5 Potential Actions You Should Take after Filing Your Taxes
Tax season is coming which means many individuals will be receiving a sizable check back from the government. Many of these individuals rush out to purchase upgrades on things they don’t truly need but smart individuals use the return to create a safety net for the future.
Here are five ways to get more out of your tax return, this year:
#1: Send it to Savings
Dump it all into savings.
You lived the entire year without seeing that money so it won’t hurt when you diverge your return straight into a savings account.
Don’t think about it, don’t touch it, don’t even remember that it’s there – deposit it and allow it to begin building interest. Savings account may not have the same level return as investing in a 401k or Roth IRA but it’s better than nothing and certainly more than what most individuals do with their return.
#2: Pay down Debt
Take the biggest item that’s causing you debt-related stress and pay down as much of the principal as you can afford.
There are two mindsets here:
• Pay off smaller debts for quick morale boosts
• Knock off the behemoths that are the main limiters to your lifestyle
It depends on what would ultimately get you into a greater savings and debt reduction mood but despite the personal choice – just have the tax return go toward some form of debt so you need not worry about it in the New Year.
#3: Reassess your Financial Standing
Use a financial tool like MyMoneyCheckup.org to run a report about your current financial standing. This tool will ask you a variety of questions about your budgeting, savings, housing, retirement, and other main areas of finance and then present a visual report on each of the areas based on your performance.
Add an extra 5 – 10 minutes to your tax season routine and you will see the areas where your refund may go. Use the financial calculator at the end of the tool (also available in Spanish) to make logical adjustments for the future.
The tool is free and becomes especially valuable if you use the resources to understand your money so you may take your tax return and create positive outlook on your personal finance.
#4: Bolster the Emergency Fund
Build up your emergency fund for those unexpected expenses that may appear throughout the year.
Events such as a sudden breakdown of your car, injury, or bounced check can cause mayhem to your budgeting but an emergency fund is there to add a cushion to the impact caused by bills.
The emergency fund will allow you to tackle these debts before they get out of control through rising interest rates.
#5: Invest in a Business (and Yourself)
Take that tax return and invest it toward improving your knowledge, skills, or business.
Go back and begin attending college (community college is fine) if it will aid in your career growth. Increase your business advertising or R&D to gain an edge on the competition. Pick up a new hobby that will expand your mind.
Investment in yourself is one of the best actions you can take for long-term returns. Money comes and goes but life skills will be a proper investment no matter how old you get.
I don’t know if I’ll be getting a refund this year, but if I do I plan to split it between my EF and making an extra payment on my car loan. Good post!
I haven’t gotten a refund in years, but if I did it would go towards student loans.