Owing the South African Revenue Service (Sars) can be a nightmare – on the other hand receiving a tax refund from the taxman can provide much-needed financial relief – that is if you put the windfall to good use.
Tonia Pavlou, the deputy CFO at consumer finance firm RCS, says taxpayers must avoid spending tax returns frivolously and falling back into bad financial habits.
She says taxpayers should rather consider ways to use their refund in constructive ways that will benefit them in the long run. Pavlou says some of the best ways consumers can make use of their tax returns effectively include:
- Contributing to an emergency fund
Extra funds could help tide you over in the event of a sudden job loss, a medical emergency or car repairs. Generally, the rule of thumb is that emergency savings should amount to about three months’ worth of your monthly expenses. Using your tax refund to supplement this fund will help you mitigate risks and bring you valuable peace of mind when the unexpected occurs.
- Investing in a tax-free savings account
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 a year, which makes it an
effective way of saving in small increments and earning maximum results.
- Tackling your existing debt
You could pay an extra amount towards a mortgage, a business or personal loan, a store or credit card. A major advantage of making a payment towards your debt over and above your monthly instalment is that doing so may reduce the amount you have to pay on a monthly basis – which will free up more cash to use month to month.
- Pay towards education costs
One major advantage to emerge from the Covid-19 pandemic was a boom in online education and learning technology. The options available to South Africans are vast and include short courses at some of the leading tertiary institutions of learning such as Harvard and Oxford.
Locally, we’ve also seen several key players emerge in the education technology space, boosted by revenue from venture capitalists who see value in the evolution of digital learning.
Using your tax refund for a short course, workshop or training programme will produce long-term benefits for your career and is a much wiser way to spend the extra money than using it for a product that will ultimately depreciate, says Pavlou.
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