So you already filed your taxes and you’re getting a refund. Congrats! (And good on you for doing it early.) Getting a tax refund can feel like a mini-windfall of sorts.
Maybe you’ve been eyeing a fancy skincare product, or want to treat your partner to a night out and finally have the funds to do so. That’s great, but it’s my job to remind you that there are other, “responsible” things you could do with that money. Here we go.
Almost one in five Australians surveyed by the Centre for Social Impact in 2016 either couldn't or didn't know if they could raise $2000 in a week in the event of an emergency. That isn’t great!
You’ve heard this before: Building up your cash cushion is one of the most financially responsible things you can do, and you should have three to six months’ worth of expenses socked away. Save your tax return this year and you’re a lot closer to that.
If you’re comfortable with your savings, put it toward one of your money goals, such as a down payment, your kids’ education, or a holiday. Open a separate savings account (preferably high-yield) and stash it there until you’ve saved enough. This is the most boring option but it’s what I’m going to do with mine.
Maybe you want to take advantage of the stock market. That’s a pretty good idea, and you have more options than ever to invest in a way that works for you. There are almost too many!
Pay Off Debt
My two cents (heh): Pay off your highest-interest debt first, such as your credit card.
“The fastest way of ending your debt drama and getting off the debt treadmill is to devote your resources to paying down the bill with the highest interest rate while paying the required minimum on the rest,” write Helaine Olen and Harold Pollack in The Index Card.
But that’s easier said than done, and if you have big bills, it can feel demoralising, particular if your return doesn’t cover an entire balance. An alternative: Pay off the lowest balance in full, regardless of interest rate, and then the second lowest balance, and so on. Known as the Snowball method, this is effective because it can seem more manageable and gives people a sense of progress. You’ll know which method works best for you.
Donate Part (Or All) Of It
There are approximately one million causes that need your attention right now. People are crowdfunding their medical bills. Asylum seekers are struggling to survive. The Earth is choking in plastic. Use your mini-windfall to donate to a cause you believe in but put off contributing to when you weren't quite as flush with funds.
Spend It On Something Fun
All that said, it’s your money. If you want to buy a new coat or video game, who am I to stop you? You deserve to have a little fun now and then. Just don’t spend it all in one place. Or do. Again, it’s your money.