Taxing lyrical

Expert advice on how to max your windfall

Scored a massive (and unexpected) tax return? Good for you. But don't blow it on a pair of Jimmy Choos just yet...there are easy ways to max your return.

We asked Jodi Adams, senior financial advisor at Corporate Chicks Australia (www.corporatechicks.com.au) for the three best ways to spend a $2000 return.

Pay off your debts

“The first thing you should do is pay off your credit card and car loan,” says Adams.

“You’re probably paying around 17 per cent interest on your credit card, and 11 to 12 on your car loan. So unless you can guarantee bigger returns by investing (which is next to impossible), you need to contribute to these debts first.”

If you have a HECS debt, if you pay a lump of $500 or more, you’ll score a 10 per cent bonus – you pay $500, and $550 gets taken off your debt. But don’t stress: your debt only increases with inflation, so the “real interest” is zero.

Invest in a managed fund

“$2000 isn’t enough to buy property and if you earn less than $50,000, the risk of losing your tax return on the stock market is too high,” says Adams. The solution? Open a managed fund (which could also be used as saving for a house down the track). “You can start one with as little as $500, and choose to dump all your cash there and leave it, or contribute to it regularly.” The way it works is, your money is divvied up and invested in different places (this will consist of money, fixed interests, shares, property and international investments), so if one area – says shares – goes bust, the rest of your cash which is invested elsewhere, is safe. “Look for a fund that has exposure to ‘growth’ areas, such as shares, property and international investments,” says Adams. Your first stop: see a financial planner who doesn’t charge a first-consultation fee.

Open a high-interest savings account

“These accounts usually generate around six per cent interest, so it’s better to pay of your credit card and car loan first, and invest the remaining cash,” says Adams. At six per cent, it’ll become $848 by the end of the year. Online companies (like ING and RaboDirect) usually offer higher returns than banks because they don’t have to spend money on shop fronts. All you need to do is register online and debit cash from your regular bank account to your savings account. Opt for no-touch plans so you won’t be tempted to dip into your savings come sale season.

By Sarah Reid