If the tax man brings you a present this year, don’t blow it all at once. There are plenty of ways to put this extra cash to good use.
With the end of financial year fast approaching, you may be looking forward to a tax refund from the ATO after you declare your income or investment dividends. And depending on your employment situation, you might also be counting the days until you get your annual work bonus.
If you’re expecting to receive a tidy lump sum this year, it can be tempting to treat it like “free money” and splurge on things you don’t really need. But here’s the thing – it’s not free money at all. You earned it. And while the tax man has held on to it this past year, you haven’t earned any interest on it.
So, is there a financial goal you’ve been unable to achieve because your income never quite stretches that far? Here are five ideas for making the most of a windfall this end of financial year.
Clear your debts
Having some extra cash on hand could help you knock your debts on the head once and for all. For starters, consider paying off your credit cards sooner rather than later, so you can break the debt cycle before the interest charges get out of control.
And if you’re forever playing catch-up on your mortgage repayments, it might be a great opportunity to get ahead. The quicker you get your home loan out of the way, the sooner you can start enjoying a debt-free life.
Boost your super
Every bit extra that you put into your super could make a big difference when the time comes time to retire – especially when you take into account the effects of compounding returns.
So even if retirement seems like a long way off, you might consider putting all or part of your windfall directly towards your nest egg. Each financial year, you can make an after-tax contribution of up to $100,0001 – or up to $300,000 at any time during a three-year period by applying the ‘bring forward’ rule if you are under 65 years of age and your total superannuation balance is less than $1.4 million at the beginning of the financial year.
Already past retirement age? You can still make voluntary super contributions up to the age of 74 if you’re still working. And even if you’re not, the federal government’s new Downsizer Contribution Scheme from 1 July 2018 allows you to give your super a boost of up to $300,000 if you have extra cash to spare after selling your home.2 But before you make any major financial decisions, speak to your financial adviser.
Create a stock portfolio
If you feel confident that your finances and super are on track, you might look at investing in other assets outside the super environment. By building a diversified investment portfolio, you could turn your one-off payment into a long-term strategy for growing your wealth.
If you’re new to investing, it can be tricky to navigate all the options available – so it’s best to speak to your financial adviser first. They can help you tailor the right portfolio to suit your financial needs, investment goals and risk profile.
Save for a house deposit
Struggling to get a foothold in the property market? Your tax refund or bonus could give you or a family member a head start.
And remember, if you or a family member are a first home buyer, the new First Home Super Saver Scheme allows you to make extra super contributions to help save for a deposit. Under this scheme, super fund members can access voluntary contributions up to $15,000 in super per year (up to a maximum of $30,000 plus associated earnings) to put towards your or your family’s first home from 1 July 2018.
Spruce up your property
If you already own your home, getting some extra cash could be a golden opportunity to increase its value through renovating. Even if you’re not looking to sell it anytime soon, you might reap the rewards down the track if you ever decide to put it on the market.
The same goes for your investment property – and what’s more, any amounts you spend on improving the property could help reduce your capital gains tax liability when you sell. And although you usually can’t claim tax deductions for property improvements, you may be able to claim for necessary repairs and maintenance.
So if some extra cash does come your way this year, talk to your financial adviser. They can help you plan for the best by putting your money to work on achieving your short, medium and long-term goals.
1 Non concessional contribution cap for 2017-18 financial year.
2 Subject to meeting eligibility requirements.
Disclaimer: This article has been prepared by Count Financial Limited ABN 19 001 974 625, AFSL 227232, (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.
Information in this article is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document.
This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.