Receiving a hefty tax refund is similar to winning the jackpot, as this is an additional sum that might come as a surprise to you to fill your pockets. The wisest thing to do is to use the tax refund in a way that will benefit you in the future instead of spending it lavishly. This can be an excellent opportunity to secure your future financial standing. Here are some clever hacks to use your tax refund efficiently.
Fund Your Education
It’s never too late to learn something new! You can do that course you’ve always wanted to, pick up a new skill related to your career, learn more about new technologies, etc. Learning something new can help pad your resume, and having more “tricks” up your sleeve might just land you a higher-paying job!
If you have kids, setting up a college fund to save the tax refund for your kids’ higher studies would be wise. You will be doing them a huge favor and avoid the financial trouble of taking loans in the future for their education! So, either way, investing your tax refund in education is always recommended, whether it is for you or your kids, as education will always benefit you in numerous ways.
Pay Off Debts with High Interest
Another good way to use a tax refund is to pay off high-interest debts. These debts mainly involve credit card debt and bank loans. The more you delay paying these bank loans, the more interest they accumulate. If you have a few high-interest credit cards or other loans, the best thing to do is to pay the loan with the highest interest rate first and then the minimum amount on the others.
The bill on your credit card account is probably higher than your tax refund, and there are chances of having payments with interest attached. In this scenario, you can opt for the “snowball method,” which recommends paying the smallest bill first and working your way up. Either way, paying off debts with high interest is a smart way to use your tax refund!
Build Up Your Emergency Fund
Many people don’t have an emergency fund, but experts suggest that it’s crucial to put aside three to six months of expenditure to help tide you over during an unexpected financial crisis. An excellent example of such a situation is the COVID-19 pandemic, which brought many economic hardships for many people worldwide. Likewise, there can be so many other emergencies that can arise, such as medical emergencies, job loss, a major repair of the house or vehicle, etc. Using your tax refund to create an emergency fund or to top up an existing fund can help avoid the need to take high-interest short-term loans or carry forward any credit card debt during an emergency.
Start a New Business
You can use your talents and hobbies to create a new business, such as baking, painting, woodworking, etc. You can start a business after retirement or make it a side hustle alongside your regular job. A tax refund can give the initial capital you need to start the company, providing funds for tasks such as designing an online store or a website, marketing, hiring help, and stocking inventory. Starting a new business with your tax refund might help increase your means of revenue in the future.
Finance Your Retirement
Retirement might seem like it’s still a long way off, but planning for it early can help you secure your future in your golden years. Getting an additional cheque that is not a part of your monthly paysheet is a bonus. So, why not set it aside for a time when you’ll really need it instead of blowing it on a short-term pleasure that you’ll likely forget soon anyway? Plus, the interest in a retirement account will help the money to grow over time!
Keep It Aside for Short-term Goals
Another way of using the tax refund cleverly is by keeping it aside to use it for any short-term, costly goals such as a fancy holiday, holiday gift shopping, or buying a car. Putting this money in a high-interest savings account might help you expand the returns, and you can withdraw the money anytime you want. Short-term bonds and certificates of deposit are also another good option to put your money in, but withdrawing it as and when you need it is not possible. You won’t be able to access the funds for months or years unless you pay a penalty for withdrawing early.
Pay Bills in Advance
If you run on a tight budget, paying bills in advance for services you don’t plan on disconnecting anytime soon might help ease your monthly financial burden. Satellite TV, internet, insurance, and phone bills are examples of what you can pay in advance for a few months or even the entire year.
Make Home Improvements
If you have a home improvement to-do list for the longest time, tax refund season is the time to get it done! Although you may not be able to fund more extensive projects, small home remodeling projects can be done with this refund. Installing new water faucets, color washing walls, repairing the kitchen backsplash, or changing house doors are some things you can do to make the house look better. Other projects like sprucing your backyard, buying new electric appliances for the house, and replacing old furniture are other things you can do to upgrade the look of your home. Upgrading your house is an investment; therefore, using your tax refund for this cause will be worth it!
Use It on Your Family
One main reason for earning is to provide for the needs and wants of our loved ones. Sometimes, covering more than the family’s basic needs is important to make them happy. So, it’s nice to consider what you can do for your loved ones when you’ve got a bit of extra cash on hand. Enjoy some quality time with them by doing something exciting, such as taking them to a concert or play, planning a family vacation, or taking an art or cooking class. No doubt, this will bring you closer together. Therefore, using the tax refund to cover your family’s emotional needs can benefit everyone involved!
