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What’s the best way to invest your tax return?

More than four out of five Aussie tax payers get an annual tax refund and the average value works out to be $2574 (which is the number we’ve used for the calculations in this guide) — a very tidy lump sum! That’s a lot of money when you consider its buying power. Alternatively, you could put your end of financial year (EOFY) cash injection into reducing debt or building up savings. So, what’s the best way to invest your tax return?

Is saving and investing boring? Maybe. Or perhaps it’s exactly the financial boost you’ve been looking for! This could be your chance to upgrade your financial outlook for years to come.

Let’s look at the numbers…

1. Spending spree

Spending your tax refund isn’t a bad thing if you’re buying things you really need. Come July, retailers are going to be bombarding cashed up shoppers with EOFY sales and it could be a great opportunity to grab a bargain. If so, use it to your advantage. Don’t get carried away though, buying five new air fryers and a 65-inch TV because you ‘needed them’ isn’t one of the smartest ways to spend your tax refund.

Make sure you shop around and don’t be shy about asking for a cash discount, especially on big ticket items. When you consider that retailers pay around one to five percent (sometimes more) on credit transactions, they’ve certainly got wiggle room. Remember, every dollar you don’t spend, is a dollar you can save!​

A woman shops for high heels with the text: Budgeting for spending means you can shop without feeling guilty.

2. Reduce your credit card balance

Do you have a credit card balance? Tax time could be your lucky break. Consider this: To pay off the average credit card balance of $3200 by making only minimum repayments, it would take you over 26 years and more than $10,000 in interest charges (ouch).

But if you were to pay a lump sum off your balance equal to the average tax refund ($2574), you would halve the total repayment time and save over $7000! Wow. That’s because paying off your credit card balance is the equivalent of earning savings of 18 to 19% interest per annum. ​ One of the best ways to invest your tax return is to pay off your debts, which also brings us to our next point.

A person taps their credit card on an eftpos machine to pay for their meal. With the text: Get ahead by paying down high-interest loans and credit card debt

3. Pay it off your mortgage

Imagine we told you that you could double this year’s tax refund over the life of your mortgage. Well, you can. On a 30-year $400,000 mortgage at 3.08% per annum (average variable interest rate at 1 March 2021), making a single lump sum payment of $2574 could save you around $3600 over the life of the loan.

Not bad, but we can hear you thinking “$3,600 over 30 years isn’t exactly earth shattering.” Fair enough. Then consider this instead: If you were to take the same mortgage and make an extra $2574 lump sum payment into it every year for the next 10 years, you’d cut multiple years off your mortgage and save around $25,000. That’s a lot of holidays.

Couple that with a meagre 0.5% reduction in your mortgage interest rate and you could save nearly $40,000 more. To see how much time and money you could save by making lump sum voluntary payments or a better deal on your mortgage, use our home loan calculator or talk to the MyBudget Loans crew.​

An image of a roof with text: How much could you save. A breakdown of different savings rates is also shown with the caption: My Budget Loans have been saving clients hundreds a month through refinancing.

4. Create an emergency fund

One of the foundations of financial fitness is having a savings net to fall on when things go wrong.

Perhaps your dog suddenly needs surgery, your car breaks down or life just happens. Rainy day savings can be the difference between having cash to fall back on or going into debt. Having an emergency fund is also how you build flexibility into your budget.

The way to build up your emergency savings is to automatically transfer a small amount of funds from every pay into a dedicated bank account – preferably an online account that makes it more difficult to access your savings from an ATM.

If you’re finding it hard to get your emergency fund started or struggling to keep enough spring in your safety net, your tax refund is the perfect way to give your savings a rocket boost.

Building an emergency fund is the best way to invest your tax return if you’re focussed on looking after yourself and your family. Wondering how much of your tax refund you should save? Discover how much money you need in your emergency fund and the best way to save for it.​

A person holds an iPad in front of them and a person sitting next to them holds a phone. Both are reading the screens. With text: With My Budget, your bills, savings and financial goals are managed within one powerful platform.

5. Boost your super

What about literally investing your tax return? You don’t have to hire a stockbroker or financial advisor or know your fixed rate bonds from your pink sheet stocks to invest your tax refund.

Most working Australians have a superannuation account. Super is a way of saving money while you are working, so that you will have money when you retire. Boosting your super can have amazing benefits for your retirement outlook, as well as potential tax advantages. Your super fund will be able to help you with the tax implications of a lump sum investment.​ This is one of the smartest ways to spend your tax return.

A man talks to a woman at a barbecue in a local park, both are smiling and talking. With text: As well as providing for retirement, superannuation can have tax benefits during your working years.

6. The best way to invest your tax return? A combination of all of the above

It’s not as if you have to commit to just one of these strategies. Why not set aside some of your tax refund for spending, some for saving and some for debt reduction?

Wondering what the best way to invest your tax return is? MyBudget can help to design a customised budget plan that shows exactly what you can achieve with your money over the next 12 months and beyond.​

Call 1300 300 922 for a quick chat with one of our friendly money coaches and to book your free budget consultation or enquire online.

A man in a blue button up shirt smiles as he sits in an office. With text: Talk with a MyBudget money coach to get a free customised budget designed for you.

Ready to find out more?

Call 1300 300 922 or get started today

This content has been updated from the original post published in July, 2018.

This article has been prepared for information purposes only, and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.

All customised budgets and consultations with money experts are subject to MyBudget’s qualification criteria. We recommend that you read and consider our Product Disclosure Statement.

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