Five things you should spend your tax refund on instead of buying a new TV

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A tax refund can seem like free money from the government, but it's not - it is your own hard-earned cash. Now is your chance to turn those tables and make that money work hard for you!

Your tax refund is money you weren't relying on to live day-to-day.

As such, it's perfect for putting towards things you may not pay for day-to-day. Here's how to make the most of tax time.

five things to spend your tax refund on instead of buying a new tv

Obviously, you can't do anything with your tax refund until it hits your account, so the first step is to actually lodge your tax return.

Many people wait until right before the October deadline to do their return. But you could be using that money months earlier.

Don't forget that payment summaries have been done away with - you'll find all those details on your myGov account.

Remember too that you're likely to get a bigger refund this year than usual, by claiming all your eligible COVID-19 work from home deductions and - if you are eligible - the low and middle income earner tax offset (LMITO). All the more reason to lodge your return as soon as possible.

1. Start your emergency fund - or give it a boost

The single biggest piece of advice I give to everyone, no matter the size of your income, is have an emergency fund.

COVID and its associated lockdowns have laid painfully bare that your income can be cut off without warning. What will you survive on then?

The same goes if your employer goes bust, you get made redundant, your health takes a sudden dive, a natural disaster strikes or something else unexpectedly prevents you from working or slaps you with an unforeseen bill.

If you already have one, you could give it a boost. If you don't, that refund makes a good start. Then put a bit away each time you get paid. Aim for six months' worth of expenses for a strong safety buffer.

Consider insurances for extra protection too. Many Australians have underinsured their assets (home, contents, and car) as well as themselves and their ability to earn a living (health, income protection, life and disability and professional indemnity).

It could be time to fix that insurance gap before it's too late.

2. Pay down debt

Sure, it's not the most exciting way to spend your tax refund. But it is one of the smartest.

Focus on your most expensive debts first - the ones with the highest interest rates. Credit cards tend to have the highest rates, so wipe those debts first.

Also, look at the rates on things like store cards, personal and car loans if you have them. Settle any outstanding bills too, before they start attracting interest and damage your credit rating.

While you're looking at debts, consider whether consolidating them may work out cheaper.

For instance, you could refinance them into your home loan and pay a single, lower interest rate. Not only does that often save money, but it's easier to track and harder to forget to repay on time.

3. Top up your super

While you're getting money back from the government, why not get even more?

Your refund could go into your superannuation, to grow over the years until you retire. In doing so, you may be eligible for government co-contributions. That's a great wadge of extra cash in your super that hasn't cost your household budget a cent!

Alternatively, you could reduce your tax payable next year by making a contribution to your own super or your spouse's super.

The younger you are, the more time your super has to grow and earn. This year's refund of a few hundred or thousand dollars could come back tenfold (or more) by the time you retire.

4. Invest

Markets move up and down as business conditions change. Can you leverage that and make some savvy investments?

That could be buying shares, investing in a growing business or start-up, or buying or upgrading an investment property.

Alternatively, invest in yourself. Put your refund towards a training course or extra qualification that will boost your income. Join a gym or start a new sport to improve your physical health.

Explore meaningful ways to improve your mental health and personal resilience (something we could all benefit from as the pandemic grinds on).

Either way, you are investing in your future, which is a great thing to put money towards.

5. Plan for the year (and years) ahead

If you're not sure what to do, that tax refund could go towards getting some qualified, tailored advice.

Regardless though, consider all the options available to you and think about the big picture.

In the future, you'll be far happier having invested your tax refund wisely than having splurged it on a new TV or handbag!

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Helen Baker is an Australian financial adviser, founder of On Your Own Two Feet, and author of On Your Own Two Feet Divorce: Your Survive and Thrive Financial Guide.