An income tax refund is a lifesaver. It allows you an opportunity to make your financial situation better.
But lack of knowledge on handling leads to a worse financial condition. Avoid making poor decisions.
Read the quick tips on using your income tax refund.
Must-Do’s For Your Income Tax Refund
Managing your income tax refund is exciting yet stressful. It would help if you weighed your options before you finalize your decisions.
Think whether you’ll save it or squander it. We list down below what you must do to make the most of your extra cash.
Pay off credit card debt.
The first thing you should do is to lower down your debts. Suppose you can pay it off in full, the better.
Start with your credit cards. Pay off those highest interest rates. This way, you pay fewer interest charges every month. Thus, it leaves you with remaining smaller payments. It is a smart move that can reap rich long-term rewards.
Finish your financial responsibility from your debts. It could be debts on credit cards, a payday loan, a car title loan, or personal loans.
Create an emergency fund
Once you have cleared all your debts, build your emergency fund. This type of savings serves as a cushion during unanticipated events. The next time there is an accident or an illness, or a job loss, you have a budget for it.
Make it a habit to tuck some cash for your savings, tax refund included. Must for sound financial management. Regardless of the amount, as little as $500 can help you in future unexpected expenses.
Do you have an existing emergency fund? Boost it up with your refund. Remember, the fund must reach three to six months of your living expenses.
Begin a retirement plan
By now, you have realized that you’re not getting any younger. Although for some, it might seem too far in the future.
Still, starting your retirement plan as early as now is a smart move—the earlier you save, the more funds you hold for your future. Also, you will reap the magic of compound interest.
Enhance your future. Invest your income tax refund into a tax-deferred retirement plan. You can pay a one-time sizable contribution. Or you can save it for a series of smaller investments.
What matters is you use your extra cash for your future.
Pay ahead mortgage and loans.
When homeowners receive their tax refunds, they use them for their hefty monthly mortgage payments. Try it yourself and experience a breather for paying your obligations ahead.
Meanwhile, nonhomeowners use it for their pending loan payments. Lift your financial burden from a car loan or student loan with your income tax refund. Also, you can prepay your premium insurance.
Take care of your car.
Another wise move for your income tax refund is doing the necessary repairs. It is alright to spend costly, as long as it is indispensable.
An example is your car repairs. Buy your vehicle a new set of tires with your extra fund. It is also applicable for home repairs. Get that leaky roof done before the rainy season.
Invest in career-building education
An income tax refund is not enough for a four-year college degree. But it can help you expand your knowledge.
Earn a professional certificate by attending seminars and training. Boost your resume by adding special skills to it. Move to a new city when a better career opportunity opens its door.
When your salary increase, it would be more than the value of your income tax refund today.
Make tax-deductible donations
After receiving your tax refund, analyze your finances. If you see that it is in good shape, don’t be scared to be generous.
Donate your extra cash to a charity. You help others in your small way while helping yourself in return. Look for potential charitable donations that may deduct your taxes. Itemize it when your file your tax return.
Giving back feels satisfying. Plus, you’ll enjoy it as well.
Start savings for Kids.
As you build your finances for you and your family, teach your kids to save as well. Open a bank account for them with your income tax refund.
Look for banks that offer kids savings. Invest more than the minimum value so it would start earning its interest. Despite the small amount, it would gain and be beneficial for your kid’s future.
Also, it is a big start on retirement savings. Moreover, it can double as a back-up for your emergency fund.
Also read: Irs penalty and interest calculator
Reward yourself
Once you have covered all the above necessary expenses, treat yourself. But remember to do it responsibly.
Get a well-deserved vacation away from all the stressors in your daily life. Or you may buy the smartphone you’ve been eyeing for a long time.
Keep in mind that when you reward yourself, be fiscally savvy. Find the best deals so you won’t regret them in the end.
Be smart when using your income tax refund. Let these tips be your guide on how to spend it wisely.
Must-Don’ts With Your Income Tax Refund
An income tax refund can be the biggest paycheck you’ll receive every year. It is so tempting you spend it hastily. Beware of the following spendings when you use your extra cash.
Impulsive purchases
Anything expensive but unnecessary is a big no-no. The latest smartphone unit might look good, yet your current device still works properly. Evaluate whether your purchase is indispensable or not.
Lavish travel
Occasional trips are essential as long as it doesn’t blow your tax refund. Remember, those things come and go. If you want to visit a particular tourist spot, start saving for it. Your lavish travel won’t allow your income tax refund to grow.
If you haven’t saved much for your travel, why not seek financial help from a money lender Jurong? At least it will give you extra funds for you to enjoy your trip. Try to read the moneylender reviews before you decide to apply.
A checking account with no interest
Saving is one of the smart ways to use your refund but choose wisely. Many savings vehicles will make your money grow—research investment options. Look for an account with a higher interest value.
