Be smart with your tax refunds

April 30, 2014 | Category:

How to be smart with your tax refund

Getting a tax refund can be exciting, especially if your refund is larger than you expected. However, before you use that refund to buy yourself a new TV, it’s important to think about if making a splurge purchase is the best possible use for your tax refund.

Many people make the mistake of being short-sighted with their tax refunds, which can be a problem. Before you spend your refund, it’s a good idea to take the time to determine if you’re using your tax refund wisely.

Here are a few smart ways to use your tax refund.

icon-moneyPay Down your Debt

One of the first things you should do when you receive your tax refund is consider paying down any debt that you have. This includes Pay day loans,  credit card debt, student loans, lines of credit, car loans and any other debt you may have. Paying down your debt more quickly can help you a great deal as you’ll end up paying much less interest on the loan over time.

Take stock of your debts and use your tax refund to pay down the debt with the highest interest rate. For many people, this will be your credit card debt, but it varies from person to person.

icon-moneyGrow your Savings

Having a “financial safety net” is very important. Studies show that around 75% of people do not have enough savings to cover six months of expenses and that about a quarter of all people do not have an emergency fund at all. Having these savings is crucial.

A financial safety net can make it easier for you to deal with unexpected financial difficulties. For example, if your car breaks down or your basement floods, you could end up in serious financial issues if you do not have any savings. If you should lose your job and remain unemployed for any period of time, having savings can allow you to carry on until you find a new job.

icon-moneyInvest the Money

If you do not have any debts that need to be paid down and you already have enough savings to cover six to nine months of expenses, it’s often a good idea to invest your refund. Adding to your retirement fund or putting the money into an education fund for your children can help you a great deal. The earlier you start saving for retirement, the more money you’ll have when you retire.

Other options are investing in stocks, bonds or other types of savings. Choose the investments that work best for you and consider using your tax refund to build for the future. It will pay off.

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