If you’re a taxpayer in the United States, this is one of the best times of the year for you financially — you are about to receive your tax refund. Now, before you go buy a Benz or pet monkey, consider that there are actually much better ways to use your money than just spending it. In fact, there are a ton of ways your tax refund can actually bring about even more returns.
Ways To Use Your Tax Return
According to moneycrashers.com, you should prioritize the ways you are using your tax refund. One idea is to start or increase your emergency fund. There is always a rainy day — if not emotionally or mentally, then it likely will be financially. You need an emergency fund to brace for this impact — perhaps you will get laid off from your job or have an unforeseen medical emergency. There could be a funeral you have to fly to, or, well, any number of unforeseeable occurrences. Your emergency fund should contain at least six months of your salary in an account that accrues interest.
Another idea is to pay off high-interest debt. There is no use in paying an account where the balance bounces back up due to interest. If you have a credit card with $1,500, and the monthly payment is $45, you should aim to pay more than the monthly payment. This can give you a better interest rate so that your balance doesn’t come close to the full amount each month.
Spend the money on something you need. Take care of the essentials. If you can reuse your investment over and over, then it is a good investment. If not, then — well, you probably wasted your money.
Open a savings account with a competitive interest rate and refinance your mortgage. Though there is a closing cost, you can use your return to cover that cost, which in the long run will save thousands. Another idea is to invest in a tax-sheltered account. Start contributing to your Roth IRA and 529 college savings plan. Also, consider investing in a taxable account in the form of a brokerage account. Brokers include Scottrade, TradeKing, and Sharebuilder.
Start that new business that you’ve always wanted to. Spend the money on something you want that will also give you profit in the long run. It is not a sin to splurge, either — go book that summer vacation in the Bahamas. If that sounds too selfish, donate your money to charity.
Getting your tax return is a great feeling, especially knowing that your work is not done in vain and you are getting rewarded for it (it’s your own money, but still). Just don’t waste your money on things that will not bring you benefit. By making the best use of your tax refund, you will thank yourself down the line.
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