Those who have filed their taxes on time would have mostly received their tax refunds by now. With festivals around the corner, it would be only natural that this excess money could either be lying idle in your bank account or be spent away in leisure activities.
This piece will explore some smart options that could help your money to make a difference by putting tax refund to a better use.
- Repay high-interest debt - Tax refund can be effectively used to discard bad debt such as credit card, personal loan or car loan. Repayment of debt should be primarily done on the basis of interest rate, which means that loans with highest interest rate should be repaid first, followed by others. (Sequential order of loan repayment has already been outlined in our earlier blog).
- Boost you business funds - If debt is not a concern for you at the moment, but it is the new business venture that is occupying your thoughts then tax refund could prove to be a great way to build business funds. It is prudent to divert your tax refund money towards business opportunities. Although such diversions might not be big enough for your business but it will at least lessen the gap by some margin.
- Big plus for retirement - Apart from repaying debt and business funds, tax refunds can also become an effective tool to bolster your retirement savings. Money received in your account can immediately be transferred to funds that are meant for your retirement. By utilising tax refund towards retirement, you can reach your goal not only sooner, but it will also grow at an incredible pace to leave you with substantial savings than intended.
- Prepare better for emergencies - It is common that emergency corpus gets used up in fulfilling meagre or urgent things. Those requirements might not be urgent in nature but the ease of accessibility to emergency funds lead to its erosion over a period of time. During such times, income tax refunds could come handy to make good of the shortfall to your emergency corpus.
- For an extra mortgage payment - It is possible that your income tax refund could be too meagre to be used towards the afore listed goals. In such a case, it is recommended to pre-pay one or more of your mortgage payments, which will directly bring down your principal outstanding amount. Such small measures, when implemented every year could help bring about a visible decrease in the interest outgo and tenure of your mortgage loan.
Lastly, do not forget to reward yourself by spending a part of your tax refund towards leisure activities. But take care that you do not overdo it and keep such expenses restricted to a set percentage of your tax refund.
About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.
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