When working, it can be annoying how much tax we pay. There can also be times when we’ve paid too much tax. This could be due to a miscalculation on our tax return, or because we’ve been paying tax on the incorrect tax code.
Fortunately, we can recoup our less via tax refund, which is either sent automatically, or because we’ve made a request. Either way, we can find ourselves with a payment we weren’t expecting. Initially, we can be tempted to spend the money on a few treats, but there those who like to ensure that they’re money is working in the best way for them.
Depending on your current financial standing, there can be several ways to invest your tax refund that will put you in a better financial position moving forward. The following is an example of what your tax refund can be used for.
Pay off Debts with High Interest
When paying off loans and credit cards, it can be easy to forget about the interest rates because we’re only paying a monthly amount. However, if we do our sums, it can mean that we’re paying a lot of interest. Therefore, using our tax refund to pay off any existing debt can be a good move. There can be fees for doing this but often, these fees will still be lower than the interest you’re currently paying.
Fund Your Children’s Education
One of the main worries parents can have is working out how they will meet the financial commitments of their children’s education. In the early stages of a child’s life, it’s not unusual for such concerns to be put on the backburner. But sooner than you know, you’re in a position where your financial situation needs some serious adjustment.
Evidently, tax refunds can vary in amounts, but it’s safe to say that any amount you’re able to commit to your children’s financial future in advance is only going to benefit you in the long run. The reason why so parents find the ordeal stressful is due to them having to find a large amount of money in a short amount of time. Having an amount already stored away, regardless of how small, can only help reduce the stress moving forward.
Use the Refund Towards Your Retirement
Saving towards our retirement is hard nowadays, especially if we’re starting our funds later. Depending on when you’re looking to retire, there can be many changes you need to make to ensure you have enough. For example, there may be instances where you need to take on another job to ensure you can retire at the age you want.
However, if we’re able to contribute a large amount to our retirement fund early on, then the whole process becomes much easier.
Build Up Some Emergency Savings
When the unexpected happens, it’s not unusual for us to apply for a load, or use our credit card. While there are all viable means of funding, they do come at a cost in most instances. Using our refund towards an emergency savings fund means we’ve always got that peace of mind that is something should go wrong, we have instant access to funds.
Increase Your Insurance Premiums
While we should always look to have the right kind of insurance in place, complete peace-of-mind can be costly. As such, there is always an element of risk when it comes to the loss of our cherished possessions. A tax refund can be used towards your premiums to ensure that all bases are covered should the worst-case scenario occur. It also means that you’re not struggling financially when it comes to replacing items in the home.
Open an ISA
There are many savings accounts available to us, and in most instances, it makes sense to opt for an account that offers attractive interest rates. However, we also need to consider that our savings are taxed at the end of each financial year, at least that’s the case with a normal savings account. An ISA, also known as an individual savings account, allows you to save a set amount each year, without being subjected to tax. Depending on the account you choose, there will also be an amount of interest paid on the ISA.
The amount that could be saved in the 2017/18 tax year is £20,000, but this amount often changes each tax year. Evidently, if the amount is more than £20,000, you would need to look at other avenues for the remainder, but an ISA is a great way of making a return on your cash, without having to pay interest.
It’s worth noting that an ISA is a long-term investment, and while you can have access to the funds in most instances, you will be at a loss in terms of interest.
Use Your Refund Towards a More Fuel-Efficient Vehicle
Depending on the type of vehicle we have, we can spend a lot on fuel. While we may look at the upfront cost when purchasing a vehicle, we don’t always consider the overall cost, which can include insurance and fuel. Similarly, there can be vehicles that can cost more upfront, but prove to be more efficient in terms of fuel usage. If you use your car for a multitude of tasks, then it can make sense to opt for something that is cost-effective.
How you choose to use your tax refund can depend on your circumstances, and there will be those who just want to go and enjoy it. However, investing the amount can mean that our money is working in the best way it can.