Do you think of your tax refund as “extra money” or as part of your earned income? The answer to that question is probably a clue about what you plan to do with the money once it arrives.
Many people will use their return for paying off bills or saving. You may be more likely to pay off credit card debt or household bills with the extra cash than to splurge. On the other hand, you may use your tax return each year as a way of investing in something special for yourself.
The problem for some people is that it's easy to overestimate what you can do with the amount of money you will get. When you put your plan onto paper, you will have a more realistic idea of what your real options are.
The first thing to keep in mind is that what is best for someone else may not be what is best for you. Each person has a unique situation with different financial demands.
To determine your top priority, write down all of your current debts, upcoming debts, and any rewards that you might consider purchasing. Take the time to get the actual numbers and don’t just guess or estimate.
Your goal is to have a solid plan by the time your tax refund arrives. Once you compare all of these numbers to the amount of your refund, it should make it easier for you to decide on the best option for you.
Make a list of all your debts. Do you have recurring charges that you have to struggle to meet? If you need to get on top of your mortgage, car payments, or credit card payments, these are areas that should get priority - they are the debts where you have the most to lose.
There may also be some debts that are creating stress and sleepless nights. Which of your debts can your tax refund have the greatest impact on?
If you have your finances under control and nothing new that is really pressing, saving is a smart choice. Even if you want to use the money to pay for something in the near future, you can increase the total when you put the money in an interest-bearing savings account.
You can also start a long-term savings plan to grow your money even more. This is a good approach if you're expecting any large expenses down the road, such as paying for uni or school fees.
Have you been thinking of upgrading one or more of your home appliances? Is your home in need of a makeover? Maybe you have been thinking about a holiday in a tropical paradise. If you don’t have pressing debts to worry about, there’s no reason you shouldn’t indulge in something that will make you happy. After all, you worked hard for your tax refund.
One thing to keep in mind is that some of these bigger purchases may cost more than the amount of your refund. That doesn’t mean they are out of reach - your refund can be the kick-start you need to get your savings underway. Open a savings account with your refund. If possible, keep adding to the balance.
A little patience and the dedication to make your money work for you will pay off in the long run.
We'd like to use your current location
For a more localised experience please enter your location below...
Set your location for a more localised experience.