It’s that time of year again – tax season! For some people, this is a stressful occasion because completing tax returns can be a real pain.
For others, this is a time to celebrate because that hefty tax refund is finally on the way. Instead of putting a down-payment on a new car or buying that purse you’ve been eyeing, here are 5 ways to spend your tax refund wisely this year!
I used to get REALLY excited about tax season in the past. I thought getting a tax refund was a normal part of the process. And while I’m being honest, I can tell you that money was NOT always spent wisely (mainly because I had problems with impulse spending).
These days, we don’t even get a refund. We changed our deductions to the point where we pay “just enough” in taxes and nothing more. In essence, a tax refund is just an interest-free loan to the government at the end of the day. We’d rather have access to that money throughout the year so it can be put to better use. 🤷🏽♂️
1. Start or bulk up your emergency fund
We are always talking about the benefits of having an adequate emergency fund squirreled away. When your refund check arrives or gets deposited into your account, this is a great opportunity to get your emergency fund built up to the size that you need.
Whereas it might normally take you a few months to build up your emergency fund, your refund check could potentially help you knock this out all at one time.
2. Pay extra on your debt
Paying off debt is a great way to put yourself in a position of financial freedom. We recently became debt free and we want other people to know that feeling as well.
I know, it’s tempting to go out and spend your tax money on things you haven’t been able to afford all year. But, you have to think about it like this:
The check you’re getting is just
YOUR money that you missed out on this year – it is NOT extra money!
Use it to accomplish your goals instead of wasting it on stuff you don’t even need. Because guess what – after you spend your refund on that purse/Playstation/car/or whatever random thing – your debt will still be right there waiting for you!
3. Buy life insurance
This is actually something that is on our agenda to accomplish in the very near future. I have been very candid about the fact that my mother passed away with no life insurance in place. Right now, Dannie and I have life insurance policies offered through our jobs, but we both want to take out additional policies.
But DJ, why do you guys want more life insurance coverage?
The fact of the matter is, if one of us was to (heaven forbid) lose our job – that life insurance policy goes away right along with it. That’s the situation that caused my mom to wind up with no coverage and it’s something that can happen to anyone if you aren’t careful.
Do everyone a favor and put part of your refund check towards the premiums for a good term life insurance policy. If you have a family that depends on your income, you need to make sure that they are taken care of in the unlikely and unfortunate event that something happens to you.
4. Contribute to a Roth IRA
One side effect of becoming financially stable is that you start caring more about your future self. Some financial gurus will tell you that you don’t need to worry about investing at all if you still have debt left to payoff.
Sure, you can absolutely take that route if you want to. Something we considered in our journey is that compound interest is your best friend, but it’s an even better friend if you take advantage of it early. Our investment strategy has been pretty simple so far, but you can figure out what works for you.
You can open an Individual Retirement Account pretty easily and contribute up to $6,000 into it this year. We have our accounts with Vanguard, but there are plenty of other options out there to choose from as well.
5. Invest in yourself
Last on the list, but certainly not least, is the option of investing in yourself! If you are expecting to receive any money after filing your tax return, this might be a good time to finally buy a quality spreadsheet to help you manage your budget, take some online courses to learn a new skill, start a FlexJobs subscription in order to find your next career, or even grab some of those financial/personal development books you’ve been dying to read.
Whatever the case, an investment in yourself is always a good thing. And, in case you were wondering:
The answer is No. “Treating yo’self” is not the same as investing in yourself!
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Alright folks, that’s the end of my list. What are you actually planning to do with your tax refunds this year? Are you even getting one? Let us know your thoughts in the comments below!
— $tay Wealth Friend!
We always end up getting a refund – primarily due to charitable giving and student loan interest. This year, we plan to use our refund a few different ways. We’re going to make a payment on the student loan (that would be equal to about 2.5 extra payments), we’re going to put some into savings for the purpose of hopefully taking a trip in the summer and we are going to get a little bit of individual money to use on whatever we please! I think it’s a good mix between using the refund in a smart way while still… Read more »
This will be same for us, I’m so glad I saw your comment! Our tax advisor mentioned that we should increase our allowances a bit since we give so much. I’m excited to try this nee spreadsheet out!