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5 Ways You Can Use Your Tax Refund To Improve Your Personal Finances

tax refund ahead signYour tax refund is something that you can actually use to improve your personal finances. You just have to figure out the best way to use it based on your unique financial situation.

In February of 2015, the Internal Revenue Services (IRS) will start distributing tax refunds. After you have sent your tax return, your refunds will follow after less than 21 days. This means you can expect to receive this money in your bank account very soon – at least, if you have filed your returns accordingly.

According to Treasury.gov, the average refund that can be expected from the returns of 2014 is $2,696. This is a 1.5% increase from the refund back in 2013. This average tax refund is quite a hefty amount. You can really do something about this money.

It is very important that you use this money wisely. Regardless if your finances is in good shape or not, you cannot just splurge this amount without thinking about your future. As we have learned in the past, things can turn for the worse anytime. One moment everything is okay and the next thing you know, you are neck deep in debt.

Since this is basically an expected amount (although we are unaware of the exact amount), most people already have plans on how to use it. There are both smart and dumb ways to use your income tax refund. If you wish to improve your personal finances, you need to figure out the smart ways to use this extra money.

5 tips to help improve your financial situation through your tax refund

There are actually many ways for you to use your tax refund but in this article, we will only discuss 5 of them. Some people may only need to use it on one of the items on the list while others may choose to split the money and use it in more than one. It really depends on you. It helps to take a look at your financial priorities and your goals to determine which of these will help improve your personal finances the most.

Pay off your high interest credit cards

One of the best ways to put your tax refund to good use is to pay off credit card debt. You may be thinking – why are we prioritizing your credit card balance? First of all, it accrues interest at a rate that is faster than most debts. You are wasting a lot of money because most of your payments will go to the interest alone. It will continue to capitalize as long as you are carrying over a balance each month. The longer it takes for you to pay off your debts, the more you will end up paying on interest. So try to get rid of these high interest debts and please – keep your credit card spending to a minimum. Unless you are sure that you can pay off the balance in full at the end of each month, then do not spend through this plastic card. Learn the proper way of credit spending so you do not have to put yourself under so much debt. If you already have a balance, you can cut back on it by using you tax refund to significantly reduce what you owe.

Get rid of debts with small amounts

If you have two to three debts that can be covered by your tax refund, you may want to use it to eliminate these debts completely. In some cases, people who have successfully paid off a debt end up being more motivated to eliminate the other debts that they have. If you think that you need this motivation to get through all of your credit accounts, then by all means, use your tax refund to close off the smaller debts. This can also help you concentrate on the few remaining debts that you will have left.

Save the money in your emergency fund

Some people would say that saving your money should be a priority because it is the proactive way that you can improve your personal finances. However, paying off your debts usually ends up saving you more money because of the high interest rate that you will eliminate in the process. While this is the logical assumption, you need to look at one part of your savings – your emergency fund. Make sure that before you choose debt over your savings, you already have sufficient emergency funds in the bank. This should help you be more financially secure. At the same time, it will also keep you from the need to incur more debt.

Save for the future

By future, you know that we are referring to retirement right? Your future self deserves this. It doesn’t matter if you are still young and retirement is decades away. Some people are able to retire by 30 because they used their money wisely. The earlier you start, the less you have to contribute. The less you have to put away each month for your retirement, the less of a burden it will be in your budget. It will also help you save more if you start early. According to an article published in CNBC.com, HSBC conducted a global study about retirement trends. Based on the results, they are too much into debt to be able to save up for retirement. This is a sad situation for the Americans and their very bleak future. This is why your tax refund might be of better use to your future.

Save for your improvement

The fifth and final tip for your tax refund is to use it to improve your skills. It may be to get a college education or attend a seminar that will enhance your knowledge and expertise in the industry. You can even use it to buy an equipment that will help in your business. Anything that will give you leverage so you can ask for a higher compensation from your employer. If you get a higher pay, it will really improve your personal finances and may even allow you to fund the other items on this list.

Any extra money that you have – tax refunds, commissions and any monetary gifts may be used to finance any of the items on this list.

How to set up your finances to achieve security

One thing that you can gain when you improve your personal finances is financial security. It is not really about how much you are earning, but how much of your finances can be used to bail you out of a tight spot.

There are so many ways for you to do this year that will help you improve your financial situation. According to IBTimes.com, Americans are expected to save a lot in 2015 because of the falling gas prices. Around $75 billion is expected to be saved this year. You could take advantage of this savings by allotting your budget on something else.

That extra money can be used to grow your savings or invest. If you want to build a better financial future, you need to consider carefully how you can save money especially when there is an abundance of it. That means getting extra funds like your tax refund should be used wisely. Do not increase your spending. Instead, keep your lifestyle as it is and increase your savings.

Although the economy is showing signs of improvement, we should never be complacent. Preparing for the unexpected is the best way to secure not just our finances, but our very lives and those around us.

Reasons Why You Do Not Feel Any Financial Improvement

man shoutingAre you still wondering how to improve your finances? Despite the news coming from the government that the economy is getting better, some people are wondering why they are not feeling it. Their financial improvement has yet to be experienced and a lot of them are wondering if the economic news is real or not.

