It’s tax season.
And despite all the worry and hassle that can come along with it, many people look forward to their income tax refund each year.
Though the exact figure differs from year to year, the average refund is generally in the ballpark of $1,500 to $3,000 for a single person. Of course, the specifics of this can vary depending on your situation.
If you are one of the many anticipating a tax return check this year, you might be tempted to treat it as “free” money. Of course, you probably know this isn’t the truth – you earned that money through your own hard work – but it is easy to splurge and spend it on a high-tech gadget you don’t really need or go on a needless shopping spree (here are a few more ways NOT to spend your tax return).
As I’m sure you know, there are better ways to use the money you receive on your tax return check.
Here are five of the best ways to use your tax return check this year.
1. Pay Off Debt
Since we’re a debt relief website, you had to see it coming. The number one way to use your tax return is to pay off any lingering debt that might be slowing you down.
One of the best ways to do this is by paying off high-interest credit cards. This type of debt can simply eat up your finances during the year. Put as much of your tax return towards eliminating this high-interest credit card debt as you can.
Reducing your debt in this manner can have seriously positive effects on not just your finances and monthly cash flow but also your credit. It can boost your credit rating and take a little of the debt burden off of your shoulders.
Many professionals recommend setting 10% of your return aside for fun things (you have to have a little fun, of course) and using the other 90% to accomplish an important goal like paying off your debt.
Right up there with paying off debt is saving the money from your tax return check.
A nice way of doing this is by opening up a high-yield savings account. This is especially effective if you have an important savings goal in mind. Buying a new house or a new car in the next year? Dedicate your tax return savings to this.
The best savings accounts are FDIC insured and offer great rates, flexibility, and easy access to your money if you need it.
3. Make Extra Payments
Another great way to utilize your tax return check is by making an extra mortgage or car loan payment.
Making an extra payment on these type of loans is great because it can also lower your monthly payment amount. It will also shorten the period of your debt repayment.
4. Invest in Yourself
Rather than spending your tax return check on a material item that you want, it can be wise to spend it on something that will help you improve yourself.
For instance, enrolling in a class or a professional development program can help you develop new skills that will potentially increase your earnings in the future. Classes unrelated to work – such as cooking, exercise, etc – are also a great way to invest in yourself.
Business conferences, gym memberships, and a number of other things are all great ways to help put your best foot forward with the help of your tax return.
5. Book a Vacation
If you are in the clear as far as debts go, then using your tax return for a vacation might be a solid bet.
This is especially true if you were already planning to take a vacation this year. By booking as far in advance on possible, you can find the absolute best deals on airline tickets, hotel reservations, and entertainment packages. Plus, using your tax return will reduce savings stress as the date of your trip draws near.
The Best Ways to Use Your Tax Return
There is no one best way to use your tax return this year. The specifics of how you use yours are up to you. It is important to take your personal needs and preferences into account before making a decision.
However, it is essential that you think your decision through before acting on it. Even though you might think you need that new computer or smartphone, eliminating a portion of your debt might be the best bet.
If you have any questions or doubts, it can be helpful to talk to a financial advisor or credit counselor before acting.
What are you planning on spending your tax return on this year?