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11 Ways to Wisely Spend Your Tax Refund

Spending Your Tax Refund …

If you are one of the eighty-percent of taxpayers who will be receiving a tax refund this year, there is a possibility you still aren’t sure what you will do with the money you are about to get.

While you probably have plenty of ideas of ways to spend your precious refund check today, chances are you will probably not be that thrilled with the choices you made today, tomorrow.

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Instead of spending all of the money wantonly, why not use it to improve your bottom line?

Below, we will be discussing ideas ways you can invest that money today that your future self will thank you much later. You might even have fun along the way.

Here is a look at some of the ways you can put your refund money to good use:

1. Pay Off High-Interest Debts

While it isn’t the most exciting option on the list, paying down/off credit card debt, if you have it, once you get your tax returns is, without a doubt, one of the wisest financial moves you could make.

By paying down/off your debts, you set your yourself free from the bond of high-interest charges; so consider paying at least a portion of your debt if you want to stand a chance of redeeming yourself from liability. Doing so could also boost your credit score, opening doors for you and helping you secure your financial future.

It has been said that action breeds courage and confidence. Taking the step of paying down your high-interest debt is the first step towards reducing your deficit and is a move that will help you take on a more favorable financial direction.

2. Build up Your Emergency Fund

Your child got sick, your car just broke down, and your neighbors’ kids just busted your side window while playing catch. Accidents happen at any time without warning, so do your best and plan for them in advance!

You might not be able to plan for every exact expense that might pop up, but you can plan for the unexpected and be prepared for the worst.

You would be amazed at how easy you will feel knowing that you are ready for the random strikes life throws our way.

3. Create a High-Yield Savings Account

If you don’t have an idea of how to spend your tax refund or you would just like to stow the money away for safekeeping, online savings accounts are an option you should consider.

Online banks offer some of the most competitive rates in the market since they do not have branches to support and maintain. For this reason, you will find that online banks offer much higher rates than traditional ones.

Whether you use your account to store that emergency fund or to establish more solid financial habits of saving money in a savings account, then consider working with online savings.

CIT Bank is our top pick when it comes to online saving banks. CIT offers high interests and much lower minimum deposit.

4. Max Out That Roth IRA

The value of Roth IRAs can’t be emphasized enough. Roth IRAs are funded with post-tax dollars, which means that your distributions will not be taxed as long as you are following the rules. You also will not be penalized for any withdrawals you make.

Considering the unique benefits Roth IRAs offer, if you do qualify for one, then try your very best to max it out each year.

It is worth noting that even the smallest amounts can do wonders over time, so consider sending whatever you can from your tax refund check to your Roth IRA.

M1 Finance is our top pick when it comes to Roth IRA. With M1 Finance, you can invest commission-free!

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5. Invest with Robo-Advisor

If your emergency fund is stocked and all your debts are paid off, then have fun with your tax refund by investing some of it on an online platform.

Whether you are new to the world of investing or have made several trades before, robo-advisors can offer you affordable, simplified resources and trading.

Our top pick is Betterment as it offers users dozens of customized trading portfolios and does all the heavy lifting for you.

Furthermore, Betterment automates investments, rebalancing allocations for you.

6. Apply Refund to Future Tax Bills

Are you a contract worker, freelance or self-employed? If you are required to make quarterly tax payments, then consider applying for your refund directly to such future obligations.

Doing this today will help ease tax-related stress in future days. It’ll also help you free up income in the future for other financial goals and obligations.

Instead of letting such expenses catch you off guard, consider paying them off with your tax refund. Doing so will relieve the administrative tasks and financial burden of working these costs into your budget much later in time.

7. Make Extra Principal-Only Mortgage Payments

If you find saving thousands of dollars in interest appealing, consider making extra payments on your mortgage; especially those that are principal-only in nature. This is the easiest and fastest way of going about it apart from paying off your credit card debt.

Find out if your mortgage company charges pre-payment penalties. If they do not, then send your check or make online payments today.

Every single cent you spend of that extra money paying the principal will potentially help cut months, and even years off the length of the mortgage. Tax refunds are a great place to start accelerating mortgage repayment.

8. Invest on Your Home

Home improvements and renovations are a good way of boosting a homes’ value. Plus, if there is a project you have always wanted to complete but have never had the capital to do so, finally getting to cross it off that personal to-do list will certainly increase satisfaction.

Simple, yet inexpensive changes like faucets, light fixtures, and paint color can make a huge difference. Moreover, challenging yourself to DIY these repair or upgrades will help you expand your skillset while saving you money.

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9. Invest in Yourself

Do not undermine the importance of investing in your relationships, health, or education.

From getting back to shape, rekindling a romantic spark, or learning a new language, with small investments in yourself, you could literally reap the benefit of your action for many years to come.

Improving marketability in the professional field is one of the best long-term investments you can make. Whether it is seeking professional development opportunities, honing your skills, or going back to school, you will not regret spending money on professional goals.

10. Give It All Away

If you are looking for a rewarding way of spending your tax refund money, then consider donating it to a cause you are passionate about.

If you do not have a specific organization in mind, then some research will provide you with tons of worthwhile and legitimate causes you can donate to.

You will have a feeling of achievement knowing that your money is making a difference in other peoples lives. Interestingly, you are pre-emptively working on the next tax season since your donations could become a deduction one year from now.

11. Have Some Fun

While taking care of the different items mentioned on this list is ideal, having fun is still essential. To avoid resentment or burnout, consider allotting a small amount of your return money for yourself. Buy whatever new gadget or device you’ve always wanted, go out for a nice meal with your significant other or friend, or make any purchase that’s for purely personal enjoyment.

Just do not get something that is on our list of Dumbest Ways to Spend Tax Refund Money. While you should not invest the entire amount into the frivolous and fun, you can wisely set some of it aside for leisure. Simply put, treat yourself every once in a while, just don’t go overboard.

You will definitely not regret giving yourself a break just as long as you are still moving along well with your financial obligations.

You will definitely not regret giving yourself a break just as long as you are still moving along well with your financial obligations.

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What are you planning on doing with your tax refund money this year?

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