5 best and worst
Ways to spend your tax refund
If you’re like me, you probably view tax season with a mix of dread and excitement. Dread because you have to get your taxes done at all, and excitement because you’re hoping to receive a nice tax refund.
However, it’s important not to let the excitement of getting more money distract you from putting it where it works best for you. If you’re the kind of person to view your tax refund as “free money,” you might find yourself regretting some of your decisions down the road, but don’t worry, we can help you on the road to better money decisions. If you’re one of the people who are cautious with their tax refunds but want to see more long-term benefits, we can help with that too. Keep reading below to find out the best and worst ways to spend your tax refund this year.
Best: Saving your tax refund
You can get the most out of your tax refund not by using it but by SAVING it. Whether you do that by adding to or creating an emergency fund, or by deciding to put it into another savings account (for retirement, college, etc.), you’ll be thanking yourself later. Savings gather interest, and you’ll see your money start to grow. If you could live without that extra cash before, you can live without it now.
Worst: Purchasing a boat, car, TV, or another luxury item that won’t hold its value
It can be really tempting to purchase something expensive (and fun) with your tax refund, especially if you don’t have that amount of cash for fun things very often. However, it’s important to resist this urge. Most things you buy now are temporary. Within five to ten years (or less) that boat, car, or TV likely will have depreciated.
Now, there’s no reason you can’t occasionally purchase something expensive for yourself that you will get a lot of use out of, just don’t let it take away from your other, significant financial goals. If you haven’t thought about savings or have significant debts, you’ll want to prioritize those first so you can enjoy fun purchases later without the threat of money problems looming over your head.
Best: Paying Off High-Interest Debts
Putting your money into a retirement account or emergency fund is a good idea, but if you have a lot of debts, (that may have high interest rates) you’ll want to pay those off first. You won’t be able to get ahead in savings if you’re digging a deeper hole with your credit cards or other purchases. Your tax refund is a perfect way to ease some of that stress without having to adjust your entire budget.
Worst: Making Loans to Family & Friends
It may seem harsh to turn your family and friends away when they need cash but doing so ensures you establish healthy financial boundaries with your loved ones and prevents you from getting into money problems. You can’t help yourself get out of debt if you’re constantly giving to others.
If someone you know needs help, ask them if there are other things you can do for them, like cooking meals, babysitting their kids, or donating items they may need. Do some research to guide them towards organizations and resources in your community that will help them in the long term.
Best: Using Your Tax Refund to Boost Your Career Skills
If you find yourself falling behind your coworkers with your workplace skills and knowledge, or you’ve been meaning to switch careers but don’t have the skillset needed to change, your tax refund could help. Use that money towards classes or programs that will teach you how to do what you’ve always wanted to do. Your new skills may even help you negotiate a higher wage in the future, putting more money in your pocket.
Worst: Buying Lottery Tickets or Gambling at a Casino
Any time you choose to gamble, you’re not using your money effectively. You may think that you have a chance to double or triple your tax refund, but the odds are against you. Gambling is a quick and easy way to make sure you’ll lose all of that refund, and then some. If you still feel like gambling with your money, a less risky and smarter financial move would be to invest in the stock market. Market fluctuations make it hard to know if you’ll still have that much money in the coming months, but if you’re invested in the long-term, it could have a good payoff for you.
Best: Making small home improvements
If you have an older home or one that hasn’t been updated in a while, this is a great use of your tax refund. Many older homes have drafty windows and old appliances that can eat up your savings quickly. By updating and making small improvements now, you’re saving yourself the headache and expenses down the road. Energy-efficient updates will also save you plenty of money on your monthly energy bill.
Worst: Attending a “Get Rich Quick” Seminar or Other Money-Making Scheme
Even the most money-conscious people in the world occasionally fall victim to money-making scams. It happens to the best of us. But it doesn’t have to happen to you. You may be tempted when you see people bragging about how their part-time job makes them hundreds of thousands each year, but it’s likely this is a scam. If someone is telling you that you need to send them money so that they can make you even more money, run the other way. There is no “get rich quick” secret. The real secret is to be smart in your financial research and investments to build your wealth over time. Patience is the key to long-term growth.
Best: Making extra payments on your mortgage
It’s never a bad idea to pay more on your mortgage when you can. Extra monthly payments will reduce your principal amount and potentially shorten the life of your loan, so you can focus on other important purchases or investments.
Worst: Spending Your Tax Refund Before it’s in Your Hands
Most people expect a refund every tax season and make plans to use that money, but it’s important to not get ahead of yourself. You don’t know the exact amount that may be coming back to you, so if you commit that money to a big purchase and you end up not getting as much as you thought, you’ll be in a tough financial spot. It’s better to wait and see, then make your spending plan.
So, What’s the Best Way to Spend My Tax Refund?
There’s no “best” way to spend your tax refund to ensure you’ll get the most use out of your money. Every year will be different, and you have to be willing to make changes based on your current financial situation. One year you might have plenty of money to put in savings while the next year you decide you need to devote all of your refund to credit card bills. However, when you are able, it’s always a great idea to save money back, make major debt payments, and plan for the future. You won’t regret it. Ready to start saving your tax refund this year? Contact one of our local Availa bankers today to find the savings account that’s right for you!