Our average Irish tax refund is €1076.17.
Most people chase that feeling of instant gratification – but some of us know that investing in our future is more important than a new TV or a holiday.
When you receive €1076.17 out of nowhere, your first instinct might be to splurge on a luxury of some sort, when we all know that’s probably not the most sensible thing you could do with it.
But what is the sensible thing to do? If you decide to claim a tax refund, or you’re waiting on receiving one, you might want to think about how you could invest that money into something worthwhile, something that will stand to you in years to come.
What’s going to be beneficial to you in the long run? Why waste it on something impractical when you could be turning that money into something that will appreciate in value?
If you’re not sure of how to invest your refund, here’s 7 worthwhile ways you can put it to good use!
1. Pay off a high-interest debt or loan repayment
There’s a reason why this is number one on our list of investments; it’s not just because it feels good to be free from high-interest debt, but because you’re not going to get ahead with investing unless you clear your high-interest debt first.
Say you want to put your money into a savings account. The average rate of interest for an Irish savings account is below 1%. If you were to receive a significant amount of interest from your savings account, which is highly unlikely in Ireland, the amount you pay for your high-interest debt will far outweigh what you receive in interest.
The profit you make from your savings will be canceled out by the high-interest rates you’re paying off on your loan or credit card debt.
Yeah, we know you’re probably super eager to invest your money but it’s important to assess your current financial situation before you make investments. Pay off your debt first and start your investment journey debt free!
2. Rent-a-Room Scheme
Ok, this is a bit of a strange one, but hear me out…
Do you have a spare room in your home? If so, there’s a good chance it’s been idly sitting there unused for years. Maybe there’s an unused treadmill, some laundry and an old lampshade among other things. Why not clear out that junk and use your tax refund to give the room a mini-makeover?
You’re probably wondering why you should invest in a useless spare room. Well, I’ll tell you why! Here in Ireland, we have something called the Rent-a-Room scheme and if our recent survey is anything to go by, you’re likely part of the 60.5% of people who’ve never heard of it.
What is the Rent-a-Room scheme?
It allows you to rent out a room in your home and earn up to €14,000 in rental income per year - tax free. Yep, that’s right, you don’t have to pay a penny in tax so long as you earn €14,000 or less in the tax year. You don’t even have to own the property all you need is permission from your landlord.
There are some rules to follow. Like for instance, the house must be your primary residence, your home must be located in the state, the rent you receive must cover the tenant’s bills and so on. For the full low-down on what’s what with the Rent-a-Room scheme, check this out.
Why not turn your tax refund into €14,000 profit?
3. Invest in your pension
Whenever anyone mentions saving for a pension, it’s usually met with a sigh or a groan and who can blame us? It’s hard enough saving money for things we need in the near future, let alone decades from now. But one thing is for sure, you’ll be glad of it when the time comes.
You might be interested to know, you can claim tax relief on pension payments: 40% if you’re paying the higher rate and 20% if you’re a standard rate tax-payer.
While more and more countries are adopting mandatory pension payments for PAYE employees, Ireland is a bit behind in that regard. That’s why you should check out your options. Every 10 years that you put off saving for your pension, means you double the cost of how much you need to put away so the sooner you get started, the better.
Just make sure you choose a savings account with decent interest if you plan on saving it long-term. You may also have the opportunity to join a pension scheme with your company.
4. Invest using a digital platform like eToro
The average person hasn’t a clue about investments or trading. In fact, it can all be very intimidating. Where do I start? What businesses do I invest in? Am I diversified? What does diversified even mean?!
Fortunately, there is a way for just about any Tom, Dick or Harry to get started with investing and trading, without having to hire a fancy financial advisor or spend months researching the ins and outs of the stock market.
eToro is something we’ve written about before here at Taxback.com because it’s pretty darn nifty! eToro is a digital social trading and investment platform that allows any inexperienced person to become an investor overnight.
If you create an account with eToro, you can immediately begin investing. However, it’s a good idea to slow your roll and check out the site first. That’s where the virtual trading feature comes in handy. You can use virtual, non-existent money to practice trading and see what kind of return you get. eToro also enables you to copy the transactions of big-time investors which means when they earn 5%, so do you albeit this will likely be on a much smaller scale depending on a budget.
While you can jump in head first, it’s a good idea to familiarise yourself with the site and any companies you’re considering investing in. If you’re starting out, it’s a good idea to invest in financially stable companies that you have faith in, companies you want to get behind. If you’re planning on investing a large chunk of money into a company, keep up to date with their quarterly and yearly reviews, spend time learning about them and keep track of their progress.
And avoid having your fingers in too many pies; if you invest in too many companies, it becomes harder to keep track of your investments.
5. Invest in self-improvement
Investing in your own self-improvement is always a good call. Everyone has goals and aspirations. This could be any number of things… If you have your sights set on that promotion, take an evening course that will better your chances, go to seminars and networking events. If your shyness is holding you back, take a public speaking class. If you’re thinking of a career change, speak to a life coach. Want to lose a significant amount of weight? Hire a personal trainer and a dietician.
No matter what goals we set, there are lots of steps we can take to get where we want to be in life. A tax refund could be the opportunity you need to take these steps.
6. Create an emergency fund aka a cash cushion
You never know what life is going to throw at you. Whether it’s an unforeseen medical expense, sudden job loss, significant home or car repairs, it’s good to be prepared for just about anything.
Not to be a be a Debbie downer but even when things are going great, something could go wrong unexpectedly and if it does, you don’t want to be caught out!
So what can be done about it you might ask? Well, you should have a fund put aside with a decent amount of “in-case-of-emergency” money. How much you put in this fund will depend on a number of things like how much you earn, your living costs and so on but it’s a good idea to build up as much as you can, at very least a couple of thousand euro. Yes, that seems like a lot of money but a tax refund could be the kick-start you need to set up your emergency fund.
7. Make a charitable donation
And last but certainly not least, this suggestion is less of an investment in yourself and more of an investment in something meaningful. A selfless investment! If there’s a good cause you feel strongly about; be it animals, the elderly, people with disabilities, homelessness, why not donate something to help them out? There is no end to the charitable organisations that need funding so if you want to do something to score some good karma points with the universe, this is a great idea and you’ll feel all the better for it.
Here are some Irish charities that Taxback.com have fundraised for in the past. They could use your help:
That’s it for our tax refund investment ideas. If you’d like to claim a refund or you’d like tax information regarding any of the ideas mentioned in this article, contact us today and a member of our team will answer any of your tax-related questions.