It is end of financial year time again for some of us and this in many cases means a tax return. So your likely to get a lump sum of money? What are the smart ways to spend your tax return. In addition to your tax return this could also apply to receiving other sums of money.
How large is the return you are receiving? If you receive a large return it would generally indicate that you have been paying too much tax through out the year. It may be worth looking at reducing your taxes payed during the year so you get the money sooner. If you are a terrible saver using the government as a way to force savings for the year may be the thing for you. Just remember you are giving the government an interest free loan!
Top up your Emergency Fund or get one started. Its always a good idea to have a little bit of cash aside incase an unforeseen expenses should arise. It will prevent you from loading up credit cards or financing the expense and ultimately costing you more in the long run.
Pay down consumer debt. If you have any credit cards, student loans, personal loans or car loans consider putting some money towards debt reduction. Second to consumer debt would be secured debt and low interest debt such as your mortgage. A lump sum payment into your mortgage will save you considerable interest and reduce the time it takes to pay off the loan.
Add to your investments. A tax return could be a good boost for your retirement accounts or taxed investment accounts especially if you are planning to retire early. Boosting your investment accounts early means there is more time for the money to grow. Open an account with Vanguard setup a 3 fund portfolio or target date fund and get started investing. Consider investing in your skills and education as the returns are often higher.
Purchase work related equipment that you can deduct for your next years tax return. If you need new tools, computers or other work related equipment consider purchasing it now. This is more valuable if it is a high value item that you can depreciate over the course of the financial year.
Break up the return and put it towards your savings goals. Have a look at my post on budgeting automation to get an idea of how to setup savings accounts dedicated to your individual goals. Put a bit of your return into each of these to get the ball rolling.
Donate some money to a charitable cause. Sometimes giving money can end up lower down on your priorities than your would like. Take this opportunity to donate some money to your favourite charity.
I like to divide up my tax return – if i get one, evenly across all my financial goals. Basically I treat it as if it was another weeks pay and use it to take me one step closer on the journey.
If you receive a large or small refund this year consider putting your money to work in one of the smart ways to spend your tax return mentioned above.
Are you getting a refund this year? I would love to hear what you plan to do with it!