Having an emergency fund is something to seriously consider - for those times where the unexpected happens and you’d otherwise run into financial trouble. The general rule of thumb for an emergency fund is to be able to cover at least 3 months of everyday expenses, including rent.
If you’re still building towards that number, now’s the time to make potentially significant progress to that goal.
While investing may seem like a big step, a lot of us treat our tax returns as money we never really had in the first place - so why not consider investing in shares with the "extra" money?
There are several ways you can invest in the share market, from buying shares directly to putting your money into a managed fund that selects a portfolio of shares on your behalf. ASIC's MoneySmart website has lots of useful information on investing — www.moneysmart.gov.au/investing.
3. Pay Down Debt
If you have existing debts, especially if they’re rolling (that is, you carry the debt over from month to month and continue to get charged interest), pay it off!
If you have multiple debts, there are a few different ways to approach paying them off, depending on what works best to motivate you.
You can pay off the highest interest rate first, regardless of the size, or you can pay off the lowest balance first, regardless of the interest rate. Paying off the lowest balances first is often call the "snowball method", and many recommend as the most successful approach. If you are someone motivated by visible progress, paying off the lowest balances and working in ascending order may be the best bet.
4. Do a bit of everything
There are a few models of personal finance you could apply to your tax return as its own "mini" paycheck.
The 50/30/20 budget suggests 50% of your income should go to necessities (so any outstanding utility, rent or mortgage bills), 30% discretionary, and 20% to savings or paying down debt.
There’s also the 80/20 variation, where the only "rule" is 20% of your take-home pay goes to savings. The rest is up to you.
Regardless of the model you choose, with an average tax return that’s still about $500 directly to savings!