Now that the tax season is behind us and your tax return dollars are firmly in hand (or should be soon at any rate), its time to give a long, hard thought on what the best way to utilize this “new found” money is. In this quick blog post, we are going to discuss some smart ways you can use your tax refund.
How to Spend Your Tax Refund
If you were lucky enough to not owe money and actually received a tax refund from the IRS, the temptation is probably there to go out and blow it on something fun, like a vacation, new cell phone, jewelry, or maybe as a down payment on a new car. Sure, why not – you worked hard for your money right?
While the above might be fun and go a long way towards satisfying the almighty instant gratification we all yearn for, wouldn’t it be better to actually turn the tables on our money and make it work hard for us? Instant gratification and new toys are nice, but they are short lived – hence the “instant” part! Imagine a world where you actually had one less car payment every month, where creditors did not call you repeatedly during dinner, or where you actually had a little bit of money stowed away for that inevitable rainy day.
That’s what this article is all about. So, without further ado, here are some smart ways you can spend your tax refund dollars this year.
Pay Down Debt with Your Tax Refund
One of the best ways you can spend your tax refund is by putting it towards credit card debt. Not only will this save you stress and help your credit score, it also is a great way to actually save money. This is because the additional money you spend will go towards the principal balance, reducing your overall debt.
If you have multiple cards, you can take one of two approaches. You can either put it towards the credit card with the highest financing rate or you can use it to pay off the card with the smallest amount owed. If you pay off the card with the smallest amount owed, consider taking the payments from that card that you would normally pay every month and using it to paying the new smallest card. Rinse and repeat and you will have that debt paid off in no time!
Go to School
This is one option most people never really consider, but in the long run it can pay off in huge dividends. We aren’t suggesting going back to college for your masters degree – though that certainly isn’t a bad thing. However, spending your tax refund on education – whether it be a course or to gaain certification – is a solid investment not only in yourself, but in your financial future as well. Adding new skills can lead to greater opportunities, which, in turn, can lead to more pay. Win, win!
Pad Your Retirement
Odds are, you never noticed the money that was being taken out of your pay for taxes each paycheck. Because of that, it is always a good idea to think of your tax refund dollars as found money. A great tip on how to spend your tax dollars wisely is to use that “found money” to pad your retirement fund.
One option is to put the money into your 401k account. On top of saving for the future, there might be a sweet bonus to it – some companies will match any money you put into your 401k (within a given limit) – if your company matches your contributions, this is a terrific option.
Pay Extra Car or Mortgage Payments
This is similar to paying off credit card debt, in that you can reduce your principal amount, and in turn, the amount you will have to pay off in the lifetime of your mortgage or car payment history. In addition, if you are able to use the money to completely pay off your car, you will receive a little relief in your monthly budget.
If the latter occurs and you are able to pay off your vehicle early, I would suggest taking the money you used to pay towards your car – or even half – and pay extra on other debt, such as your mortgage, student loans, or credit card bills. In the end, it is all about paying off debt and reducing your monthly expenditures.