What to Do With Your Tax Refund--Or Not!
When it comes to tax time, you may be wondering what to do with your tax refund so that it will be put to good use instead of spending it on shopping, eating out, and things you don’t need.
From growing your savings to paying down debt, we’ve rounded up some of the best uses for your tax refund dollars.
Save For Emergencies
Millions of Americans don’t have an emergency fund. And when it comes to your personal finances, this is one of the most important things you can do to set yourself up for financial success.
An emergency fund can play a critical role in helping to make sure you can still pay your bills and have enough to live off if you need to cover a financial emergency.
A financial emergency can include an unforeseen medical expense, a home or auto repair you didn’t see coming or even the loss of a job.
If you don’t have an emergency fund, you may have to pay for these expenses with a credit card which only increases your debt.
Life happens and you may suddenly find yourself needing to fix the broken water heater in your home, get new brakes for your car, or your daughter might need to unexpectedly get her wisdom teeth out. So use your tax refund wisely and squirrel some away to prepare for an emergency.
Get Life Insurance
Instead of needlessly spending your tax refund, put your money to work by purchasing a whole life insurance policy to help save for retirement and financially protect your loved ones in case of an unexpected death.
Using your tax refund to purchase a life insurance policy may actually be more affordable than your monthly coffee habit.
Plan for the Future
Use your tax refund to invest in your future. Many Americans don’t have enough saved for retirement. If you have access to an employer-based 401k program, make sure you are taking full advantage of this and maxing it out.
If you can contribute six percent, do so. If your employer matches half, that is a free three percent in your pocket each pay period.
By saving your tax refund, you can help offset the extra money coming out of your paycheck to really make the most of it.
In addition to your 401k, an IRA or individual retirement account is also a great investment in your future. All of these allow you to grow your wealth tax-free.
Pay Down Your Debt
Another great use for your tax refund is to pay down your debt. By paying down your debt you will reduce your debt to income ratio, increase your credit score, and improve your overall financial health.
You ideally want your debt-to-income ratio to be under 43 percent.
Too much debt means you could be paying a lot of interest and could have a lower credit score. So, when it comes time to buy a home or obtaining financing, you may not qualify.
Debt is also a big stressor in life. It’s hard to feel care-free when you know you have a mountain of debt to pay or you are living paycheck to paycheck. Use your tax dollars to reduce your debt and breathe a little easier.
Save for a Big Purchase
When you receive your tax refund, it can be tempting to spend it on something frivolous.
Instead of wasting your money, save it for something big like your education, student loans, studying abroad, or a down payment on your home.
When you have a big goal and a big expense to pay down, saving your money toward achieving it means you don’t have to pay costly credit card or loan interest, and you’ll lower your monthly expenses too.
Think about how much you could be saving every month by using your tax refund wisely.
What to Do With Your Tax Refund
Big purchases like your home, education, retiring, traveling, and becoming debt-free, are really investments more than purchases. You’re investing in your financial independence, the stability of your family, your retirement, and your quality of life.
Next time you consider taking your tax refund money to the mall, think about what is really important to you. Is it that new sweater or saving for your retirement, seeing the world, finishing school, or buying a home?
When you’re wondering what to do with your tax refund money, consider investing in your future and your financial health.