Many of you have either already received your tax refund, or are anticipating one in the next few days. It can be very easy to simply waste the money on something that will not provide a large benefit to you. Here are more productive ways to spend your refund.
5 Things To Do With Your Tax Refund
Build Up An Emergency Fund
If you do not already have an emergency fund in place, and you are getting a tax refund this year, here is your chance! The point of an emergency fund is so you can have money stashed away when something unexpected comes up. If you are not financially prepared for emergencies, then you may be forced to rely on high-interest credit cards, or tap into your retirement savings in order to get by.
Even if you are in debt, you really can’t afford not to have a “decent amount” of savings! It may be tempting to apply the full amount of your refund to debt repayment, or even blow spend it on a new toy; however, if you are not prepared for an emergency, you run the risk of falling into financial ruin.
If you are in debt, try to put aside enough out of your tax refund to cover 1 month of living expenses, then move on to the next suggestion…
Pay Off High-Interest Debt
To be honest, I wanted to make the suggestion that you pay off any debt that you may have, but I didn’t want to shift the focus of this article to become a mortgage debate.
If you have any debt for which you are charged a high-interest rate, then you need to use your tax refund to eliminate it! Sometimes it can be easy to lose motivation when attempting to pay off debt by small increments each month.
Using your refund is a great way to give your debt repayment plan a huge shot in the arm!
Setting up an emergency fund and getting out of debt should be at the top of most of our lists. This will allow us to have the financial stability to handle shocks and the freedom to choose an unconventional path!
I run into people all the time who are have a heart to give, but lack the resources. There are many things in life that can make it difficult to give to those in need. I have also noticed that many times when we think of what to do with a lump sum (such as a bonus or a tax refund), we automatically try to find something that will provide a major benefit to us. However, we should also consider this as an opportunity to fulfill our desire to give.
There are a number of causes and organizations to which we can give. If you are a member of a church, the first place to which you should consider giving is your local church. Then think of other ministries that support causes that align with your heart. Of course, you do not have to be a Christian to give – there are so many great organizations (of various affiliations) that are looking to make a difference! If you know of family members or friends that could use a helping hand, that may be another option for your tax refund.
So, before you think about all of the great things that you can buy with your refund, consider those less fortunate than you, and use this as an opportunity to help out.
Save For Retirement
This is an area in which most Americans need some serious help! Many people are desperately behind when it comes to retirement planning. One of the easiest ways to give your retirement savings a kick-start is to use your tax refund to set up an Individual Retirement Arrangement (IRA)! Take a look at the current IRA contribution limits and get started today!
You may even want to increase the amount that you are contributing to an employer-sponsored retirement account, such as a 401k. This makes sense especially if you have reached your limit on the IRA. What you can do is leave your refund in your savings account, and then increase your annual contribution (be sure not to exceed the 401k contribution limits) by the amount of your refund.
Invest In Yourself
Have you ever wanted to learn a new skill or trade? Do you feel as though your career could use a boost from more training? If so, take your tax refund and invest in your own professional development!
Many universities and community colleges offer continuing education and/or professional development courses during the evenings and on Saturdays. You can take courses to improve your computer skills, or even get started on a professional certification or degree.
This list is by no means exhaustive, but simply can serve as a starting point when considering what to do with your tax refund. Also, don’t think that planning a vacation or buying furniture with your refund is wrong! Just make sure that you are being responsible in your decision.
If you will gain more satisfaction out of seeing your debt disappear or building up an emergency fund, then skip the vacation for another time.
photo by Salvatore Vuono
- Did you receive a tax refund this year? If so, how did you spend it?
- Do you follow the same logic when it comes to other lump sum payments?
- Are you one of the millions of people who have not yet file a return? If so, feel free to contact us for tax preparation.