What to do with your SARS tax refund

How and why you will receive a tax refund is explained here.

What do you do with your SARS tax refund? Many taxpayers receive tax refunds when submitting their returns. This article is about some of the ways we think you should use this unexpected windfall.

DO’s

  • Open a separate savings account and transfer the refund amount there. The bank will issue you with a debit card when opening an account. Hide this card away. If you not seeing it, you not using it. This money was never part of your normal cash flow. Keep it for a rainy day.
  • Invest it in a retirement annuity fund (RAF). Contributions to a retirement annuity account are tax deductible, and your contribution will help you get a bigger refund back the next year you submit your returns. Imagine if, every year you invest your refund into an RAF. By the time you retire you will have accumulated quite a bit. The value of this in your old days will mean more to you then than it will now.
  • Pay off your credit card’s outstanding balance. Using this to pay off a credit card will save you more money to to do more with. Banks charge high interest rates for credit cards, because it is unsecured debt (Meaning that if you default on the loan, they cant take any of your assets in lieu of the debt). When I say high, I mean at leatst 20% interest per annum!
  • Make an extra payment to your home loan or car debt. When you make additional payments on your interest-bearing loans, these additional payments will come off the capital amount, meaning that you will pay interest on a lesser amount. Making a single extra payment now on these loans will knock of anywhere from 1 to 36 months of payments later. So instead of paying  a home loan off in say 20 years (240 months), you could end up only paying installments for 17 years (204 months). All by making just one extra payment.
  • Register for an educational course in your field. Education is important, but also very expensive. Short courses are a good way of boosting your skill set, and making you more attractive to prospective employers. If you’re in the finance industry, take a course to learn to use a new software in your industry for example.

DONT’s

  • Don’t buy groceries with this money.  We know that everybody’s budgets are tight these days, but you have managed to make do with your income all along. If you make this money available to spend on your groceries, you will most likely start looking out for more expensive chocolates than you usually eat, or more expensive cool-drinks than you usually drink. These are items that will not benefit your life.
  • Don’t use it to go on a holiday. Sometimes when we receive money that we didn’t expect, we think that we should reward ourselves by going on a “well-deserved holiday”. Your holiday should be budgeted for every month. So every month you’re supposed to put away a little something for your holiday. If you cant afford to save every month for it, then you cant afford it, period.
  • Don’t buy a cellphone or tablet with it. New models are released all the time, what you paid R5000 for last year is now worth half that. Your current cellphone or tablet served you well all this time. So unless you really really need a new device, dont waste your money buying something that will make you look cool or hip to people who couldnt care less about you. Real friends love you no matter what phone you use.
  • Dont use it to start up a new business idea. We all have these great business ideas we want to bring to bring to fruition. In our minds we see ourselves making millions, and appearing on TV and in the news talking about how we changed the world. But if a business idea is really that good, ask yourself why you havent saved for it already? Saving is a good skill to have, and if you couldnt save to start a business, how will you save money when running a business? If you have an idea for a business, research the market, the industry, the product, and if you still think its a good idea, then go for it. By all means then, invest your refund in your new business.

Do you have any more ideas on how to use a tax refund effectively? Share it with us in the comments below and we will add it to this post.

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