3 Ways to Properly Handle Your Tax Return This Season
Well, that time of year is upon us and most look to it as a fresh start and boost to their financial health. That my friends is the annual tax return most of us will be anticipating. People begin looking to purchase that big-ticket item or go on a vacation when in reality they should be saving it or using it to deccelerate their debt snowball. I want to give you all three solid ideas that will effectively utilize your tax returns this season and put you in a position to grow and succeed.
Save The Whole Thing
First and possibly the most obvious is to simply save all of the funds you receive this tax season. Certainly it’s easier said then done, as it takes discipline to know your obtaining an influx of cash and you are not going to touch it. Saving the funds is a great way to increase your emergency fund so when the emergency arises, you’ll have enough money to cover the unexpected expense and continue eliminating debt without missing a step. Also, I should make mention that unless you have all of your debts paid off, do not invest the money. You want this to be as liquid as possible, and that means storing it in savings account is the most effective option.
Pay Down Your Debts
The second option that is most effective is to use your tax return towards the debt snowball. Eliminating debt as quickly as possible will put you on the path to wealth. If your emergency fund is funded enough to where you feel comfortable, I would allocate the funds to your current debt. Do it as soon as possible, that way you are unable to look at the funds to long and begin changing your mind. Into your account, out to your debt, simple as that.
If you want to partially fund your emergency fund and partially attack debt, I believe that is another viable option. That way you’re completing the emergency fund, which you feel will handle any emergency within reason and you’re effectively eliminating a decent chunk of debt.
Lastly, if you have all of your debt paid off and have a solid emergency fund in place, investing is a smart road to take. Especially for you younger people who are 40 and under, time is still on your side in terms of investing and that money can certainly grow for you. Stick it into a 401K and just let it begin to work for you. The reason I say invest it only when you have all debts paid off, is that the interest on the debt and the current inflation rates combined are going to cut into your gains on any investments you may have. Run the numbers for yourself and you’ll be shocked by the results.
A few other acceptable ways to allocate your refund is to repair a vehicle or appliance around the home. Also, direct it towards minor things that need updating like a new furnace filter or lawn mower. These are acceptable, but be sure to use the extra funds for the three mentioned topics above.