Ok, so it’s tax time. You’re eagerly awaiting getting that sweet, sweet cash and know the only thing standing between you and your tax refund is a bit of life admin.
But what’s the best way to use this cash?
Let’s face it, spending money is way more fun than saving it. But, can you use your tax return to give you a massive leg up? If you want to put your tax money to work creating more money for you in the year (or years) ahead, your smart options are here.
Pay Down Debt
If you’ve got a credit card or a personal loan you’re probably getting smashed with interest costs, and with interest rates between 10%-20%, it can be hard to make real progress reducing your debt.
Think about using your tax refund to take a chunk out of your debt. This will often reduce your repayments and free up more of your regular income to pay down your remaining debt faster, start building savings or investments, or just spend more on your next travel adventure.
And if you’re paying high-interest rates on your debt, think about using a balance transfer to reduce interest and make faster progress nailing your debt.
Build Your Savings
Having a solid emergency fund is important to give you peace of mind, financial security, and as a back up when you do any sort of investing. The right number to have in your emergency fund is different for everyone, but as a rough rule of thumb three months of your core living expenses and any debt repayments is a good starting point.
Start A Regular Investment Plan
A 30-year-old starting with nothing today and investing just $100 each week can give you an extra million dollars by age 65. Starting small and being consistent is the key.
But when you don’t have much experience with investing it’s often scary. This fear is totally natural, and often helpful. You can overcome the fear around investing by building your knowledge and being smart around your investment plan.
WARNING: It’s risky (and generally a bad idea) to invest any money you’re going to need short-term, so take the time to understand your spending so you know what you need and what money you have leftover to invest.
When you combine a good investment plan with educating yourself, this will reduce the risk of running into trouble and give you the confidence to get started.
Yeah ok so I probably shouldn’t say this, but spending your cash can give you some massive long-term benefits—if you do it the right way.
Spending on an experience like travel can expand your horizons and help you build life skills that can help your career and future earning potential.
Spending on your professional development through short courses or formal study can help you get your next promotion or pay rise. This can give you financial benefits for years to come, and it will often pay for itself many times over.
As long as you don’t just blow your tax return on a boozy night out or gorging yourself on smashed avo, your tax refund can give you financial benefits for years to come.
Some of these options are going to be more ‘fun’ than others, but others will give you better long-term benefits.
Make your choice, and put that money to work!
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Ben Nash is a Financial Adviser and the Founder of Pivot Wealth, a money management company that helps young professionals get smarter with their money.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether the information is appropriate to your circumstance before acting on it, and seek professional advice from a finance professional.
Image credit: Marc Kleen