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Thousands of people each and every year fall prey to one of the classic financial blunders of receiving a tax refund: not reinvesting it properly. As much as your tax refund may be considered “free money”, it’s actually just money you’ve overpaid in your taxes that is being returned to you courtesy of your government. It can be seen as one large lump-sum extra payday, yet it’s really the product of many individual transactions, each adding only a few dollars at a time to your overall return. So before you go out and hit the town with your newly acquired cash you should consider these options instead:
Pay Down Debt
Carrying debt for long periods of time is an indicator of poor financial health. The thing is that even when you make the minimum payment on debt there’s a good chance that the interest on that debt will continue to burden you overall. A simple payment of a few hundred dollars can reduce the amount of total interest you’ll pay by hundreds more, such is the magic of percentage points. By reducing your debt you’re reducing just how much interest you’ll have to pay in the long term. That means that instead of conceptualizing it as losing money by spending your whole refund you should instead conceptualize it as getting a deal on your debt repayment.
Create A Rainy Day Fund
A surprisingly large percentage of people don’t have anything squared away for a major expense. With that in mind, a single medical bill or their car breaking down can leave an entire family in financial ruin. That’s why it’s a great idea to use your refund as seed money for your rainy day savings. If you use a site to calculate your tax refund ahead of time you’ll be able to better understand just how much you’ll be able to squirrel away ahead of time. When you use a calculator you’re also more likely to be able to make your plans stick since getting a lump sum of money without a plan is a surefire way to spend it frivolously.
Get Something Necessary
Many people put off important purchases that are important to their quality of life due to how they prioritize their spending. If you need a new washing machine, your tax return is a great way to acquire the funds for it. Ultimately this is a choice that will save you money in laundromat fees as well as reduce the burden driving places on your car & gas bill overall. That’s just one simple example of how to best weaponize your tax refund to improve your quality of life, this concept can be applied to a large variety of different purchases. So long as you save time at the bare minimum it’s more than likely a worthwhile purchase.
Conclusion
Resist the urge to spend your refund without considering your greater financial future. Don’t consider it money that can be spent without repercussion since it can be used to help you get ahead in more ways than you might consider. The whole purpose of a tax refund is to help people remain stable in their overall financial situations despite having a tax burden to begin with. If you aren’t considering your tax refund an opportunity, you simply aren’t doing the most you can for yourself.
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