Right approach to using your tax refund
It is always exciting to get a tax refund. The feeling is similar to saving an amount at the beginning of the year and cashing it out at the end. However, there’s a question that does not fail to intrigue our imaginations – What do we do with the tax refund money?
Here are some smart ways to use your tax refund.
- Pay off your debts
Paying off your debts should be a priority. Settle your loans and clear your credit card bills. Make sure that your financial liability is minimal. Since tax refund is what you get after paying off your taxes, it is as good as savings cashed out at the end of the year. Pay off your debts from these ‘savings’!
- Build on your savings, invest
Reserve a certain amount as savings. However, merely saving wouldn’t help, instead, mobilize your savings and invest it. There are many investment options available. You can go for tax-saving investments, which will help you reduce your tax liability in the next assessment year. Try to diversify the portfolio by investing in different types of investments. Mutual funds, equities, government bonds (also helps in tax saving), debentures, among others, are some of the instruments in which you can invest.
We talked about financial investment, but investing in your growth could also be a worthy option. Take up some educational courses, which would help you advance in your field of work. This will help you get more depth to your existing knowledge. These courses can also give you the sense of satisfaction that you need!
- Plan for next year
A tax refund is money that you get for the year when you overpaid your tax. These funds could have been used otherwise during the year. However, this could not have happened as the money was with the government. ‘A rupee earned today is valued much more than a rupee earned tomorrow’ – this is the time value of money, the concept that forms the basis of any financial transaction.
You need to be careful when you pay advance taxes, do not overpay! Keep a track on your future income and analyze your yearly tax payments. It is a gradual process, but you will get there. It is imperative for you to plan towards having lower year-on-year tax refunds.
- Build an asset
Want to have a design make-over, renovate your house? Or buy new furniture? Or purchase jewelry for your anniversary or your daughter’s wedding?
A tax refund would be handy here! Utilize these funds to build an asset. Buy something that helps you grow financially or otherwise. The money could be used to raise your standard of living.
How long has it been since you went on a holiday? Find the nearest hill station and go visit it. Treat yourself well. You could buy yourself a bike or a car. Alternatively, purchase some experiences – membership in a club, going camping or backpacking. If you are a hobbyist or want to develop one, why not buy a camera or a musical instrument? Click some professional pictures or create your own music! Of course, you do not need many ideas in this context.
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