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What should you do with your tax return refund?

With FY19 finished, people are excitedly getting their tax information together quicker so they can get their tax return refund quicker.

The pessimist would say that people’s budgets are tight and they might need to get the tax refund quicker so they can use the money. But I’m more of the mind that people want to access the $1,080 tax offset that the government recently implemented.

According to the ATO, the low and middle income tax offset has been increased from a maximum amount of $530 to $1,080 per annum and taxpayers with a taxable income which does not exceed $37,000 will receive a low and middle income tax offset of up to $255.

That means that households with two working adults will receive a tax boost of up to $2,160. Great, right?

So, what are you meant to do with it?

Some people might go straight down to their local JB Hi-Fi Limited (ASX: JBH) or Harvey Norman Holdings Limited (ASX: HVN) to spend it on some tech. I’m sure that’s what some in the government are hoping.

These days the media’s version of a stereotypical baby boomer or millennial might spend it on a holiday from Webjet Limited (ASX: WEB), Flight Centre Travel Group Ltd (ASX: FLT) or Helloworld Travel Ltd (ASX: HLO).

But there is plenty of very financially responsible things you can do with the money. For example, you could use it to pay down some higher-interest debt like a credit card. I’m not sure if it’s worth paying down HECS-HELP debt or indeed the mortgage with how low interest rates are these days, it wouldn’t be a bad choice though. 

Another good choice would be to build up an emergency fund. I think every adult in Australia should have an emergency fund of at least $1,000 if not three months of living expenses – up to six months would be very good.

The best thing you could do for your future wealth is to invest it into long-term growth shares like iShares S&P 500 ETF (ASX: IVV), Altium Limited (ASX: ALU), MFF Capital Investments Ltd (ASX: MFF), Magellan Global Trust (ASX: MGG) and Rural Funds Group (ASX: RFF)

Where to invest $1,000 right now

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*Returns as of February 15th 2021

Tristan Harrison owns shares of Altium, Magellan Flagship Fund Ltd, MAGLOBTRST UNITS, and RURALFUNDS STAPLED. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Helloworld Limited. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Helloworld Limited and Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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