Save, invest or spend?

By AMP Financial Planner Duane Potter

SO you've just put in your tax return and are waiting patiently for some of your hard-earned cash to come back your way. Some of us may already have an idea of how we want to spend the money, but for those who haven't, here are some things to consider.

Firstly, sit down on your own or with a planner and focus on your financial goals, assessing your needs versus wants. It may even help to list five goals that you require money to achieve.

This should then make it easier to decide on the best approach to either save, spend, or invest your tax return.

To Save
For shorter-term goals, it's hard to go past a high interest savings account. Online savings accounts are on offer by most banking institutions and credit unions, and term deposits also offer competitive interest rates.

For any savings option, it's important to shop around for the right product, remembering to compare fees. With so many great deals around and consumer awareness at its peak, banking institutions have come up with enticing deals to stay competitive.

Also look at the fine print and keep in mind the deadline for your short-term goal. Term deposits typically have a penalty for early withdrawal and some high-interest deposit accounts require minimum monthly deposits or zero withdrawals in order to 'earn' the higher interest rate for the month.

Paying off debt is also a form of saving. An extra lump sum payment towards your credit card debt, personal loan or mortgage can save you significant amounts in interest and reduce the overall time it takes you to pay these off.

To Invest
Investing your tax return may be more suitable for your medium and longer-term financial goals.

Investing into your super fund may be a smart option if you are eligible for the Government Co-Contribution. For those eligible, the government will dollar match non-concessional (personal after-tax) contributions to super up to a maximum of $1000. There are not many other investment strategies that can achieve a 100% return within one year.

Speaking to a financial planer will help you identify your level of comfort with respect to investment market volatility and the risks of investing versus the expected returns. Knowing where you sit on the scale between conservative and aggressive can help guide your decisions when it comes to investing your hard earned money in the stock market.

To Spend
Unfortunately (or fortunately for some) getting our tax return back the same time as stocktake sales can be too tempting for many.

Some spending is necessary to ensure we have the basics, like household items or insurance (or sometimes that new pair of shoes!), so play it smart and think about those top five financial goals that you need money to achieve.

Being able to direct some or all of your tax return to a spending goal might enable you to tick a top five item off your list and provide some motivation towards planning for the other four goals.

*Duane Potter is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

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