While no one really likes paying taxes, everyone loves getting a tax refund. Last year, the IRS gave tax refunds to 72% of all taxpayers, with the average amount of each tax return being around $2,000. If you were fortunate enough to get a tax refund, your mind is probably racing with anticipation of what you can get with this windfall.
Before you whip out your credit card, though, stop for a second. While getting an expensive new toy is always nice, your tax return can do so much more than just buy something fancy. It can give you peace of mind, give you a major boost toward reaching your financial goals and maybe even position you for a raise!
Here's some smart ways to use your tax return:
1. Get out of Debt
If you have debt, use your tax return to help erase it from your balance sheet. When you pay off debt, especially high-interest debt, you’re saving yourself from all the interest your creditor is charging you on the amount you owe. You’re also freeing up more of your regular income to achieve your financial goals.
Take your first step to becoming debt free
2. Build up Your Savings
If you’re fortunate enough to be free from debt, you can build up your savings account instead. You can start by working on your emergency fund. Ideally, you should have three to six months’ of living expenses in your savings account, but at a bare minimum you should have at least $2,000.
3. Spend it on an Essentials and Big-Ticket Items
If you’ve been putting off a big purchase you need, you can use your tax refund to help buy it. This can be anything from car repairs (or a down payment on a new car!), dental work or an eye exam, a winter coat or home maintenance.
4. Make Some Investments
If you’ve eradicated your debt and you have a comfortable amount of money in your savings account, start investing. By taking advantage of accounts with a high interest rate, you can start putting your money to work for you. You can also harness the power of compound interest to supercharge your investments!
Got questions about how to invest your money? Ask us!
5. Invest in Yourself
At the end of the day, your biggest income-generating asset is you. Your skills, talents and expertise all contribute to how much you can earn, so why not invest in yourself?
Use your tax refund to pay to:
- go back to school
- sign up for a class in an online skill-learning website
- go to a conference in your field
- get a membership for a professional organization, such as the Rochester Chamber of Commerce
The results will increase your value at work and might even take you to the next level in your career.
6. Treat Yourself
If you feel like you’re in a rut or if life has been a little rough on you, why not use your refund to treat yourself? Don’t just go out on a shopping spree, though—use the money to give yourself a positive experience, like a vacation, instead. You could also spend it on a visit to a spa, music lessons, or even a pro sports game or a concert.
You may also want to focus on an experience you can enjoy with friends. When you make good memories with other people, you get the added benefit of being able to reminisce with your buddies for years, and you get to relive that moment again and again.
7. Donate to a Charity
When people think about spending their tax refund, most of the time they understandably want to spend it on themselves. If you’ve benefited from some good fortune, though, why not spread it around?
When you donate to charity, you’re investing in society and helping out the neediest among us. It won’t make you richer in the way most people define wealth, but it will make you feel good, and it will also bring you closer to being your best self. You might also see that karma manifest itself physically if you can claim your charitable giving as a tax deduction on next year’s tax return.
Make Some Good Money Moves With Your Tax Refund
A lot of people who get a tax refund won’t be able to resist the hole that money burns in their pockets. If you’re willing to use that money to pay off your debts, build up your savings account or invest it, you’ll be ahead of the game.
If you want help putting your tax return to its best use, set up an appointment with the experts at First Alliance’s today. They’ll give you free, personalize guidance to help you make some good money moves. You can meet with them in-person or talk to them over the phone!