Your tax refund belongs to you, but there are wise and unwise ways of spending it. In this post, you’ll read about several ways you can use these funds to deliver long-term financial benefits.
Using Your Tax Refund Wisely
A tax refund are not a gift, though it may feel like that when you receive a few hundred or few thousand dollars each year. In reality, however, a tax refund is the government’s way of paying you back hard-earned money that was yours all along. While it may be tempting to buy that new flat screen or go on a shopping spree at your favorite shops, it’s worth considering using your tax refund on something that will ultimately improve life for you and/or your family. Here are six things to consider doing with the money you get back this tax season:
1. Start A Side Business
One thing to consider is starting your own business. If you’ve ever had an interest in opening a store, for example, a couple of thousand dollars can be a great starting point, and you can open a flexible online store on the side while keeping your primary income. If you decide to do something like this, look into dropshipping. This method of shipping is steadily growing in popularity for a few reasons:
- It’s low-risk.
- There’s little to no overhead involved.
- There’s no need to keep or manage a large physical inventory.
- You don’t have to pay for items until a customer purchases it.
Investing comes with various levels of risk, but it also provides an opportunity to turn your money into more money. If you want to take steps toward your long-term goals, consider investing your tax refund in a Roth IRA; there are several online brokerages that can simplify the process of building your retirement through this type of investment. Also, one of the safest methods of investing is using a robo-advisor, which will invest your money in diverse funds; the best part of using a robo-advisor is that you don’t need much prior experience or knowledge.
3. Build Up a Home-repair Fund
Another way of thinking about your future is to create an emergency fund. This is a way to set aside money for unforeseen expenses, such as a medical bill, vehicle repair or major home repair (e.g., roof replacement, hot water heater replacement, etc.). It‘s good to have at least $2,000 in an emergency fund, so if you haven’t started one yet, tax refund time could be the perfect opportunity. If you already have one in place, it never hurts to keep building it.
4. Purchase Life Insurance
Consider your family’s future and what would happen if you were to pass unexpectedly. A term life policy can limit the financial burden on your family and help pay for funeral costs, living expenses, a mortgage, and even future college tuition. If you haven’t purchased life insurance, now may be the perfect time to do so.
5. Pay Debts
Paying off a credit card or chipping away at debt is another great way to spend your tax refund. If you have multiple sources of debt, tackle the one with the highest interest rate. For instance, if you have a credit card with a balance of $5,000 and an interest rate of 26.99%, you will pay an additional $4,500 before you pay it off by making the minimum payments. Therefore, paying off the balance with your tax refund can save you thousands of dollars. Of course, there are other kinds of debt (e.g., student loans, personal loans, car payments, etc.), and it’s always good to pay it off.
6. Helping Others
Finally, giving your money away can prove beneficial in a number of ways. For instance, it can reduce stress, anxiety, and depression. It can bring a great sense of satisfaction and contribute to a happier and longer life. It’s also contagious. Whether it’s donating money to a community nonprofit or local church or treating loved ones to a nice dinner, giving can put purpose on your money.
Getting the Most Out of Your Tax Refund
There are many productive things you can do with your tax refund. Consider starting a side business, investing it, or building an emergency fund. Put the money toward any high-interest debt that you’ve accumulated, or give your money away for a good cause. Also, look into other ways you can spend it. Just make sure to give it some thought, and be intentional about how you use your hard-earned money.
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Author website: http://moneywithjim.org
About Jim McKinley