What to do with your tax return

Before you head out on a shopping spree, there are a few smart financial strategies that could see you get more bang for your buck.

Many people eagerly look forward to receiving their tax return, and before you know it that money has already disappeared. Now is the time to really think about your financial goals. Start off by writing down your top five, then move on to assessing your needs and wants, which will help you decide whether it's best to save, spend, or invest.
Paying off debt is a form of saving because any extra lump sum payments towards your loans can save you significant amounts in interest. It's a good idea to target high interest debt first, such as credit cards or personal loans. Interest rates on credit cards can be as high as 20 percent, so it's important to get rid of this debt as quickly as possible.
Another option is paying off a lump sum on your mortgage or you could park the cash in a mortgage offset account, so you're reducing interest but can still access the money quickly if you need it.
For shorter-term goals, it's hard to beat high interest savings accounts, which are offered by most banks and credit unions. Term deposits also offer competitive interest rates.
For any savings option, it's important to shop around for the right product, remembering to compare fees.
If you don't have any debt, investing the money is another good option when weighing up what to do with your tax refund.
Investing in your super fund may be a smart idea if you are eligible for the government co-contribution. For those eligible, the government will dollar match non-concessional (personal after-tax) contributions to super up to a maximum of $1000. There are not many other investment strategies that can achieve a 100 per cent return within one year!
Investing in a managed fund or share portfolio is another strategy if saving for medium- to long-term financial goals of five years or more. However it's a good idea to sit down with your financial planner, as your personal risk profile should always be considered.
For many people, their tax refund is the only windfall they receive during the year, so it can be tempting to indulge in a little retail therapy.
Some spending is necessary to ensure we have the basics, like clothes, household items or insurance (or sometimes that new pair of shoes!).
Investing in some big ticket items you really need, such as a new washing machine or fridge, is also a good option as it may help you avoid the need to pay for them with credit at a later date.
Dianne Charman is an AMP financial planner and mother of two.
Dianne Charman is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706. Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.
To find your nearest AMP financial planner visit www.amp.com.au/findaplanner.
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