When you file your tax return, you may be expecting a small windfall of money to make its way back to your pocket. The worst thing you can do is to spend that money on something that you don’t actually need or something that won’t benefit you in the long run. You want to make this year a little easier by using the money you receive from your income tax return. That means using the sum of money you get in some way that will improve your life or make your burdens seem a little lighter.
If you’re stumped as to what to do with your refund, then consider the following five smart ideas before you think about spending your refund.
1. Save it for a rainy day.
No one knows when tragedy is going to strike. You can try to be prepare, but it’s inevitable that something will happen.
The only thing you can do is to ensure you have the funds to get through that emergency.
That’s why you might want to save your tax refund in a bank account or even under your mattress for a proverbial rainy day. You’ll be glad to have those extra funds when something does go wrong or that inevitable emergency crops up.
2. Cut the interest.
Debts act much like a bog. They’ll drag you down and continue to drag you deeper until you wear yourself out trying to struggle free from them.
If you want to save money on your debts, then you might want to consider using your tax return as an additional payment towards solving some of those debts. You may be able to significantly reduce your interest, which in turn makes your debts cost you less as time passes.
This is especially helpful if you have several high-interest debts that might be accruing more quickly than you can make payments on them.
3. Repair your home or car.
Homes and cars have one thing in common: they both require maintenance. Dings, dents and even the occasional loose shingle can be likened to small scratches that could worsen over time.
If you have the money in your hand to repair these minor blemishes, then now might be the perfect time to do so. Any repairs you make to your home or car can be considered investments that you can eventually recoup in the future.
4. Start a retirement fund
Self-directed IRAs for retirement and 529 plans for the education of your children are excellent investments. They’ll slowly grow to help you in the future.
The problem is that most of these investments require a certain minimum principal amount. That’s where your tax return can give you the ability to start a fund for the future of yourself or your children.
5. Invest in your own health..
Doctors and dentists are costly. Many people don’t have the kind of cash required to make regular visits, so it’s commonplace to skip that routine checkup or to ignore that small bump on your arm.
Invest in yourself by finally scheduling that doctor or dentist appointment to get the treatments you may have delayed due to a lack of funds.
If you don’t take care of your own health, then you may not be able to see next year’s tax return. You may also be able to deduct the money you spend on medical or dental expenses from next year’s tax return.
Use your money sparingly
If you can’t stop yourself from a bit of a splurge, then at least limit how much you spend. It’s acceptable to spend 1 to 2 percent of your tax return on pleasantries like dining out or whatever you want.
The important thing to remember is that you shouldn’t waste your precious tax return funds by living for the moment. You should think about the future and what you can do to use the money you have to make tomorrow better.