With more than half of taxpayers counting on receiving a tax refund every year, there should be no doubt that you should have a financial plan in regards to how it should be utilized once you receive it.
Every year, the average tax refund is over $2,500. This amount is not too bad when you think about it and it can play a major role in the establishment of your future goals.
The worst thing that you can do is treat the tax refund that you get in a different manner than the pay that you receive from your job because that is what it is made up of. So the best thing to do is to come up with a way that you would benefit from it in the long-term.
To help get you started with a long-term plan, here are six ideas that you can utilize your tax return on.
Set Some of It Aside for Emergency Purposes
Having a feeling of financial security is great to have. If you don’t, you risk the possibility of disaster the moment that an expense comes around that you can’t afford to pay. Having emergency funds allows you to be covered during these unexpected moments.
A great way to start is by having your savings with at least six months’ worth of pay. But, because people are unrealistically able to accomplish this, they should be able to deposit their refund into their account.
Get Rid of Debt That Has High-Interest
After you’ve put money aside, you need to think about getting rid of all your financial debt that has high-interest. These kinds of debts involve car loans, student loans, title loans, and credit cards.
Your tax refund will come in handy the next time you receive these high-interest bills in the mail. You can also use a method known as debt avalanche that enables you to pay the high-interest debt by setting money aside. The quicker your high-interest bills are eliminated, the more money you will be able to save over time.
Open a Retirement Account
If you don’t have an IRA or 401(k) retirement account, then now would be the perfect time to do so. This can only be a good thing as it will be your main source for income as soon as you hit retirement age. This is a perfect way to put your "extra money" to work for you as you won’t need to fund it with your job’s salary.
As you gradually add money to your retirement account by using your tax refund, you will slowly see your wealth increasing. This means that just by saving $2,000 from your tax return, it can easily grow well above $125,000 by the time you are ready to retire.
Wouldn’t that be nice to have instead of wasting it all on things that will become obsolete or eventually unused?
Although there is more risk involved with the purchasing of high yield dividend stocks, it is still a great option that can increase your wealth rather quickly.
Not a lot of people fully trust this method, but if you are willing to invest just a little bit, you will be able to see if this option will be right for you or not. By sacrificing a tiny portion, you won’t risk losing much if the stock performs poorly.
Increase the Value of Your Life Insurance Policy
Not a lot of people realize how important life insurance is or how beneficial it can be to loved ones. This is what the younger generation fails to realize because they believe that they won't need it. However, what they also don’t realize is that having term life will be beneficial for family members that will need to take care of final expenses.
This allows you to continue to provide even after you have passed away so that they can continue to live the life they currently lead.
Fund an Education to Build Your Career
Putting your tax return to fund education will always be a smart way to go. Sure, you won’t receive a college degree, but you can obtain a certificate that relates to your career field, be able to relocate to an area that has better growth potential, or be able to add to your list of skills. Eventually, an increase in salary could become more valuable than what your refund would be.
Give a True Purpose
What it all boils down to is you being able to make a good choice with the refund that you receive. The good choice you make should also have a true purpose and be able to work hard for you.