With July known as National Savings Month in South Africa and with tax filing season currently underway, investing your tax return could serve as a unique savings strategy.

When considering how much you receive from your tax return each year, instead of spending the entire amount, why do you not allocate a portion thereof towards reaching your financial goals? When last have you reviewed the following:

  • Have you saved enough for your emergency fund?
  • Are there any important home renovations that you want to save for?
  • How far are you with saving for your children’s education?
  • Are your retirement savings sufficient? In our LinkedIn poll last month, this was the biggest financial concern as indicated in the results, confirming that many individuals are not financially prepared for retirement.

The first step in developing a savings strategy around your tax return, is to consider in which bracket you fall. Thereafter, you can link a specific investment option and savings goal, as indicated by the following example:

Even if you only save a portion of your tax return (to spend the rest on spoiling yourself), the long-term benefits could make a significant impact financially. The following tables use the examples of saving for your children’s education and retirement savings to illustrate what your invested tax return could be worth in a couple of years.

In the first example, if you save for your child’s education during the first 8 years of his/her life and you invest the same amount annually, this is what the investment could be worth after 8 years:

This example includes different lump-sum savings amounts, without saving additional capital every year, to show what your retirement savings could be worth after 8 years:

These are simply examples to demonstrate the difference that investing your tax return could make to your financial plan. When we allocate capital towards our savings goals and align it to our financial needs, it ensures that we don’t aimlessly spend every additional cent we earn but that we rather invest into our futures. If this is not something you have previously considered, start with small amounts and focus on making it a habit.

Also consider discussing your savings goals with a financial advisor to ensure that the most appropriate investment product is selected for each financial goal. There are a multitude of things to compare between different products, such as minimum amounts, access to funds, and fixed investment terms and therefore consulting with investment experts will simplify this process.