If you have received your tax refund, you can always go on a shopping spree or travel to a new place. But the smartest ways of using your refund involve gaining monetary value from it. Here is how to go about it.
Boost Your Savings Account
Saving some of your tax return will offer you both financial and psychological advantages. Starting a new savings plan is always more difficult than adding to a current savings account. Even though you are unsure about what to save for, saving will be one step closer to your financial freedom. The money can be used to start a business, for emergencies, and as a safety net. You can also use a tax-free savings account to save up for a large buy. By separating your regular spending from savings and contributing regularly, there is less likelihood of using your savings impulsively.
Clear Your Debt
One of the best ways to utilize your tax return is to clear your debts. Focus on the credit card debt that attracts the highest interest. In case the return can pay off one credit card completely, consider utilizing the money to clear off the one card as opposed to clearing portions of all your cards. By doing this, you will be able to eliminate the card and get rid of the temptation to use it for unplanned costs. In case you don’t need the card, you can cancel it after clearing. Numerous effective strategies for clearing debt exist. You can go for avalanche or snowball method depending on the amount you owe and the debt types you have.
Invest in a Registered Education Savings Plan (RESP)
If you have a child, investing in an RESP for any amount lower than $2,500 annually will earn you a federal grant of 20 percent with a ceiling of $500. The amount you save, plus the grant will earn interest income until the moment the child requires funds for their post-secondary education. Simply, investing in an RESP will earn you at least 20 percent investment return. In case you lack children, you can always gift the child of a loved one by investing your refund on their RESP.
Top up the Registered Retirement Savings Plan (RRSP)
The funds you deposit to your RRSP on the current calendar year will work towards the money you get next year. Leverage your employer-sponsored matching programs to maximize your deposits. When you fill out forms for reducing your income tax deductions, your paycheck will be subjected to less income tax deductions. Hence, you will have excess income every month to invest in your RRSP. But since you will have less tax refund when you are getting fewer tax deductions, you require careful planning. You don’t require having too many deductions and end up with a bill as your file your returns.
Buy US Savings Bonds
If you’ve maximized on your retirement accounts, you can still grow your deferred tax through US Savings Bonds. Series I Savings Bonds offer an interest of 1.76 percent, which changes every half a year due to inflation. Series EE Savings Bonds yield only 0.2 percent, but they double in value if held for 20 years. Hence, you will earn 3.5 percent if you can hold them for that period. When compared to Treasury bonds, savings bonds are a better option.
Depending on your tax refund, you can do one or a combination of these smart ideas. By doing so, you will be improving your financial stability. As you pave the way to financial freedom, include membership at Eastex Credit Union. Contact us now to enjoy the various benefits we offer our members.