Ways you can use your tax refund money more judiciously

For a taxpayer, all of those computations and finding out which section of the Income Tax Act to claim refunds under may be quite challenging. However, imagine receiving a large tax refund as a surprise. At this point, all that time and effort spent looking over-complicated tax jargons seem so pointless, does it? Instead of spending your refund money on a shopping spree, you can you use it to increase your net worth or expand your income. To comprehend how you may use your tax return and turn it into many sources of income, you must first realise that tax refund is not free money. This is money that you have worked hard for, so proceed with caution. Let’s see how you may make the most of this extra cash now that you have received it.

Emergency funds

What’s the use of creating second savings account when you already have one, you wonder? Having an existing savings account is one thing, but using it as your emergency fund puts you at risk of becoming bankrupt. A separate savings account, especially one with a high-interest rate, will assist you in dealing with unforeseen financial problems that may arise.

This way, if you ever find yourself in a financial bind, you won’t have to scramble to come up with a last-minute solution. You can also make sure that the emergency savings account you’re starting has the bare minimum in transaction privileges to prevent yourself from using it to cover normal bills.

Pay your bills

If you’ve accrued a credit card bill that’s keeping you awake at night because of the interest, use your tax refund to pay it off. To make matters worse, if you haven’t been paying your credit card bills in full, the balance will continue to accrue interest at a rapid rate. Pay off high-interest debt, such as credit card debt, with your tax refund.

Open a new fixed deposit account

You can use your tax refund to fund a long-term savings goal by setting up a fixed deposit if you don’t have an emergency fund or high-interest debt to pay off. In a fixed deposit, you put money down for a set duration with a fixed interest rate.

When your fixed deposit matures, you’ll receive both the principal and interest that has accrued while it was invested. Investing in fixed deposits has a low level of risk because the returns are not based on the performance of the market.

Make a long-term investment

Are you debt-free, or do you have an emergency fund? For a down payment on your dream home, a wedding, or a trip, you may want to consider stashing that money away in a high-yielding savings account. Your priorities may vary as you get older, but you won’t have to worry about running out of money because of it. This money can be split and placed in different high-yield savings accounts and then withdrawn as needed if you want to ensure that money designated for one aim is not utilised for another.

As an alternative, if investing in one of the aforementioned possibilities isn’t your thing, you can always use this money to buy mutual funds or devise an investment strategy that lowers your tax bill and thus how much you get back in the form of a refund.