16 Jan 6 Responsible Ways To Utilize Your Tax Refund
6 Responsible Ways To Utilize Your Tax Refund
It is that time of year again, Tax Time. While it greatly depends on your financial situation, some may find it to a curse, inconvenience, or even a blessing. Either way, it is something that all Americans participate in regardless of the outcome.
For a lot of working and lower income families, tax time is when adults get their version of Christmas from good ‘ol Uncle Sam. The long awaited “reimbursement” for overpaying your taxes throughout the year is a boon to many people. After claiming the appropriate write offs or tax credits, people can sometimes receive up to several thousand dollars in their refund.
Second only to Christmas, the months during tax season have become one of the biggest spending periods during the year. Tax season has also become synonymous with car season. People take their lump sums from the tax return and go get themselves a new or used car. It makes sense, considering that 69% of Americans don’t have a savings account with $1000 or more in it.
Knowing that you may be receiving this refund and that you are likely to spend it up receipt, we put together a few suggests on how to utilize the return.
1. Pay Down High Interest Debt
#1 on the list for a reason. If you currently have any payday loan, bad credit loans, or one of those super convenient no credit check loans, you are likely paying a premium for those services. Getting rid of these is not only purposeful, but it should also feel good to be rid of the obligation.
If not one of the previously mentioned loans, credit cards, auto loans, and really any other area where you paying a high amount of interest; get it paid off. This should literally be managed as soon as the funds from your refund are available.
2. Build Up Or Create A Savings Account
As already mentioned, Americans as a majority don’t have an adequate amount of savings should they need it. Don’t be apart of this statistic.
If #1 applied to you, then #2 is even more applicable as it can help you avoid a short term loan in the first place. Having a savings account to rely on can help stop surprise emergencies from being a financial emergency as well. Saving you thousands in interest in fees by not utilizing payday loans and credit cards.
We recommend creating a firm plan of action here. Whether that is separating your refund 50/50 or simply pretending as if you didn’t receive a refund and dumping the whole thing in. Having a firm plan of action – in advance – will help you accomplish this goal before you spend your refund.
3. Work On Your Credit Score
Perhaps you’re beginning to see a pattern. If number 1 and 2 applied to you, there is a high likelihood that #3 will as well. If you had no savings account and were forced to borrow from whoever was willing to give you an installment loan with no credit check, you probably have credit issues.
Credit is something that can seem overwhelming, especially if you have had issues for some time. It can seem impossible to fix, but trust us, its not. You simply need to start somewhere, and what better time to start then when you have the resources to make a difference.
Start by getting a copy of your credit bureau to become aware of exactly what is on there. We then recommend catching up any past due payments and resolving any past collections accounts. Also, moving forward do yourself a favor and make sure you’re borrowing from a lender that reports to the credit bureaus. Most payday lenders won’t but lenders like Credit Fair-E do report your positive payment history, which in turn will help build your credit.
4. Home Improvement
While probably not your first thought, this may be the best time of the year to get things fixed/cleaned up around the house. Most of us will put housework off because…. well it’s housework. Who likes doing that? If however the only reason you were putting it off was financial, then your probably has just been solved.
There are some simple and quick ways to make your house feel completely refreshed. A few cans of paint is not only quick but it also wouldn’t take up a huge portion of your funds. We also recommend tackling projects like could result in more long term damage down the road. That leaky pipe underneath the sink could break down on you at any moment. Handle while it is still a cheap fix.
Also, look into improving the efficiency of your home. Simple things like more effective light bulbs or a programmable thermostat will easily pay for themselves in a relatively quick period of time.
5. Invest In Your Retirement
Do you know what an IRA or 401k are? If not, let’s go ahead and solve that here. Everyone should have an IRA, even if your employer does offer a 401k, it is still a good idea to have one. Take a portion of your refund and invest it for the future. Your retired self will thank you. Please note that their are contribution limits to these type of products, so make sure you are aware of those ahead of time so you are not penalized.
6. Invest In Yourself
Doing good on the proceeding 5 items? Invest in your future self. By that I mean, invest in your education. Have you been thinking about finishing up your degree or simply taking a few classes to perform better at work? There is no time like the present.
Perhaps it is more health related for you. Thinking about going to the gym but thought it was too expensive? Set aside some of your funds to pay for it over the next year. Perhaps your like me and have been putting off handling that tooth cavity you have. Use the time while you have a boost in financial resources to take care of these things while you have the initiative.
This post was listed in a particular order and you probably already noticed that. While all are important, we ranked them by those that should have the highest sense of urgency, for short term benefit.
Going through a stressful time? Don’t feel obligated to apply all of your refund to responsible items. It may do wonders for your mental health to take a portion of it and selfishly spend it on yourself. Just make sure you have a plan so you don’t miss out on these other important areas.
Also, it is important to recognize that if you are getting a large refund during tax season, that means that you have likely been overpaying your taxes throughout the year with each paycheck. Consider adjusting your tax forms at work so that you get more money on a monthly basis as opposed to just during tax season.