10 Smart and 6 Frivolous Ways to use your Tax Refund This Year
Are congratulations in order? Like millions of Americans, are you too getting ready for a tax refund in and around $3,000? That’s great news. It won’t make you rich, but if used wisely, can help build up your assets, and make life improvements that last. Or if you’re like many, it can be spent frivolously, with little more than short-term enjoyment.
Here are 10 tax refund uses that make a difference, and 6 more frivolous ways to that won’t:
6 Frivolous Ways to Use your Tax Refund:
- Do not go on a shopping spree. This is not the way towards improvements. Unless all the material objects you purchase in a few days’ time were long overdue, necessary and caused great struggle to do without. In that case, it would not be considered a spree, which by definition is frivolous (aka unnecessary).
- On the opposite end of the spectrum, do not increase the frequency of your regular spending activities. This is a sure way to see your refund disappear almost undetected and right before your eyes. For example, if you normally go out to eat 2 times a week and spend $75 each time, then increase it to 4 times a week since $75 is a relatively small as compared to $3,000, right? Wrong, you’ll have spent your refund in just a few months on dinners out.
- Get a new car just because now you have enough for a down payment, even if the old car still runs fine.
- Put the check directly into a checking account to save “for safekeeping.” This idea shows good intentions but does not achieve the intended goal since checking accounts don’t earn much in interest, there much better ways to “save for safekeeping”.
- Loan it to family members. Didn’t you once do this before? Was the loan paid back? Like most, it rarely is. Good deeds are great; just don’t bet the house on seeing it again. Twice, I “loaned” my entire return to a family member in need who just simply never repaid the “loan.” Worse was when I experienced tough times, the sentiment did not go both ways…
- Have a giant party. Sure a celebration is fun, but requires funds, sometimes all of it. Parties are very expensive. A nice dinner can easily suffice.
Here are 10 better options to make good use of your hard earned 2016 tax refund
- Emergency fund savings
Emergencies can wreak havoc on our finances, yet emergency fund accounts are under prioritized. With life’s ups and downs, whether that is a tire blowup, emergency root canal, or water heater gone bad, even if you’re not much of a saver, now is the time to begin building up an account of at least six months’ worth of take-home pay. At some point, you will probably need it.
- Pay off debt (credit cards and loans)
Tax season comes on the heels of many months of holiday cheer. Just about now, it may not feel so cheerful if bills are flooding your mailbox. Holiday overspending can happen… Start paying down your debt with your refund.
- Pay off your car or start a car fund
Cars aren’t a luxury like in the early 1900s when only the very rich could afford one until Ford developed the assembly line making them affordable to the middle class. Most people need and have a vehicle today. Try to reduce this debt now. If your car has seen better days, begin a car fund now so you’ll be prepared.
- Home Maintenance
There are many reasons for updating your home whether that includes long overdue repairs or maintenance that prevents future breakdowns. You may need to expand for a new baby, an office, or improvements that make your home more marketable for selling. Consider those improvements that have been tough to tackle financially like the roof, siding, heat or hot water furnace.
- Pay ahead on your mortgage
The more money you put toward your house payment, the sooner it will be paid off and you’ll save on interest, too!
- Fund an individual retirement account
Whether you’re just starting out in the work force or 60 and still working, it’s never too late to start a retirement account, such as an IRA that will get you a step closer to a comfortable retirement…Start by finding out how much you need to retire.
- Add Life Insurance
Life Insurance is a topic that is a necessary but painful topic. If you ask yourself, “what will my kids do when I’m not around”? Will they have what they need? Life Insurance can pay daily needs, pay off a mortgage, pay down college debt, and keep your loved ones safe. Monthly premiums are often a lot less than expected and as low as $15 a month +/-.
- Give to your favorite charity
What better way to make use of extra money, then to empower others who are less fortunate. It may also be tax deductible the next time you file, which may help to improve your refund next year.
- Pay off college loans
This is a thoughtful way to ease the strain on your kids and their future.
- Get started on a scholarship fund
College tuition is usually 9k – 33k per year. Using your tax refund to start or augment a college fund will help you reach your family’s goals.
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