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Tax season is upon us! You either love it or hate it. Are you getting a tax refund? If so, now would be the perfect time to focus on 8 easy, rewarding ways to spend your tax refund. I must admit. It always felt good to see a tax refund show up in my bank account or in the mail. So the big question is- After you get your tax money where will it actually go?
The average tax refund in 2019 was close to $3000. Ideally, you want your tax bill to be as close to $0 as possible. Because if you are due a refund this just means you are padding the pockets of the IRS and it doesn’t come with interest. A great tool like the IRS tax withholding estimator can help determine what is the right tax withholding for you.
You should spend your tax refund with a purpose in mind. This will allow you to achieve all those goals you set earlier in the year. Before you go on a shopping spree, step back and think of how you could put your tax refund to good use. Maybe only apply half of your tax return towards improving yourself or your situation. This is better than nothing. Then keep the rest and do something fun, it’s allowed too!
I am in no way a tax preparer or accountant. But I have learned these are the things I should have done and it may help you.
Let’s check out these 9 smart and rewarding ways to spend your tax return.
Start a $1000 emergency fund
In one of the last articles, I wrote about the importance of getting out of debt. However, it is even more important to start a small emergency fund. After becoming current on all your bills you should start working on that emergency fund for sure. Dave Ramsey recommends having a small emergency fund to cover those rainy day expenses like:
• Sudden car repair
• Job loss
• Medical emergencies
• Unexpected home repairs
• Bail money for a relative
• Insufficient funds charge
You get the picture! The basic purpose of an emergency fund is to be prepared for the unexpected and also have less stress when it occurs.
Keep in mind, most money experts say an emergency fund should cover at least 3-6 months’ worth of your bills which is based on your spending, budget and monthly expenses. So saving $1000 is still considered a low amount for an emergency fund, so your next goal is to expand your fund to cover at least 3 months’ worth of expenses.
Invest in yourself
Wouldn’t it be amazing to advance in your career or maybe even start a business? It’s time to invest in yourself because you are your most valuable asset. Here are a number of ways you can invest your tax refund in yourself:
• Work towards being a CRNA. If this is still your desire, perhaps this would be the perfect way to use your tax refund. Check out this article to learn more about becoming a CRNA. Layout a plan to complete some of the things needed to become a CRNA.
For instance, take a pre-requisite course. Order your transcripts. Register for a nursing program. Better yet go ahead and apply to nurse anesthesia school. But be ready for the added expenses from getting an interview and gaining acceptance into the program. Because you will eventually interview and be accepted!
• Read educational books. Why not take advantage of your tax refund by reading a great educational book. Reading is a fantastic way to invest in oneself. I personally like to read self- help books. Books can build your knowledge base and expertise. And is relatively cheap and relaxing all in one.
• Start a side hustle or business. Investing your tax return towards a side hustle is a great way to pay off debt, save for a big purchase, and decrease your stress all in one. Side hustles are usually flexible and better yet don’t require a huge investment. They also tend to be lucrative and can be started immediately in some cases.
“An investment in knowledge always pay the best interest.“
Invest it for the future
Once you start your emergency fund, a tax refund check can also allow you to put money into a retirement fund. Don’t worry if you don’t have a lot to invest at first, every dollar counts.
Do you have children? Starting a college savings fund is another great way to spend your tax return. Trust me, after having two children in college with another child graduating high school this year, you will be glad you did. Especially, when you see how much the tuition is at some of these colleges.
You could easily invest it in other things. Such as a savings account at your local credit union or even a money market account where you earn monthly interest. While interest earned isn’t what it used to be, don’t give up on them all together. I currently have a high yield savings account with Synchrony Bank and earn 1.7 to 2% interest which is better than the 0.05% interest at my local credit union.
Pay down your debt
As most of you know I am in no way completely debt-free but just paying off my credit cards and personal loan has been a huge stress reliever. So, why not tackle some of your debt with your tax return money.
So, once you sit down and add up all your debt. Make a realistic plan and budget. If you have a high-interest credit card I would start there. Simply putting your tax return towards this credit card could save you hundreds of dollars in finance and interest charges in the future.
After paying off your debt, simple lifestyle changes are needed to prevent what I call debt re-entry. And definitely reward yourself after paying off your debt because well… You deserve it!
So how will you spend your tax refund
It’s easy to think your tax refund is free money or found money. Remember, this is definitely not true. Essentially this is money which you earned but loaned the government last year. So, now is the time to create a plan on how you will spend your tax refund money.
Again, where will you spend your tax refund this year? Do you remember where your tax refund went last year? How will it be different this year?
I know none of these 8 options is as enticing as going out buying a new flat-screen TV or a living room set. But using your refund in one of these easy, rewarding ways will pay dividends towards your future. And remember if you have any income tax questions talk with a tax professional.