Tax season is upon us, and for many people, that means a tax refund or rebate is on the way. While it may be tempting to splurge on a vacation or a new gadget, the smartest way to use your tax rebate is to invest it in your financial future. Setting yourself up for long-term financial success doesn’t have to be daunting, you just need to make smart decisions with whatever is available to you.
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How should you use your tax rebate?
The smartest ways to use your tax rebate involve making measured, careful decisions about where you need extra money and how you should save.
Invest in your health
You can never invest too much in your health, so consider contributing to a health savings account (HSA) with your tax rebate. The contributions you make to an HSA are tax-deductible, and any charges you make for qualified medical expenses are tax-free.
This isn’t just about saving money on taxes, but making sure you can be prepared for any unexpected medical expenses that may arise in the future. Look for an HSA provider with low fees and a good selection of investment options, like Further HSA.
Save for a rainy day
Another smart way to use your tax rebate is to put it into a high-yield savings account. This type of savings account can earn you significantly more interest than a traditional savings account. Before you commit to setting one up, you can use a high-yield savings account calculator to estimate how much interest you'll be able to earn on different deposit amounts.
If you don't have an emergency fund yet, your tax rebate can be a great way to get started. Experts recommend having about 3-6 months’ worth of expenses tucked away, just so you can always be prepared for the unexpected.
Pay down debt
The average credit card debt in the United States is around $7,500, and your tax rebate can be a great way to pay it down. Start by paying off your credit card with the highest interest rate first, as this will save you the most money on interest charges.
If you have multiple credit cards with high interest rates and debt, consider consolidating them with a balance transfer credit card or a personal loan with a lower interest rate.
Invest in your retirement
Investing your tax rebate in your retirement is never a poor choice. If you have a 401(k) or another employer-sponsored retirement plan, consider increasing your contribution amount. If you don’t have a retirement plan yet, consider opening an IRA.
The earlier you start, the more you can take advantage of compound interest and give your investments time to grow.
Conclusion
At the end of the day, the smartest thing you can invest in is your financial future. Whether you choose to invest in your health, save for a happy retirement, or grab the new pink iPad, your tax rebate can help get you on the path to achieving better financial goals.
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