Getting to the end of March means that tax season is in full-swing. Whether you do your taxes on your own with a tool like TurboTax, or use an accountant, this is an important financial period for most.
Many Americans receive a refund after filing their tax return. Depending on the circumstances, a tax return can be a sizable amount of money. Most financial planners suggest having a plan in place for what to do with these funds.
Doing so can help in numerous ways including helping to improve financial wellness
, which can help physical and mental wellbeing.
Below are a few ways you can use your tax return this season that can boost financial wellness
1) Pay Off Debt
Being in debt is one of the biggest hindrances to financial wellness, and it can negatively impact your physical and emotional wellbeing.
This is why using your tax return to address outstanding debt is a great use of these funds. Reducing debt with high interest rates should be targeted first as it can help to save a significant amount of money in the future.
Credit card balances, student loans, and car payments are some examples of areas where you can put some or all of your tax return this year.
2) Plan for Retirement
Many individuals have retirement savings accounts, such as a 401(k), through their employer. In addition to work-sponsored solutions, there are many individual retirement savings options available.
Opening up and contributing to an individual retirement account
(IRA) is a great way to add to your retirement savings and set yourself up for additional financial security.
Depending on your gross income, you may be able to set-up a Roth IRA, which has different implications
when it comes to taxes in the future.
3) Fund or Build Emergency Savings
Preparing for the unexpected is an important part of financial wellness. Unplanned home repairs, car troubles, or medical bills can be expensive and impact your cash flow.
Having emergency funds available in case of a scenario like this can help reduce the stress that arises, and prevent having to take out loans or incur credit card balances which can negatively impact financial wellness.
Using your tax return to boost your emergency fund is a great use of these additional funds.
4) Create a College Savings Fund
The rising cost of a college education is becoming cost prohibitive for many families.
It’s never too early to start planning for your child’s college expenses, and the earlier you start the better. Using your tax return to start a college savings fund, or add to an already existing one, is another great idea.
There are various tuition savings plans
, so be sure to do some research to determine the best vehicle to save.
5) Save for Big Purchases
Saving for a big purchase such as a home, car, vacation or engagement ring all require significant financial resources.
Using your tax return dollars to plan and save for these types of big purchases can help ease the financial burden when the time comes to buy.
There can also be additional benefits to saving up before making such a large purchase. For example, the greater the down payment on a house or car may result in lower interest rates and payments which means saving more money over time.
Don’t Ignore How Valuable a Tax Return Can be for Improving Financial Wellness
The importance of financial wellness
shouldn’t be overlooked. It plays a large role in physical and emotional health, and can greatly impact one’s personal and professional lives.
Using tax return dollars to address areas that can improve financial wellness
in both the short-term and long-term are great uses of these additional funds. Avoid using these dollars on purchasing items you don’t really need, and instead use it things that can help your physical, emotional, and financial health.
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