Your tax return has the potential to provide you with financial leverage that can serve you well across the rest of the fiscal year. Here are a some of the best ways to use your tax return to get on track financially.
Secure Your Health
Most financial analysts will tell you to pay down debt first with a sizable tax return. However, what good is paying down debt if you are not healthy enough to realize its benefits? Consider putting your tax return into a health savings account, or use it to pay for the doctor’s visit that you know you need that is not covered by your basic insurance.
Pay Down Debt
If you can say that you are in great health without any need for a doctor or dentist, then you should most certainly use a tax refund to pay down debt. Paying off debt is like paying yourself in the long run; most debt interest rates far outpace the rates that you can receive on fixed income investments. Definitely consider this tip if you do not have the best credit, and especially if you are currently behind on a high interest retail credit card.
Build an Emergency Fund
One of the best ways to bolster your financial strength is to create a cash reserve. Cash reserves keep you from having to completely dismantle your financial structures in case of an unexpected emergency. An ancillary effect is that you can invest in more speculative (risky) investments with your other sources of income, allowing yourself a higher ceiling for great returns.
Creating an IRA/Retirement Savings
You can redirect your tax return into other tax-advantaged structures such as an individual retirement account. Doing so will ensure that you limit your tax burden for receiving the return along with any proceeds that you may receive from investing it.
Start a Business/Buy a Business
You may actually be able to participate in a business based upon your tax return as well. Properly managed, this can be one of the highest ROI activities that a tax return generates. If all of your other financial obligations have been fulfilled, you can also follow a business of passion with the backing to monetize it.
Invest in Financial Services
One of the smartest investments for your tax return is to invest in financial education. If you are planning to make a large purchase, i.e. a house or a car, you may be able to greatly reduce your interest rate or debt load by using your tax return to seek the advice of a professional in that area. Saving money on debt is one of the best ways to pay yourself for years into the future, especially if you plan on investing a large asset. A few thousand dollars of investment can quickly turn into a savings of hundreds of thousands of dollars over the next 10 to 20 years if you are planning to buy a house, for instance.
Paying Down a Mortgage
If you are already in the real estate market, your tax return may be able to give you a bit of breathing room when it comes to your mortgage. Because this is the largest investment that most people take on throughout their lives, a little bit of space can make a lot of difference. If the tax return is substantial enough, you may even be able to renegotiate a lower monthly payment. Check with your mortgage specialist to see if your return is substantial enough to give you this leverage.
If you cannot think of anything better to do with your money, the best option for you may be simply to save it in a traditional bank checking or savings account. This is usually much better than spending the money on consumer goods, because you never know when a genius idea will hit you.
About the Author
Emory Clark is the lead attorney at Clark & Washington, LLC. Their bankruptcy lawyers in Nashville TN offer sound financial and legal advice in bankruptcy cases. Clark & Washington’s exclusive work on Chapter 7 and 13 bankruptcy cases allow them to advise and counsel their clients through each step of the process. Visit http://www.bankruptcy-nashville.com/ to learn more.