Two months after the start of the 2022 tax season, many people would be looking forward to receiving or may have already received their tax refund from Sars.
Following the increase in interest rates, people are tightening their purse strings therefore, a tax refund would be a welcomed relief.
Tonia Pavlou, Deputy CFO at RCS and James Williams, Head of Marketing for Wonga, share their tips on how people can make the most of their tax refunds.
Contribute to your emergency fund
FNB show that 80% of middle-income earners have little to no access to emergency savings. An emergency fund is useful for an unexpected event such as sudden job loss, a medical emergency or car repairs.
Pavlou said: “Generally, the rule of thumb is that emergency savings should amount to about three months’ worth of your monthly salary.
Using your tax refund to supplement this fund will help you to mitigate risks and bring you valuable peace of mind when the unexpected occurs,” Pavlou said.
Home improvement
People can use their tax refund to add value to one of their primary assets, their homes.
Williams said that with the tax refund, people could start with those renovation or extension plans that have been put off and make improvements that would add value to the future potential selling price of their property.
A tax-free savings account
According to Pavlou, tax-free savings accounts are a great way to make the most of your savings and get returns without having to pay taxes.
“The great part about tax-free savings accounts is that they don’t require large investments. The maximum you can invest in a tax-free product is R36 000 per year, which makes it an effective way of saving in small increments and earning maximum results.”
Save for your children
Parents can put away their tax refund to cover any future big-ticket expenses for their children.
“Save your refund in a long-term deposit or another safe, long-term, interest-earning investment so that you can later use it for your kids’ tertiary education or their first car,” Williams said.
Further your education
Pavlou said: “Using your tax refund to further your education and pay for a short course, workshop or training programme will produce long-term benefits for your career.”
Pay off your debts
Paying off debts is one of the most effective ways that a person can make use of their tax refunds.
She said that making payments toward debt has two major advantages:
– a reduction in the amount people individuals have to pay on a monthly basis, allowing them to free up more cash to use month-to-month.
– getting ahead on your debt repayments will help improve your credit score, decrease your credit utilisation ratio and reduce the amount of interest you have to pay.
Williams said that a small payment goes a long way to bring down your outstanding balance and reduce the amount of interest charged.
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