Tax season is here once again.
Some of you loathe this time of year while some of you don’t mind one way or the other. Then, we have the people who anticipate it so much that they’ve already spent the money before it hits the bank.
If you’ve already spent your tax refund mentally and haven’t even filed the thing yet, I want to encourage you to take a step back and let’s think about this for a second.
What if you could use this refund to actually get ahead of your expenses? How about starting an emergency fund for life’s unexpected circumstances? Or creating unlimited future income?
I know some of those don’t sound as glamorous as a holiday, or a new pair of shoes, a new tech device, or a car payment (yes, you read that right…a car payment); but the alternative is staying broke.
Do you like being broke?
My guess is no. So, if you’re ready to overcome this cycle of never having enough money to last you until your next pay, or paying interest on credit cards – here’s some helpful advice for you today. Here are 8 smart uses for your tax refund.
1. Pay down high-interest debt
Maybe you racked up some credit cards for an unexpected emergency or last year’s Christmas. Whatever the reason is, if those bills hit your mailbox every month, they’re accruing interest.
If you really want to get rid of that credit card bill, you have to stop handing over minimum payments every month. While they might help keep you from getting a ding on your credit report, it’s costing you money in the long-run.
Do yourself a favor and pay off a big chunk or all of your credit card debt. I know it doesn’t sound fun to hand over a large amount of money to your creditor, but you’ll still be paying yourself because the money you’re saving on interest can now grow in a high-interest savings account or investment account.
2. Build up or start your emergency fund
If you have no lingering high-interest debts, the best way to prevent yourself from going into future debt would be to start an emergency fund.
Open separate savings account that you will have limited access to and put all or a portion of your tax refund aside in this account.
Next time you have an emergency, you won’t have to reach for a credit card because you will already be prepared.
3. Invest for long-term savings goals
If your debt is out of the way and you have a solid emergency fund, next you’ll want to make sure your long-term savings goals are being funded.
I’m talking about future down payments on your house, all-cash payments because if you and your spouse want to travel Europe in a few years, invest your tax refund into an investment vehicle. Since you won’t need that money for a few years, it will have a chance to grow at an average rate of return.
The same applies to saving for a sizable down payment or your children’s future education, vehicles, holidays, or college funds.
4. Pre-pay bills
If you have a variable income, the best way to assure your future bills are paid on time is to pre-pay them.
With a large amount of cash on hand, could you pre-pay your rent, electricity, water, or mobile phone bills?
It may not seem like it would help, but pre-paying your bills will give you a little breathing room in your budget to continue building up your cash reserves for future leaner months when your expected income doesn’t come through when you want or need it to.
5. Invest in your education
Is there a course you’ve wanted to invest in that will help your personal growth? Or maybe you’ve been looking into investing in a new hobby?
If so, use your tax refund to invest in those courses or to pay for the expenses of your newly desired hobby.
This investment could pay off in an unexpected way.
6. Perform necessary maintenance on your home or vehicle.
If you’ve been putting off necessary maintenance on your car, such as tyre rotation, new tyres, oil changes, a service, this is a great time to get caught up on these to make sure your car continues to operate properly.
The same applies to your home. If your tap has been leaking or your oven has given out, make the necessary repairs while you have the extra cash!
Even if you’re up to date on all auto and home maintenance tasks, make sure you reserve some of your funds from your tax refund towards any future maintenance needs for the year.
7. Purchase life insurance
If you don’t have life insurance, you need some! Insurance companies provide some pretty decent discounts for individuals who pre-pay their life insurance policies.
Speak to Integra who can point you in the right direction, so you can compare a secure life insurance with your tax refund. If your iPhone is insured, please take the time to make sure that everyone in your home has some type of life insurance.
There’s nothing worse than having to deal with the grief of losing a loved one and during those times, the last thing you’ll want to worry about (or have your loved one’s worried about) is burial expenses.
8. Make an extra mortgage payment
Reduce the life of your mortgage loan by making an extra mortgage payment or two this year.
Make sure you are clear with your lender that you are making an extra payment towards your mortgage and not pre-paying it.
If your lender allows, pay it directly towards your principal loan so that it will reduce the actual amount you borrowed.
Just imagine if you made an extra mortgage payment every year? You could shave off four or more years on your mortgage. See how much you can save by asking your Integra Accountant when you do your tax.
Of course, there are more fun things to do with your tax refund. A weekend away may sound very tempting but let’s be realistic… you can spend all of your tax refund before you even get it or you can plan ahead and use your money wisely.
These 8 steps will set you up for a future with less headaches because your bills will be prepaid, your debt will be gone, and you’ll have money set aside for all that life will eventually serve you!