Even though many complain about high taxes, current tax rates are actually rather low. As stated by the impartial Tax Policy Center, “Around 47% of households, or 71 million, won’t owe any federal income tax in 2009.” While no exact data exists, it would be interesting to know how many people spend their entire tax refund on unnecessary items. If you’re receiving a tax refund this year, think about putting it to good use instead of squandering it. Here are ten possible options:
1. Reduce your debt. Start with your credit card debt, as these often come with high interest rates. If you’re credit card debt-free, consider settling car loan or student loan debt. Depending on your refund amount, you could significantly decrease your debt or even pay off a loan.
2. Augment your emergency fund. Many financial consultants advise having an emergency fund worth eight months of expenses, especially in this volatile economy where job losses and extended periods of unemployment are more common than ever.
3. Save for a down payment on a house. If you’re yet to become a homeowners, you might want to use your tax refund to save for a house down payment or to contribute towards a home loan.
4. Contribute to a Roth IRA. Individuals under 50 can contribute up to $5,000 a year, and a tax refund could bring you closer to this amount.
5. Invest in the stock market. While investing in stocks does carry some risk, it might be a good time to make an investment, especially since the market hasn’t fully recovered yet.
6. Pay bills in advance. Use the refund to cover annual costs like a year’s worth of ballet lessons for your child. This might even earn you a discount for a full upfront payment.
7. Plan a family vacation. If your financial affairs are sorted, consider using your refund for a family trip and enjoy debt-free travelling.
8. Personal development. Use your refund to take a course that could increase your future earnings, like a financial planning course or training that enhances your current job skills.
9. Home enhancements. If you get a sizeable refund, use it for minor home upgrades that saves you money and adds value to your home, like energy-efficient appliances or replacing old windows.
10. Contribute to your child’s college fund. With college expenses on the rise, it’s wise to put extra money towards your child’s education.
You should treat your tax refund not as extra cash but as a financial tool that can boost your financial health. If you’re financially stable, it might be worth investing your refund in experiences like family trips. Alternatively, set the money aside for a bit and thoroughly think through what you want to spend it on. Proper planning of how to spend your tax refund will lead to more long-lasting satisfaction than spending it impulsively.
