Practical Uses for your Tax Refund

Upon receiving their tax return money, many individuals make the mistake of using these funds for frivolous purposes such as shopping sprees. While that new home gym or closet full of clothing might be fun to acquire, there are better ways that you can put these funds to use. Here are a few ways in which you can put your tax refund to the best possible use.

 

Pay Down Debt

One of the best gifts you can give yourself is to reduce or even eliminate the amount of consumer debt you carry. Use your tax refund to fully repay one or more of your consumer debts. Not only will this help ease your budget each month; over time, you’ll also save a significant amount of money in interest charges over time. 

When only making minimum payments on a credit card, you could end up paying three to four times more for that item you simply had to have a few months ago. As such, it’s strongly recommended to get these repaid as quickly as possible – and your tax refund can provide the ideal opportunity to do so. 

 

Establish an Emergency Fund

It’s strongly recommended that you have an emergency fund available that includes anywhere between three and six months’ worth of expenses such as rent or mortgage payments, utilities, groceries and transport costs. This will go a long way in helping to alleviate any stress in the event of being unexpectedly laid off or not being able to work due to illness or injury. 

These funds can also come in handy if vehicle repairs or emergency home repairs are needed. Using your tax refund to set up an emergency fund will go a long way in providing you with peace of mind in times like these. 

 

Start Saving for Retirement

If you haven’t got a savings plan in place for your retirement, now is the time to get started – regardless of how young you may be. The sooner you start saving for this item of your life, the less you’ll need to set aside each month, as you grow older. 

Your tax refund can be used to set up an IRA or a 401(k) savings plan, which will go a long way towards ensuring a financially sound retirement

 

Consider Furthering your Career

Another way you can put your tax refund to good use is to invest in training courses that will help further your career over time. 

A few options in this regard can include enrolling in a master’s degree program or even to cover the cost of costly tests you may need to write in order to obtain a certification for the work you’re already doing. If you have children though, these funds could even be used to save towards their future educational needs. 

When receiving your tax refund, it can be tempting to spend it all at once. However, your budget will thank you over the long term if you choose to save a large portion, while treating yourself to something small instead. 

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How to Encourage Kids to Save

If you have kids, chances are that they spend any money that is given to them without a thought for saving towards their future. However, the earlier good savings habits are taught to them, the better their futures will be with regards to finances. Below are some tips to help encourage your kids to save a portion of any money they receive.

 

Teach them to Set Goals

These days, there are costly items and tech gadgets that most kids would love to own. If this is the case, this could provide you with the ideal opportunity to get your children interested in saving some of their money. 

For instance, if your child is keen to get the latest phone or gaming console, you can sit down with them and calculate how much money they will need to save and how long it will take them to obtain the desired amount of cash. 

 

Offer Incentives for Achieving Savings Goals

Although many parents may view this as a form of bribery, providing incentives is one of the easiest ways to encourage kids to save more of their money. An example would be to offer your child a monetary reward that can be put towards what they are already saving. If you cannot afford to match dollar for dollar, you can provide them with an amount that will not destroy your budget in the process. 

 

Establish an Allowance System

When kids don’t receive money regularly, they aren’t provided with much of an opportunity to save anything. As such, it’s a good idea to implement an allowance system in your home that suits your budget and is age-appropriate for your kids. 

When introducing your allowance system, it’s essential to reinforce the fact that your child will need to earn his or her money. This can be done by providing them with various chores to complete that are over and above those that they usually do. 

 

Help them Open a Savings Account

Although it’s possible to open a savings account for kids of all ages, those who are eight years and older will probably benefit the most from them. 

It’s a good idea to have your child accompany you to the bank when their account is being opened. This will not only allow them to see how the process works; you may find that they’ll be more enthusiastic than ever to put some of their earnings into their very own savings account. Some banks offer a range of incentives for kids who save beyond a specified amount of money as well. 

Children who are taught the importance of saving money from a young age tend to be more financially responsible after becoming adults. This is why it’s crucial to teach them about the benefits of saving money as early as possible in life. If you would like to obtain advice regarding teaching your children to save a portion of the money they receive, contact our team today. 

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Keeping a Good Credit Score during Retirement

Keeping a good credit score requires a lot of effort and commitment, especially as your time to retire draws closer. While it may not be wise to make large purchases after retiring, keeping a good credit score will ensure that you’ll still qualify to use your accounts if the need arises. Below are a few tips that will help you keep your credit score as high as possible throughout retirement.

