It’s that time of year again — tax season! While filing taxes isn’t much fun, getting a good-sized tax return can make it worthwhile.
Whether you’re expecting a large or small refund, it’s important to make the most of it. Instead of splurging on a frivolous purchase, consider using your tax return wisely. Here are some smart ways to use your tax return to improve your financial situation, whether investing for the future or helping with your bills today.
Here are some ideas to consider!
Pay Off High-Interest Debt
Credit cards and other types of high-interest debt can become a serious burden on your finances if you allow it to build up. This is especially true in the current economic climate, in which interest rates are rising. Many credit cards have variable interest rates, which go up as the national interest rate goes up.
Using your tax return to pay off or pay down high-interest debt can provide significant financial benefits. Not only will it save you money on interest charges, but it can also improve your credit score.
If you’re looking to use your tax return wisely, high-interest debt should be your first target.
Take Care of Bills in Advance
Some of your bills are charged monthly, but you have the opportunity to pay the full amount upfront to reduce your fees. For example, you can usually opt to pay for your home or car insurance for a year in full or pay for it in six-month installments.
Paying the full amount upfront can get you a discount with some companies, and you’ll avoid monthly billing fees that are added to the bill. Looking at your bills as a whole instead of as monthly payments will also help you determine if you’re paying more than you should.
If you’re concerned about how much your bills are, you can always shop around to lower costs. Be sure to get quotes from a highly-rated company — for example, Freeway Insurance reviews give the company’s agents 4.8 out of 5 stars for helping customers find high-quality, affordable coverage.
Boost Your Emergency Fund
Using your tax return to boost your emergency fund can also be a smart financial move with long-term benefits.
Your emergency fund is a separate savings account that’s dedicated to unexpected expenses like job loss, medical bills, or car repairs. Having enough money saved can give you peace of mind when life throws you a curveball.
Having a strong emergency fund — ideally at least three months of living expenses — can help protect you from building up debt or pulling money from long-term savings like your retirement account. If you don’t want to put all of your tax return into savings, consider setting aside one-half to one-quarter of the return.
Use Your Tax Return Wisely
Your tax return is a large lump sum, and it’s important to be wise in how you use it. There’s nothing wrong with having fun with some of it, but the majority should be dedicated to wise financial moves like the ones we mentioned above.
Be sure to prioritize creating a strong financial future!