The season for tax return is here and many of us are hoping for a refund. In fact, the IRS has reported that there are 15 percent more tax returns this year compared to any other year. If you are one of those people that will get a tax return, instead of squandering and misusing it, spend your tax return on better things such as on paying bills.
Many people wish for a time in their life when they could be financially free. If you are one of them, then the main aim of your tax return, however small or big it is, should be to help you strive towards becoming financially free.
Important Tips on Spending Your Tax Return
The following section will give you tips in order to help you get the most out of your tax refund for 2014. The best formula to spend your tax return should be to use as little of it as possible and save a little more of it in order to be financially free.
- Use it to pay off debts. When you receive your tax return, use it to start paying off debts especially the largest ones. Your largest debt could be one that you have on a credit card that is charging you the highest interest rate. For example, if you have a debt of $4,000 on a credit card that charges you 15% interest and another debt of $1000 on a credit card that charges you 20% interest, spend your tax return to start paying off the latter card. It is always good to pay off any kind of debt despite the size but to get out of debt faster, you need a good strategy and to know which debt needs to be paid off first. Paying the minimum balance required does very little to reduce the debt that you owe even if it helps you avoid late notices and stress from creditors.
- Pay off your loans. A great way to spend your tax return is to use it towards paying off your loans such as your car loan. This can give you a head start in paying off the secured debt that you have. It does not matter whether it gives you only a few months ahead, as this will ensure that you are in a position to keep up on your monthly payments. The best thing to do is to spend your tax refund in paying more than the minimum amount payment required on your debt and then keep paying the monthly amount required. This is the surest way to pay off any debt faster. The tax refund can also help you negotiate the best interest rates deal available if you want to use it as down payment for a new car.
- Put the tax refund in an emergency savings account. Another way to spend your tax refund is to save it in an emergency account. Statistics from money experts reveal that around 75 percent of Americans live from paycheck to paycheck and struggle to make ends meet. An emergency fund will help you prepare for emergencies that are unexpected and also provide you with the peace of mind. The temptation to squander your tax refund should be less as it is an income that you did not expect and which you did not include in your budget for 2014 at the beginning of the year. If you cannot put the whole tax refund amount in the emergency savings account, consider setting aside a third of it as it takes some time to build an emergency fund. Have clear goals that will help you save a little bit more every month as this figure will grow after several months of consistently saving.
- Save and spend. The best way to spend your tax return is to split the money so that if you must spend some of it, some is left for you to save. Remember that almost everyone goes through seasons of unexpected financial difficulty and needs a fund that they can dip into when this happens. The money you save can help you pay debts and bills so that you do not get to a stage where you are overwhelmed by them.
- Go on a family vacation. You can spend your tax return on a family vacation if you still have some money left after paying debts and putting a portion of it in a savings account. Be careful not to be extravagant when using the tax refund to have a good time on holiday as often people feel that any money they receive that was unexpected is free money and can be wasted. Financial freedom requires people to be disciplined and to always spend any money that they receive wisely.