How to Spend Your Tax Refund Wisely in Three Easy Steps

How to Spend Your Tax Refund Wisely in Three Easy Steps



With the tax season 2012looming just over the horizon, I know most of you out there are already feeling out of sorts, waiting for the big payday. That's great. Trouble is, do you know exactly how much to expect SARS to pay into your bank account?

If you had asked me the same question, my answer would have been a simple: "I have no idea." The answer is simple. If you received a huge tax refund in 2011, it does not necessary mean you'll get more or less the same amount during the 2012 tax season.

That's because like all things in life, taxes are also unpredictable.

Anyway, what's important right now is how are you going to spend your next tax refund...assuming you're due to receive a big amount this time around? Whether you get R200 or R2000 this tax season, the most important thing to remember is how are you going to use that amount.

Still not sure what you're going to do with that money when you get it? Then I suggest you consider the following three logical approaches.


1. Logical Approach

You know that someday you're going to stop working due to old age, right? So why not put that money to build your retirement nest egg while you're still sparkling fresh? With the power of compound interest working in your favour, you'll be amazed at how much money you have waiting for you on the other side for you to enjoy a secure and comfortable retirement. What's more, contributions you make toward an approved retirement savings plan are tax deductible to a certain extent, which means extra money for you to put back into your retirement nest egg for you to withdraw during your golden years...when you need it the most.

With all that money tempting you to spend it on fun and games and entertaining your friends and neighbours, you might consider a retirement savings plan as the least important approach to spending your windfall. Just pause for one minute and think about the majority of people who are standing in long lines, hat in hand, begging for handouts so they can put something in their empty stomach, if only for one night, and you'll soon realize how fortunate you are for thinking about your financial future first before anything else.



2. Responsible Approach

You can put the money in a high-interest earning savings account or investment option to grow until you're ready to withdraw it and put it to good use. Remember, while this money was still in the hands of the taxman, it was just sitting there and earning no interest for you. Simply put, that's money you 'loaned' to the government at interest-free rate. So now that the money is safely back in your own hands, you might as well take this opportunity and save it for growing your own wealth at negotiable interest rate.

Or simply, use that money to pay all outstanding debts, for example, outstanding balances on your credit cards, or installment sale agreements, which keep you awake all night. Having gone this responsible route, pat yourself on the back when you start living with a peace of mind you never thought existed anywhere in this world.



3. Irresponsible Approach

You can take your tax refund and blow it away on purchases like replacing your old but working home appliances, for example. Or just so can feel better, you can spend all that money on the latest 102 inch HD LED Plasma TV Set so you can be one step ahead of the Joneses in your area. Problem is once that money is all gone, that huge TV set will be staring back at you when you start worrying about those outstanding credit and other bills you failed to pay with your windfall.


Granted, as humankind it is our nature to want to be seen, to own the best appliances money, fast cars, and go on a holiday of a lifetime. But have you started thinking head to your financial future? By that I mean, when will you start thinking of saving money for your retirement, your children's college education, and putting at least 3-6 times the equivalent of your monthly salary in a savings account to help your family survive in case of an emergency?


As you might already have figured it out so far, it's not how much money you get back as a tax refund that is important. What counts is how sensible and wise you spend it for your financial suture.