The average tax refund is $2112. Here are 12 smart things to do with the money

We derive more happiness from buying an experience than an object. How about BridgeClimb? Photo: BridgeclimbMy tax refund landed in my bank account a few weeks ago. It was a few thousand dollars and it’s sitting in a high-interest account until I need it. I’ve earmarked most of it for Christmas expenses and domestic summer travel, and the rest will go into the mortgage.

It seems I’m pretty typical: eight of 10 Australians get a tax refund and the average last year was $2112, according to the Australian Securities and Investments Commission’s MoneySmart website.

Maybe you’re expecting a tax refund too. Or perhaps you’ve come into a mini-windfall some other way – a small lottery win, a work bonus, a better-than-expected birthday gift.

Whatever the reason, congratulations! But don’t fritter it away. Here are some smart things to do with the money, starting with the oh-so sensible through to the fun. 1. Build a ‘shit happens’ stash

You need an emergency fund for those unexpected expenses, such as car and house maintenance. You also need a buffer in case you find yourself out of work temporarily. Start your stash today, or build on the existing one. If you have a mortgage, this should be in your offset account; if you don’t, use Canstar to find the best savings account. 2. Pay off debt

Paying off debt is always a smart strategy, but which debt? Ideally start with the most expensive debt that’s not tax deductible. Alternatively, pay off the smallest debt. It’s probably more satisfying to completely clear a credit card balance and then cut up the plastic, versus chipping away at a bigger debt. 3. Boost your super

If you are self-employed, you can make concessional contributions to super. This means you can pay the money out of before-tax dollars and it will be taxed at 15 per cent rather than your personal marginal rate. If you are employed, you only can do it as a non-concessional contribution – meaning it’s funded from after-tax dollars. However, you could get around this by boosting your salary sacrifice for a few months and using the windfall money to fill the hole in your normal budget. 4. Invest the money

A couple of thousands dollars is a decent allocation to one or two shares as part of a larger portfolio. First-timers might want to look at an exchange-traded fund, an index fund that tracks the market or a market segment, as this will ensure you are diversified. You could use an app such as Acorns, which lets you start with as little as $5. 5. Professional development

This one is courtesy of financial planner and Money columnist Catherine Robson, who says investing in yourself can be the best investment of all. Look for a short course, online or in person, to build on your current experience or take it in a new direction. Don’t forget to keep the receipt for a tax deduction next year. 6. Sort out your will

Don’t put things like wills in the too-hard basket. It only costs a few hundred dollars to get a solicitor to write a simple will. Get it done. 7. Review regular expenses

Anything that you are paying in instalments on direct debit, such as car and house insurance, is cheaper if you pay for a 12-month policy as a lump sum. Use the opportunity to shop around. 8. Invest in a side-hustle

Use the money to back yourself in a side-business. If you’re prepared to put in the work and you’re successful, this will pay for itself many times over. Just don’t make the mistake of rushing out and ordering fancy stationery and business cards and building a website, before you’ve got customers. As Jeanne-Vida Douglas and Peter Fritz write in The Profit Principle, your first job is to persuade someone to give you money for something and everything else is just trimmings. That way your business spending can be targeted and offset against future cash flow. 9. Buy experiences

If you want to spend it on yourself, think about buying experiences rather than stuff. Research has shown that the happiness boost from experiences lasts longer than the sugar hit of a new toy. You could take a holiday – Qantas is selling return flights to Vanuatu for under $1000, for example. For a lot less you could buy tickets to the BridgeClimb in Sydney, a berth on a hot-air balloon ride in the Yarra Valley, or a subscription to an arts company. 10. A family photo shoot

In this era of smartphones and social media, we have more photos than ever before but we also have more crap photos. When was the last time you put a framed photo on your wall? A budget of $500-$1000 would go a long way to a professional photo shoot with you and your loved ones, if you can stick firm to buying just a couple of the best images. Usually the shoot itself will be free or at least cheap, but the prints themselves will be expensive with all sorts of fancy framing options. Check out the product range before the viewing session and have a budget in mind. If you get them printed in black and white on archival paper, your great-grandchildren will be able to enjoy them too – unlike your Instagram account. 11. Outsourcing

Many of us live busy lives and stress is a leading cause of health problems. How would it change your life if you could afford a cleaner? Or a personal trainer? Or you could book yourself in for a session with a professional organiser or wardrobe consultant. 12. Giving

There’s evidence you derive more happiness by giving money away than simply taking it in. Research suggests that using money to benefit others increases feelings of wellbeing and positivity. You can donate to charity (and keep the receipt for a tax deduction) or practise random acts of kindness. As Anne Frank said, “no one has ever become poor by giving”.

Caitlin Fitzsimmons is the editor of Money for the Sydney Morning Herald and The Age. Follow her on Facebook.

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