5 Ways To Use Your Tax Refund Wisely
For some, tax time can mean a large bill from the IRS, for others it can be the boost in cash that will jumpstart your finances for the year. A tax refund is also often said to be a gift from the government, however you are actually receiving back excess money that you paid to them. Now the big question is how do you truly take advantage of this influx of cash that will be arriving? It is very common that people will begin to plan how they are going to spend their tax return as soon as the new year begins, then when the tax return actually arrives, all of the money is allocated out and it never really feels like you received any extra cash that month. Here are five ways to spend your tax return wisely and use it to move you one step closer to reaching your financial goals.
Jumpstart Your Emergency Fund
Applying your tax refund to your emergency fund, is one of the easiest and most fulfilling ways to use your return. Being that cash is king, it is always fulfilling to look into your bank account and see a nice amount of cash available in the event of an emergency. Using your funds to pay down credit card debt is equally as important, however the amount of available credit can always be reduced, so in the event of any emergency it is always better to have access to your own funds.
Pay Down Debt
Using your tax refund to pay down some of your existing debt can help to relieve tons of financial stress. Debt such as high interest credit cards tend to eat away at your monthly cash flow, so the sooner you eliminate this type of debt the better. Eliminating credit card debt can also free up more cash on a monthly basis. You can also apply your tax refund to your mortgage and save yourself some money on interest and reduce the time that it takes to pay off your home.
Contribute to a Retirement Account
With the extra cash on hand, you may be more inclined to save for retirement. You can always open a IRA or Roth IRA to save additional money for retirement. At work, you may be more comfortable increasing your 401(k) contributions to save more for retirement.
Take a Trip
You only live once, so why not enjoy it a little! Using your tax refund to take that vacation that you have been putting off is not a bad thing. Plan a trip that can help you relax and keep your sanity from the hustle and bustle of life. This is one sure fire way to at least remember what you did with your tax return through memories and photos!
Invest In Yourself
Spending money on ourselves is something that we all like to do! Now is the time to take that class that you have been thinking about or hiring the personal trainer that will help you reach your fitness goals. Investing in yourself is a great way to wisely use your tax refund. Your new skills could even help you reach your professional or life goals.
Dominique Broadway is a Financial Planner and Personal Finance Coach in Washington, DC. She works closely with young professionals and entrepreneurs to bring their Dreams2Reality! Dominique is also the founder of Finances De•mys•ti•fied and the “Social Money Movement”. You can find her on Twitter or at www.dominiquebroadway.com