We all set out with the best intentions in mind to spend our tax returns wisely. But where do they actually go?
This year Bankwest Taxing Times Report has found that reducing our debt is Australia’s top priority with 57.9% of us planning to pay off our credit cards with our tax money, followed by 43.4% paying off mortgages, and 10.5% personal loans. This is over a 10% increase in good intentions from 2013.
Next after paying off our debt, Australians intend to grow personal savings (35.6% of us), a statistic which has also grown from last year.
It looks like our priorities are changing for the better, but why? Andrew Whitechurch, Bankwest Executive General Manager of Products and Marketing, says that less of us are expecting a return, therefore spending it more wisely. He states “The decline may also reflect respondents’ incorrect belief that this year’s Federal Budget will affect their 2013-14 tax return, when in fact the measures announced in May will apply to 2014-15 and subsequent tax years.” This reflects that with our drop in confidence in the federal budget, we want to hold onto our money as much as possible.
There are about 13.8% of the population that are planning on spending their tax money on something more spontaneous such as holidays and shopping.
However, if we are more likely to choose to hold our money – which debts should we knock off first?
The general rule of thumb is to pay off the debts that are small and debts that are accruing a high interest first.
Credit cards debts
Some credit cards will present with interest up to 20% and these are the most expensive forms of debt to tackle. Try and use your tax money to pay off as much as you can here in order to minimise the debt.
If you cannot, it might be wise to transfer your debt to another card with a zero interest balance transfer to make it cheaper to pay it off.
Get rid of those personal loans
You may have obtained a personal loan to but a new car, to study, or renovate your home; however personal loans have a habit of sticking around. The more money you owe the more interest you will pay.
If you put extra repayments onto your loan you will save on interest and be able to reduce the outstanding amount much faster.
Put it towards your home loan
By making extra repayments on your home loan you can reduce the number of years you are paying it off for and it can save you thousands of dollars. If your loan allows extra repayments its worth looking into how you can be saving money on your home loan. Check with your lender to make sure you can make larger contributions and if there are any fees to do so.
Prior to spending your tax refund, it is wise to think about your personal financial situation and how you can wise spend the money. Decide what you will do with it before it arrives so you do not make any rash decisions and you can truly improve your financial situation.
Source: Yahoo Finance