Tips for tax time: Practical ideas to make the most of your extra funds

Tips for tax time: Practical ideas to make the most of your extra funds

The end of the financial year is nearly upon us, and although some people may have a tax bill to pay, others will receive a refund.

If you’re receiving a refund, it’s worth planning ahead to make sure your money goes further and can be used in a way that makes sense for you. Considering that everyone has different needs, it’s worth assessing your priorities and taking a look at your long-term goals.

What should I do with my tax return?

Everyone’s circumstances are unique and there is no one-size-fits-all answer. The one rule that applies to anyone, however, is that planning ahead offers the best opportunity to ensure your money goes further on the things that are most important to you.

So, do you save, spend, pay off debt or get ahead on bills? This is the part that you need to work out! Below is a guide on how to assess what is the right choice for you.

Step 1. Prioritise spending based on your unique needs

Everyone’s financial situation is different, so prioritise your needs accordingly.

If you are struggling to make ends meet or put food on the table, it’s important to allocate funds towards essential expenses like groceries and utility bills. Then you can focus on managing debts, saving and preparing for future expenses. 

Step 2. Put aside something for yourself

While using extra cash to help with expenses like bills and debt repayments is important, it’s worth putting aside some money for a little celebration to mark getting through another year.

This doesn’t need to be much – it could be a $50 outlay for a takeaway dinner or catching a movie.

Step 3. Allocate funds intentionally

If you do receive a tax return this year, there are various options for how to spend the money. It’s essential to be deliberate and make informed choices. After setting aside a small amount for a well-deserved celebration, consider the following possibilities:

1. Save your money: Deposit a portion of your tax return into a savings account. To avoid impulsive spending, consider putting restrictions on your account, or opening a special account that requires joint signatories, has a short-term block that restricts withdrawals or is completely separate to your regular banking activities.
2. Repay your debts: If you have outstanding debts, consider allocating a portion of the tax return towards paying them off. This can help reduce interest charges and improve your financial wellbeing.
3. Pay bills or save for future bills: Consider using your tax return to settle overdue bills, such as electricity, gas or phone accounts. This will ensure you stay up-to-date with essential expenses and avoid potential penalties. Or, for those annual bills like car registration, putting aside money to anticipate this expense can save worrying about it when it arrives.
4. Emergency buffer: Put aside a portion of the return as an emergency fund to manage unexpected expenses that may arise throughout the year. This can provide peace of mind and alleviate financial stress
5. Plan for upcoming expenses: Consider setting aside funds for anticipated expenses in the near future, like school holidays and the extra costs these can incur or even early preparation for the Christmas season. By planning ahead, you can avoid last-minute financial strain.

Ideally, it’d be great to allocate funds to each of these categories, but if your tax return is small that may not be realistic. If that’s your situation, then you’ll need to make some careful decisions. You can reconsider the additional possibilities down the track when you have additional funds.

Be proactive

If you find yourself playing catch up during tax time, it’s essential to take proactive steps to get ahead. It’s never too late to change your situation. Assess your outstanding debts and prioritise based on interest rates or urgency. Create a budget to manage your income and expenses effectively. Consider seeking professional advice to explore debt management or repayment options. If your finding it hard to meet all your debt obligations, get in touch to see if we can help you.

Look to the longer term

Tax time can serve as a reminder to review your overall financial wellbeing. Take this opportunity to evaluate your spending habits, savings goals and investment plans. If you’re struggling, it’s important to reach out and talk to someone you trust.

By allocating funds wisely, managing debts effectively and preparing for upcoming expenses, you can maximise the stretch of your tax return and minimise stress. Remember to:

• prioritise based on your needs
• put aside a little for you
• make deliberate choices
• be proactive
• develop a long-term financial plan

With careful planning and proactive steps, tax time can become an opportunity to get a better handle on your finances.