Tax refunds are payments made by Internal Revenue Services (IRS) to the taxpayers, the scenario poses quite the paradox. On average, the IRS paid out $3,000 in stimulus checks as a way to rejuvenate the economy in the wake of the Coronavirus pandemic. Whether paid the minimum or maximum amount, tax refunds are incomes that should be wisely invested to maximize your benefits.
Regardless of where you are in your financial journey, a tax refund is a financial blessing that you can ride on to improve your financial situation, pull yourself out of debt, or keep winning in the money game of doubles. Here are a few tips on how to maximize your tax refund and better your livelihood by unburdening yourself off credit card debts.
1. Start by off-setting those high-interest debts
You should consider appropriating the most significant chunk of your fund towards paying off high-interest debts like credit card loans, medical bills, and other personal loans. It is good to off-set these debts as they attract high-interest rates like personal loans are capped at 10% while credit card debts double that.
2. Invest in retirement or further education plan
Think about your golden days. How much have you stashed away in your accumulation days to secure your financial health when you are retired? Catch up with your retirement plan and make payments to be where you should be. Do you have a 401(k) plan? Is it fully funded? If yes, invest in your future by depositing these monies into an education fund either for yourself or your children. When your kids come of age or when you are ready to further your studies, a comfortable financial cushion awaits.
3. Boost your rainy day fund
The coronavirus pandemic has taught us the importance of having emergency savings that you do not touch unless it is an emergency. If you have one, use your tax refund to give it a boost. It will come in handy when you have no cash at hand and emergency beckons. Financial experts advise that emergency savings is a number one priority and will help you stay financially afloat when waiting on a new job. It will help you pay your bills, fuel, and service your car when you have no employment or when emergencies begin.
4. Begin entrepreneurship
(Re)Investment is always a safe gamble. Put your tax refund in an investment portfolio. Have a diverse investment portfolio that breaks the tax refund into a stock exchange investment portfolio or using it to buy physical assets. Buy physical assets like precious stones, real estate, and artworks that increase in value after several years. You will make much more money back once you sell them off and realize your profits.
5. Pay some bills in advance and give them to charity
You can also use your tax refund to help pay some of your bills in advance, like mortgage and car loans, to reduce outstanding balances and, subsequently, interest rates. This allows you to apportion the surplus towards saving for retirement or (further) education. Giving to charity is also another way of supporting those less fortunate than yourself and additionally affords you some tax breaks in return. Giving to charity could be one of your most effective tax planning tools.