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, which means you may receive a refund. However, some people may have a tax bill to pay.

If you’re receiving a return, it can be useful to plan ahead to make sure your refund goes further and can be directed in a way that makes sense to you.

Whether you are preparing your tax return or catching up on previous years, it’s always good to ensure that you are making deliberate choices. Considering that everyone has different needs, it’s worth assessing your priorities to work out the best option for you.

So, to the big question is, 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, 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 best 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 quiet celebration to mark getting through what has been a tough year for most people.

This doesn’t need to be much – it could be a $50 outlay for UberEATS or going to 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, a short term block that restricts withdrawals or keeping the account completely separate to your regular banking activities.
  2. Repay your debts: If you have outstanding debts, 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 putting aside for future bills: Consider using your tax return to settle overdue bills, such as electricity, gas, or vehicle registration fees. This will ensure you stay up-to-date with essential expenses and avoid potential penalties. Especially those annual larger bills like car registration, putting aside money to anticipate this expense can save having to worry 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 holiday season. By planning ahead, you can avoid last-minute financial strain.

Ideally, we all love to be able to allocate funds to each of these categories but if your tax return is small that may not be your reality. If that’s you, then you’ll need to make difficult decisions and consider those alternative options at a time when you have the funds to choose what to do with them.

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 consolidation or repayment options.

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.

Tax time can be a beneficial period to make deliberate financial decisions and plan for the up-coming financial year.

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, and
  • 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.

By David Berry

David is the CEO of Way Forward with over 25 years’ experience in the Financial Services Industry. With a passion for ensuring people who need assistance are supported with compassion and kindness, David and the wider Way Forward team have built Way Forward’s free service to always begin with the client’s best interest regardless of why they’ve landed in hardship.