With tax season in full swing, it’s yet another time to reflect on the past year’s income and expenses, or more accurately, paying someone else to do it for you. Since some may be graced with a tax refund, figuring out how to use those newfound funds can be quite the dilemma.
The first thing that comes to everyone’s mind when spending tax returns is to blow it all on a vacation or buying something nice. Spending a little on yourself is totally fine, but if you can harness some self control and apply the rest of the return wisely, your future self will be thanking you ten times over.
Rainy Day Fund
A great way to use newfound cash is to build an emergency fund. It’s impossible to know when unfortunate circumstances will occur, so it’s essential to have some funds set aside to deal with whatever these problems may be. A solid emergency fund should hold at least six months of savings, so tax refund money is a great way to contribute.
Another smart way to use tax refund money is to invest it. Making your money work for you is one of the best ways to grow income, without having to put a whole lot of work in. If you’re just getting into the investing world, there are many tools available to help you make smart decisions with your money.
Settle Your Debts
One of the best things you can do with a tax refund is to pay down debt. Now, you don’t have to put all of this towards debts, some of it can still pay for that trip to Hawaii or a new pair of shoes. But allocating a portion of the return to pay off your loans can decrease the life of your loan and help you get out ahead of your payments.
Refinancing your loans is a great way to simplify them into one monthly payment, and it can save you money in the long run. Refinancing with a lower interest rate and flexible monthly payment terms can put you on the fast track to debt freedom.
However you plan to spend your tax refund this year, do it wisely with the future in mind. Going on a shopping spree may feel pretty good at the time, but finally being rid of debt or having a safety cushion tucked away can feel a whole lot better.