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What to do With that Extra Tax Money.

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It’s human nature - we tend to live at the limit of our finances. So, with most of us effectively having received a wage rise on October 1, what will you do with it?.

► Want to save money?
►  pay off your mortgage faster?
►  be in control of your finances?
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On October 1st the average New Zealand family became about $18 a week better off – or did they? Logo Green X-small.jpg
In one sense, it appears the Government is giving with one hand and taking away with the other. Sure standard income tax rates went down (see our previous article) but, at the same time, GST increased. For most, however, there is still an overall gain. For instance, A household with an income of $64,000 (the median household income in 2009), will experience an income tax will drop of $37.50 a week. However, this is offset in part by GST pushing up household spending by $19.36 a week. Hence households have an average nett gain of $18.14 a week= around $950 a year.

A recent article in the New Zealand Herald quoted finance experts as predicting that many New Zealanders will simply absorb that money and spend it.

The challenge for New Zealanders is to use that money to pay off debt and not view this tax relief as a windfall to be squandered.

► What to do?
Before you get used to that extra money, make a plan for yourself. The best thing you can do is use it to pay off debt. 		Use any extra money to pay off debt!

► The Plan:
Start with the debt with the highest interest – this is usually to debt associated with credit cards or hire purchase contracts. If that $18 a week was put against such debt, it can make an amazing difference and save you a lot of money.

If you have no debt outside of your mortgage, then maybe the extra savings could be used to attack that – either by increasing your regular repayments or saving that extra money to make lump-sum payments later on.

The lesson is plain, when we gain an increase like this we tend to welcome it with enthusiasm but, unless we have a plan and change our financial habits, we quickly squander it.

Click here to read our article Being Proactive with your Finances Could Save You Money.

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