According to an Expert, There Are 3 Ways to Maximise Your Tax Refund.

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Technically speaking, a tax refund is not the lovely thing that we tend to believe it to be. To receive a refund, you must have paid more taxes upfront than you were required to and collected less from your earnings as they were generated.

Although this is the case, most people who receive a refund instead of complaining about having given the government an interest-free loan do a little happy dance in celebration. And if you’re anticipating a tax refund this year, you’re in excellent company. According to a recent survey conducted by Ally Bank, 50% of consumers expect to receive money back when they file their taxes in 2021.

If you are entitled to a refund, you must put that money to good use. Lindsey Bell, Chief Markets & Money Strategist at Ally Bank, is on hand to assist you in navigating your financial options. Here’s what she recommends you do with that large sum of money.

1. Pay Down High-interest Debt as Quickly as Possible

If you have a mortgage, you are not required to pay it off as quickly as possible to avoid penalties. However, if you have high-interest debt, such as a credit card amount, you’ll want to do everything you can to get rid of it as quickly as possible. And your tax refund may be able to assist you in paying down or eliminating your debt.

According to Bell’s explanation, “The balances on these types of accounts increase quickly and, in theory, make the products you purchase much more expensive than they already are. Using a portion of your tax refund to pay for this will help you save money on interest payments and enhance your credit score at the same time.” It becomes easier and more economical to borrow money the next time you need it the higher your credit score becomes.

2. Keep a Portion of It for Yourself.

According to Bell, “you never know when an unexpected bill is going to come around.” “Saving allows you to be more prepared for whatever life throws at you.”

To be safe and prepare for the unexpected, it’s a good idea to have enough money in savings for three to six months worth of living expenses. Putting your refund into a savings account could help you get closer to reaching your goal.

Bell suggests that now is a particularly ideal time to increase the size of an emergency fund. Since inflation has been on the rise recently, she notes, “it may be prudent to increase the size of your emergency fund to account for higher food and fuel prices.”

3. Spend a Little Extra Money on Yourself or Your Long-term Ambitions.

Use of your tax refund to better your financial situation is a wise decision. However, this does not imply that you should overlook your own needs. In fact, Bell recommends using a portion of your refund to indulge in something that will make you feel better, such as a gym membership or a unique purchase.

Bell also recommends making an investment in your “future self.” That could entail opening a brokerage account and investing in stocks if doing so has previously been out of the question due to a lack of financial resources, for example. And, according to Bell, “if you haven’t already, start contributing to your retirement plan or boost the amount of money you are presently putting in.”

A tax refund is not always something you can count on to be available every year. Take advantage of your IRS refund if you’re expecting a substantial sum this year. This holds true regardless of how large or small your refund is.

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