5 Smart Ways To Spend Your Tax Return
There is nothing like a little bump to your bank account balance.
By the end of tax season, the IRS will have returned over 100 million refunds of varying dollar amounts. For those receiving one of these refunds, the temptation to spend it all in one place can be overwhelming.
While it’s okay to spend a small amount of this refund on something nice for yourself, we recommend putting this money to better use. Not just for you current self, but for your family and your future self. He or she will thank you.
Let’s explore 5 smart ways to spend your tax return.
No judgement here. It’s safe to say that most of us have some amount of debt hanging over our heads. Whether it’s student loans, credit cards, or car payments, freeing ourselves of this debt is one of the best ways to start building wealth – debt is likely the biggest obstacle between you and productive wealth management.
Start by paying off debt with the highest interest rates and work your way down. These high-interest debts typically include credit cards and car loans.
Start or Strengthen Emergency Fund
If there is one thing we know better than most, it’s how unpredictable life can be. With unpredictability comes the need for financial cushioning.
An emergency fund is something we recommend securing before paying off debts. At minimum, your emergency fund should cover 6 months of essential costs (shelter, electricity, food, car, and phone payments). If employment isn’t the issue, this fund can be used to cover unexpected medical bills, deductibles, etc.
Fuel Your Retirement
None of us want to work forever. We have dreams of relaxation, beaches, porch sitting, and newspaper reading. This dream won’t become reality without a proper retirement fund.
On average, retirement savings are neglected more than any other form of saving. Your tax return is the perfect chance to max out yearly 401(K) and/or IRA requirements. Maxing these out may even lead to a larger return the next year. Also, the longer you wait to fuel these accounts, the harder it becomes to put enough away.
Maybe your refund was unexpected. Maybe it doesn’t even excite you. Situations like these are the perfect opportunity to pay it forward, and depending on who does your taxes, there may even be an option to have your return directly donated.
Find a cause close to your heart or find a charity in your community that you believe in. Your refund could truly change the lives of many in need. Check out our ‘Where To Volunteer In Fargo’ blog for local charity ideas.
Invest In Yourself
Due to limited time and resources, many of us don’t work on improving our own well-being or developing new skills. If you took 5 seconds, we guarantee you could think of at least one aspect of you health you would change and/or at least one skill you have always wanted to learn.
If your retirement, debt, and emergency fund are secure, use this refund to learn how to make custom furniture, learn how to cook, get a personal trainer, etc. Skip the materialistic things and focus on aspects of your life that will actually make you happier.
When all said and done, your tax refund is the perfect opportunity to get rational and to do some good with your funds. Your future self will thank you.