Like many Australians post June 30, you may have had a gift from the tax office after lodging your tax return in the form of a rebate. After receiving this money, here are your biggest do’ and don’ts if you want to get ahead financially in life, and why:
Tax Returns and Rebates
For any of our younger readers or anyone ill-informed. And after lodging your tax return post June 30 – if you have overpaid your tax. Also, at times you can actually receive a rebate from the ATO. This is typical, depending on your circumstances to claim deductions and personal situations. Also, anywhere in the order of $2,000 – $4000 for most people.
In what would treat as a ‘gift’ from the tax office given you’ve already paid that money; host Andrew Baxter says that this money can used strategically in order. And to get the most out of what is a really nice bonus.
Do: Pay Down Bad Debt
The first ‘do’ with your tax rebate is to pay down your bad consumer debt. Despite being at record low interest rates. And the credit card interest rates specifically are still sitting in the high teens. Also, if not early 20’s. If you’ve got some outstanding debt sitting on a credit card. Or other high interest-bearing loan (ie. a personal loan) – get it paid down! In order of priority, exclaims Andrew Baxter. This is the one to really get done first off the bat if you can.
The trick is to ensure you know why and how you got into debt in the first place. With the intention of altering your habits for the better. Yes, you’ve got a nice bonus from the tax office to offer some short-term reprieve on your consumer debt obligations, nonetheless. This isn’t an excuse to rachet up more debt on your credit card because of this. Also, Get paid off and Smart, then analyse your spending habits.
Do: Invest the Money
This one makes total sense as saving or holding cash at the bank offers. And no incentive given interest rates being at record lows. Think about it – you’ve been given essentially ‘free money’ back from the tax office. And why not get the money work for you to make more money? For anyone who claims $2-4k is too small of an amount to get started with, Andrew Baxter says. To try a low-cost market ETF or index tracker to begin in.
The stock market these days has very low barriers to entry and even lower transaction fees. Thus, getting started with a couple of thousand and adding to this gradually as you can. And actually does offer some commercial viability. This is a great way to kick off your investment journey. As teaching good habits and mindset for larger amounts down the track.
Do: Purchase your Next Tax-Deductible Item
For anyone in business or who is a struct in a way to write-off expenses. By using this year’s tax rebate to make a capital purchase is a great way to reduce next year’s tax even more. For example, if you have a gift a few thousand back from the tax office. This year and maybe need a new printer at work or an upgraded computer, new briefcase, or some other equipment – use the rebate towards this.
Not only will you be improving the quality of the equipment for your business/company. But you’ll also be able to claim this deduction on next year’s tax return. This is a great way to build wealth and keep your tax under control says Baxter, as you continue to parle one expense into another.
Don’t: Spend It
Probably the worst thing you can do is party hard and spend all of the money on nothing. If you’ve already made the commitment to pay that tax and now have received a gift back – it really isn’t wise to go on a weekend away or spend the money on crap.
If you’re of the view that you’ve ‘worked hard’ and it’s ‘your money to spend’ – knock yourself out. But just remember that long-term wealth creation is about making short-term sacrifices starting now.
Don’t: Pay Down your Mortgage
This one sounds quite smart at first. However, making the decision to pay down extra on your mortgage really depends on the economic environment. With interest rates at record lows – do not pay down your mortgage using this year’s tax rebate.
There is no incentive to do so give the cost of borrow is so cheap. And you’ll most likely earn more if it is invest. In this situation, it’s all about weigh up the cost to borrow it, versus what you can earn. On your money, if it is invest elsewhere. Right now, pretty much anywhere else is going to offer you a better return so there is no reason to pay down your mortgage and use your rebate from the ATO.
Don’t: Hold it as Cash at the Bank
This point is rather like the one above in the sense that there is no incentive right now to hold cash at the bank. Just like paying down your mortgage, if you’ve given the gift from the ATO in the form of a tax rebate, there are better places for your money to earn money than the bank at 0.1%.
Yes, you can save your money at Y, but you can invest your money for X. If X>Y (which it most definitely is at the moment), then your money should in X and not Y. A mistake would simply to put this cash in the bank and leave it there for no good reason – rather, as host Andrew Baxter says, get it invest so that you can put yourself in an advantageous financial situation for the long-term. To learn more about it, right out to his team at Australian Investment Education for more.