As a rule, like most people, you look forward to this time of year: the days are getting longer, the weather is getting warmer, and the tax refund is coming.
Tax returns may not be your favorite activity and paying taxes is a great pain, but the majority of us certainly reap the benefits: according to the tax authorities, the average tax refund in Austria amounts to approx. €800 per person.
The tax refund is used by many people to afford a certain extravagance that they could not normally afford. For example, a pair of designer shoes or a new tablet. If your tax money is the only reason you can afford a vacation, you should really rethink this expense. You can save or spend the money, but use the tax bonus for a good cause.
Below you will find some practical ideas on how you can use your tax refund.
Ways to save your tax refund
Top up the emergency fund
Get ready for life's unexpected events, such as a layoff, an urgent home repair, or a sick pet. In a time of crisis, you want to keep a clear head without having to worry about finances.
By depositing into an emergency savings account, you don't have to take out high-interest loans on your credit card. As a rule, however, it is recommended to have three to six months' salary in your emergency fund.
Small tip: Keep your emergency fund in a high-interest savings account so that you earn money with your savings.
Save for your pension
If there are no outstanding high-interest debts, use your tax return to fund your retirement. Even if you have a pension plan, it is still a good idea to contribute to an individual retirement account.
Invest in your children's further education
A university education is not cheap: tuition fees for a public university are up to €700 per year – excluding accommodation and meals. For private universities, you have to expect tuition fees starting from €300 per month. For this reason, it is never too early to contribute to your child's tuition fees.
Save for a major purchase
Has your car almost given up the ghost? Are you a young couple saving for a wedding? Will you be making a down payment on your first house this year? Then set up a savings account with your tax refund and plan to top it up over the course of the year.
Spend tax refund
Pay off your debts
This step is recommended first by most financial advisors. The probably highest-interest debts you have are your credit cards, so make paying them off your top priority.
Paying the monthly minimum amount seems to be a permanent solution, but quickly calculate the interest you will pay over time. Most likely, you will be motivated to bring the debt to zero in one fell swoop.
Once the credit cards are paid off, you can further reduce your debt by paying off part of your student loan, car loan, or mortgage.
Important: Make sure that your loan agreement does not provide for a prepayment penalty before you start squandering money, according to Sebastian Dorsch from the renowned credit portal VAIDOO.
Investments in your house
Even if your refund amount probably won't finance a complete kitchen renovation, it could help you finance some simple improvements. These can increase the value of your home. You can replace your water heater or furnace, repair your leaky roof, or replace your old appliances with energy-efficient ones.
You can also consider cosmetic improvements, such as installing new lighting, replacing old faucets, and painting your front door.
Create an investment portfolio
For example, you can let your money work for you if you don't need the extra money immediately. You can take this opportunity to afford a small investment in stocks, bonds, or mutual funds.
Since the idea of investing can be daunting, you should first learn a little about the different forms of investment available to you.
Then determine your goals and your risk tolerance: Are you more in favor of an aggressive approach? Do you prefer active or passive management? Are you a fan of growth or value investments?
Finally, research financial advisors and brokers as well as online trading platforms. After choosing your asset manager, you can select your investments and start earning money.
How to get creative with your tax refund
As an alternative to the suggestions above, you can also spend your tax refund on something less conventional. If you are looking for unusual ideas on how to spend your tax refund, you might find the right idea here.
Invest in your own health
You can promote healthy eating at home with a new kitchen appliance or a freezer, or start a garden so your family can enjoy fresh produce.
With a monthly gym membership, a dance class, or the purchase of home fitness equipment, you can also prioritize exercise.
Expand your income opportunities
With additional training, such as an online course or seminar, you can earn more money in the future.
To improve your skills, you can attend training, take a course, or enroll in a diploma or certificate program at a local college. For long distances, you can also find out about open educational opportunities online.
Donations
Take on a charitable cause that is close to your heart and donate your tax refund. For example, you can donate to local food banks, shelters, and arts and culture associations, or consider global aid organizations.
Conclusion
Your tax refund may seem like "free" money, but in reality, a tax refund means that the government has deducted too much tax from your paycheck all year long. So this money belonged to you the whole time.
The tax return should not be treated any differently than a paycheck. You need the extra money, use it wisely. If your financial situation is good, you can spend some money.