 

Use or Risk Losing Old Accounts

It’s not enough to simply keep old accounts open; they need to be used from time to time to prevent the creditor from closing them without warning. If you’re fortunate enough to be debt-free, it’s even more important for you to use your older accounts every so often – otherwise credit bureaus will not have any information to base your credit score on. Several older folk have been taken by surprise after being denied loans because they had been debt-free for a number of years. 

It’s not necessary to incur large amounts of debt to ensure that your credit score remains active. Even making a single, smaller purchase occasionally and paying for it the following month will normally work well.

 

Don’t Close Accounts you’ve had for Many Years

Several individuals don’t know that keeping a good credit score on an account over many years will have a positive impact on their credit ratings. 

If you’re going to retire soon, you might have various accounts that you opened many years ago that you’re tempted to close off. However, closing all of these will unfortunately have a negative effect on your credit history. 

Another way in which your credit rating can be affected is if you decrease the amount of credit that is available for you to use. Quite a large part of an individual’s credit score depends on the amount of credit that has been granted to them versus the amount of credit that they are using. As such, reducing your amount of available credit can have a negative effect on your overall score. 

 

Don’t Co-sign for any Loans

If you have children that have left home, it can be tempting to lend a helping hand by co-signing on a student loan or car note for them. However, this is not recommended because it will significantly increase the amount of debt that is reflecting on your credit history. Although this might not always have an effect on your credit rating, it could affect your ability to qualify for a loan if your debt-credit ratio is overly high.

 

Take your Debt into Consideration before Retiring

Another aspect that affects your credit score is your ability to repay debt installments on time each month. This could be problematic if you’re going to be living on less income after you retire or if you experience unexpected medical bills that eliminate your savings. It’s normally recommended that you eliminate as much consumer debt as possible before retiring. 

After retiring, unexpected expenses can arise that will require you to apply for a loan. Protecting your credit score now will help ensure that you’ll be prepared to do so with ease in the future.

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Being Smart with your Savings and Retirement Funds during this Difficult Time

At present, large parts of the world are on lockdown status due to the rapid spread of Coronavirus. While it may be little more than an inconvenience for some individuals in that they cannot leave their homes as often as they like at the moment, for others, it spells financial disaster because of the fact that a number of them are unable to go to work to earn a living. 

As such, it has become more crucial now than ever before to ensure that you work as wisely as possible with any money you may have available to you at the moment. Below are a few ways in which you can stretch each dollar as much as possible.

 

Consider Filing for Unemployment

Although the rules to qualify for receiving unemployment benefits tend to vary from one state to another, many have become somewhat more lenient with regards to providing financial assistance to families where breadwinners have been laid off or had their hours cut substantially as a result of Coronavirus. 

In many cases, applications to file for unemployment can now be completed online, which can save a lot of time and effort. 

 

Avoid Dipping into Retirement Accounts

When times get tough, many individuals turn to their retirement accounts as a convenient way of borrowing money. However, this is not recommended because you will be penalized in two ways. Firstly, you will lose out on any interest that would have accumulated on the amount of money you’ve borrowed, and secondly, you will highly likely be taxed on the amount of money that has been borrowed from a retirement fund as well. 

In fact, many financial experts only recommend dipping into your retirement funds if you are facing immediate foreclosure on your primary residence. 

 

Only Purchase Essentials

When funds are as tight as they are because of shortened working hours or layoffs, it’s not the time to consider purchasing a new flat screen TV or another pair of fashion shoes. Instead, restrict all purchases at this time to genuine essential items such as food, rent or mortgage, transport and utility bills.

In situations where you’ve been granted a reprieve for paying any of the above-mentioned bills, keep in mind that once the lockdown period has ended, all outstanding amounts may become due with immediate effect. As such, it’s strongly recommended that you continue paying as much as you possibly can on rent, mortgage, utilities and car notes. 

With regards to groceries, you can save up to 30% on your bill if you’re willing to opt for store brand items, plan weekly meals around sale items and reduce the amount of non-essentials that you put in your cart such as crisps, soda and other luxury items. 

Although the next few months may be extremely tight financially for several families, keeping the above-mentioned tips in mind can go a long way to help get the most out of every dollar wherever possible. 

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