you’re already contributing the maximum to your super through salary sacrifice arrangement, there won’t be many other opportunities to do some tomorrow-proofing.
2. Reduce or pay off your HELP debt
MyTax keeps track of you HELP debt balance and allows you to pay it off as you go. Of course, if you’re over the HELP repayment threshold (currently $54,125, but soon to be lower) HELP repayments are levied from your before-tax income automatically, but if you contribute extra, the government reduces your debt by a further 10% of that contribution. If you think about it, that’s free money.
3. Put it in a term deposit
Smart money is money put in a just-in-case fund. Most Australian banks offer high interest savings accounts – anywhere between 2 and 4%- and which some require minimum monthly deposits, you can’t go wrong letting your tax refund earn some extra money for a short stretch.
4. Pre-pay your recurring obligations
It’s a good idea to pay any insurances, registrations or bills before they roll around. Car registration payments commonly catch people off-guard, and paying extra off your mortgage will save interest on daily compounding rates. They don’t have to be left until last. Bite the bullet – say goodbye to those Manolos today, and buy them next quarter when your bills are fully taken care of.
5. If you’ve got a small business or side venture, invest in it
Business tools and resources inevitably age. Why not use your tax refund to update old equipment or replace not-so-good assets with good ones? If you’re an SBE anything you buy for business use under $20,000 can be immediately deductible too, so you’ve got an extra benefit making the decision less risky.
Good financial preparation is an age-old fight with discipline. Resisting the mediocre comforts of now for the better comforts of tomorrow is difficult, and tax returns don’t help. Recondition yourself to ignore the glorious lump sum and see it for what it is: an anomalous gift to future you.