Even if 2013 was a bad year or so-so year for you, let go of the past and just keep moving forward. Of course, you want to make sure that you learn the reasons why you are not keeping pace with the economic growth of the country. It helps to know so you can create a plan that will eliminate the mistakes that you made in the past.

How did the economy improve in 2013?

But before we can look at your personal finances, let us check how the economy performed in 2013. This will help you gauge just how far you have fallen behind in terms of your personal financial improvement.

One of the best indicators of an improving economy is displayed in the employment conditions of the country. Based on the information taken from the Bureau of Labor Statistics (BLS.gov), the unemployment rate in the country is steadily improving. Here are the data to prove this: (average unemployment rate per year)

  • 2007: 4.6%

  • 2008: 5.8%

  • 2009: 9.2%

  • 2010: 9.6%

  • 2011: 8.9%

  • 2012: 8.0%

  • 2013: 7.3%

Although the unemployment rate has yet to reach the pre-recession level, it has steadily improved since it reached the peak in 2010. Hopefully, this will continue to improve so more and more people will get their jobs back – or be employed for the first time.

In terms of the average hourly earnings, the BLS.gov reports a steady increase even as the unemployment rate had been rising. There were months when it was going down but on an annual average, the statistics are steadily rising. Here are the data to prove this: (average hourly earning per year)

  • 2007: 20.9

  • 2008: 21.6

  • 2009: 22.2

  • 2010: 22.6

  • 2011: 23.0

  • 2012: 23.5

  • 2013: 23.9

These figures along indicate that the US economy is indeed in a better place than it was before. But how does the consumers feel about it?

A recent poll done by Gallup.com say that various economic indicators prove that the country is indeed on the mend in 2013. It was a good year for financial improvement in the country. The highlights of the report are as follows:

  • Economic Confidence Index: improved from -21 in 2012 to -16 in 2013. Overall, the change is a positive 5.

  • Job Creation Index: improved from 18 in 2012 to 20 in 2013. This accounted for a positive 2 change.

  • Average consumer spending: improved from $72 in 2012 to $88 in 2013. This accounted for a positive $16 improvement.

The same site also reports that in January 2014, the economic confidence went even higher at -14. This is a good sign of further growth for the economy. The question is, are you feeling all of these financial good news?

Reasons why you may not be improving financially

If the answer is no, then we need to start searching for the reasons why it is so. While the economic growth and recovery may not give you an immediate financial improvement it should at least provide you with some level of relief. In most cases, the reasons for your continues financial slump might be your own doing. Remember how the bad spending habits in the past got you into trouble? You never realized it until it was too late. If you do not check yourself right now, you might be losing out on the financial opportunities that are cropping up because of the economic growth in the country.

Here are some areas that you may want to look into.

  • Budget plan. Start with your budget plan. If you do not have one, that is probably one reason why you are not feeling any change in your financial situation. This plan is one of the most basic tools that you will need to improve your money management skills. Create one if you have not yet started on the habit. If you already have one, check if it is still aligned with your goals. Budgets need revision every now and then as our needs change.

  • Credit balance. One of the clear signs that you are not improving is when your debt continues to pile up. When it is decreasing, then you are on the right path. If not, then this is another reason why you are not feeling any financial improvement.

  • Spending habits. Ask yourself: are you living within your means or have you been failing your budget? If your answer is no, then this means you are still incurring debt and that will not improve your finances in any way. If you are living within your means, you need to step it up. You need to start living below your means. That will free up some money to improve your financial stability.

  • Savings account. If your savings are not increasing, then your financial security may be in danger. If you have no savings at all, then you are in trouble. One emergency situation is all it takes to ruin your financial life. Do not let this happen. Grow your emergency fund and continuously contribute to your retirement fund.

  • Investments. Lastly, how are your investments? This is the most proactive thing that you can do to reach a significant financial improvement this year. Learn how to invest and put your money where it will go. Your savings account will not be enough to keep up with the average inflation rate. Only investments can make this happen.

What to do to improve your finances this year

Obviously, if you really want to improve your finances in 2014, you have to stop making excuses for yourself. Here are the three common excuses that people usually make that hinder their financial growth.

  • I do not know how to invest. This is a lame excuse. There are so many articles, guides and informative materials online that you can use to help you learn how to invest. You will never learn if you do not read about them. Also, experience is the best teacher. You will never learn how to invest if you do not try it.

  • I have too much expenses to have enough to save. This may seem like a valid excuse but if you think about it, there are ways for you to try and lower your expenses to make room for saving. Even if it is just a small amount, you should still save it. Soon, that will grow.

  • I am earning too little to invest. This is another poor excuse. Investing will help you earn on the side. Sacrifice some of your expenses for a couple of months so you can use the money to invest.

Financial improvement will take time and effort on your part. If the economy is improving and your personal finances are not, then that is a clear sign that something has to change with the way that you are managing your money. Stop making excuses for the mistakes in the past. It is time to move on to pick up the pieces of your financial life. Just make sure that you will implement the right financial habits from now on.

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