When you receive a tax refund, you’ve overpaid your taxes for the previous year. The government is returning your money. But receiving a lump sum all at once can still feel like found money. You may be tempted to splurge on something you’ve had your eye on, like a new pair of shoes or an expensive gadget, instead of putting that money toward a smart financial move.
While there’s nothing wrong with treating yourself, you might be able to make that refund help you achieve more reasonable financial goals. Here are ten smart financial moves to make with a tax refund.
1. Pay off debt
Whenever you can, it’s a good idea to put extra money toward your debt. Whether it’s a mortgage, credit card balance, student loan, car loan, or any other type of debt, paying above the monthly minimum payment reduces the loan balance and the amount of money you’ll get charged in interest. Consider using your tax refund to take a bigger bite of your debt.
2. Save it
Putting your tax refund into savings can provide financial protection if an unexpected crisis arises, such as a job loss, car breakdown, broken appliance, or medical expense. Plus, saving your tax return can keep it safe from impulse purchases and boost your emergency fund.
3. Start, or add to, a retirement plan
You can’t go wrong with putting money towards retirement. The more money you put into retirement the more you can provide yourself with a comfortable living when you retire.
4. Start a college fund
If you have children or grandchildren, you will do them a huge favor by putting your tax refund toward their college education. It will help cover the cost of tuition, supplies, and room and board.
5. Invest in the stock market
Another option to explore is investing your tax refund money into stocks. Stocks can help build savings, protect money from taxes and inflation, and boost investments.
6. Invest in yourself
A tax refund can go towards the tuition and training you need to take your career to the next level.
7. Prepay your mortgage
There can be some major benefits financially to prepaying your mortgage, like reducing interest charges and staying ahead of your loan, which can be nice.
8. Make home improvements
Spending a tax refund on home improvements can help you in the long run, especially if you use your tax refund towards energy-saving home improvement projects that could lower your bills.
9. Buy life insurance
You can also consider using your tax refund towards life insurance. Purchasing life insurance can help protect your loved ones financially if something happens to you.
10. Buy some good karma
You can put your money to good use by donating it to charity. As we all know, donating to charity is a great way to help those in need, plus it makes you feel good that you’re doing a good thing.
What NOT to do with your Tax Refund
Splurging on shopping
While shopping and splurging on items you usually can’t afford sounds nice, no good investment comes back. As a result, whatever you buy at Target, for example, will eventually lose its value.
Gambling and casinos
While it might be tempting to gamble your tax refund, there’s a high possibility you could be leaving the tables with no money at all. You’ll be better off investing your money in stocks, whereas you have better odds of building large sums of money.
Deposit into a checking account
Putting your tax refund into your checking account might sound like a great idea, but you will earn better interest by depositing into a savings account. Plus, you will be less likely to spend it if you place it into savings.
Paying off credit cards you might max out again
It’s always a good idea to pay off your credit cards, but if you’re going to max out your card shortly after, then it’s not worth it.
While it might be nice to get away, spending your money on an expensive vacation can come with risks. For instance, many vacations don’t come with refunds. You could lose your entire refund if you plan and trip and at the last minute are unable to go.
A new vehicle that isn’t a necessary
Using a refund for a down payment on a new car can be a good idea if you can afford the monthly payments. If not, it’s better to avoid purchasing a new car.
Hopefully, this blog has helped you decide what to do with your tax refund. Another smart financial decision you should consider is signing up for identity theft protection. IdentityIQ is dedicated to protecting you from identity theft. As we all know, identity theft can lead to money loss, credit score damage, and even legal problems. So, save yourself the trouble now and protect yourself today!