Being smart with your tax refund can make a huge difference in your financial situation. This is one time of the year that you might be getting a significant windfall of money. Making the best use of this money is one of the critical money habits that everyone needs to be financially successful.
One of the best uses is to reduce any credit card debt you may have because that will normally be your highest rate and therefore your most costly debt. The quicker you can reduce your credit card debt, the less you will pay in interest which can be a significant savings.
If you have an emergency fund, putting your refund into this savings is a great way to have protection for the future. Your emergency fund is the lifeline your budget might need when unforeseen expenses like car repairs or medical bills are a reality. If you don’t have one, your refund could be a great starting deposit.
Are you planning on a vacation or a major furniture or appliance purchase? Instead of financing these big ticket items, use your tax refund to pay for all or most if it so that you can avoid adding additional debt. Tax refunds are also great way to jumpstart your house down payment saving fund. If owning a home is your dream, use your take refund to start making a significant step towards that goal.
Finally, consider investing for your retirement, look for ways to save these funds either in a retirement fund or a separate investment fund that can be accessed when you retire. The more you save for retirement the better chance you have of living your dream retirement. Making small sacrifices along the way for your retirement can make a huge difference.
You can also consider using up to 25% of your return for something fun or self-indulgent. Often times these little rewards can help you keep strong financial habits the rest of the time. Just make sure the little indulgence doesn’t end up causing you to go further into debt.
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