Filing your tax return can take substantial effort but if you receive a refund afterwards, all that hard work is worthwhile! New research by Bankwest shows the average Australian tax refund will be worth $2,351 this financial year. But the question at the forefront of many Australians’ minds is: how to spend this cash windfall?

According to Bankwest’s Social Indicator Series Tax Return Survey, nearly half of all Australian taxpayers will be using their refund to pay off debts rather than spending it.

While millions of Australians will use this year's refund to try and get their finances ‘back in the black’, the report also found that 27% of taxpayers intended to bank this year's return, and one in five (18%) plan to spend it on a range of items including white goods, electrical devices and holidays.

FIDO, the Australian Securities and Investment Commission’s consumer watch dog, is encouraging people to consider using their tax refunds for ‘both a bit of fun and to improve their financial position’.

Below are some strategies to help you get the most out of your 2008-09 tax refund.

1. Pay off your debts

One of the best ways to make your money work for you is to pay off outstanding debts. It doesn’t make financial sense to spend this money on a new plasma television (or any other depreciating assets) if you owe money elsewhere.

It is also important to be smart about servicing debts, particularly debts which have the highest interest rates. Credit cards are a major culprit in the high interest category. FIDO says it can take over 13 years to pay off a $1,000 credit card debt if you only make the minimum payments, costing you about $1,200 in interest alone (assuming a rate of 18.5% interest and minimum payments of 2.5%). FIDO calculates that a one-off payment of $500 from your tax refund can cut up to six years off, saving you around $800 in interest.

To see how much you can save by making more than just the minimum payments, use FIDO’s Credit card calculator.

2. Start a high interest savings account

Tax returns can be a great way to start achieving your savings goals. Set up a high interest savings account and identify ‘big ticket’ items you wish to save for, such as school fees or even a property investment deposit.

But it doesn’t have to be all about serious financial choices, delay some ‘fun money’ for items such as a holiday or a large electrical item by putting it in a high interest account. Using your own money, instead of a credit card or loan, to pay for these items will leave you with a great sense of achievement and satisfaction.

3. Spend the money on bulk items

Use the money to buy bulk quantities of items you regularly purchase, such as washing powder, toilet paper or shampoo.

To find your nearest bulk outlets, check out the online Yellow Pages.

4. Buy your Christmas presents early

While December may seem far away, Christmas is an expensive time for many people. So why not start preparing early? The mid-year sales are currently on so instead of spending the money on yourself, start buying Christmas presents for your loved ones instead. Not only will you be saving money, you’ll also avoid the Christmas crowds and the last-minute stress.
 
For ‘big ticket’ Christmas items, you can use your refund to make purchases via layby. This way you can have your gift paid off before Christmas, avoiding a ‘new year’s financial hangover’ in the form of a large credit card debt.

Sources

• Bankwest, ‘Bankwest Social Indicator Series Tax Return Survey’, May 2009. 
• Australian Securities and Investment Commission, FIDO, ‘Shoes or super? Put your tax refund to good use’.
• Money, ‘Ten ways to spend your tax return’.

Note: The Bankwest Tax Return Survey was conducted in May 2009. A total of 981 Australians participated.