With tax season come and gone, many of us may have received a nice, shiny lump sum for overpaying taxes. It’s far too easy to think of a tax refund as a shopping spree allowance, and while that is one way you could spend your tax return, it’s much more financially beneficial to spend the influx of cash in a way that prioritizes your financial goals.
An article in MoneyCrashers.com recommends that taxpayers treat tax refunds similarly to a weekly paycheck and give it a “purpose.” When we deposit the tax refund into our accounts without a purpose, we tend to frivolously, or unintentionally, spend it. Instead, by establishing a plan for your tax refund, you can prepare for a major life events like marriage, purchasing a first home, or beginning a family.
In this week’s post, we’ll identify the best ways to spend your tax return, whether you’re in good financial health already or in need of some financial expertise.
3 Ways to Spend Your Tax Return to Improve Your Financial Health
- Emergency Fund: Creating an emergency fund that’s equivalent to 3-6 months of living expenses will prepare you for any rainy days ahead. When unexpected expenses or unfortunate circumstances arise, you’ll be prepared and avoid getting further into debt.
- Tackle Some Debt: One of the most influential actions you can take to improve your financial health is to chisel away at any high-interest debt you’ve acquired. The more debt you pay off, the more monthly income you free up and the less interest you ultimately have to pay.
- Upcoming Necessary Purchases: The key word here is “necessary,” and a new outfit or concert tickets are not really necessary, if you are lacking financial stability. If your monthly income cannot support a necessary medical procedure or car repair, it’s wise to allocate your tax return to pay for these necessities, so you don’t have to rely on going further into debt.
4 Other Ways to Spend Your Tax Return If You Don’t Have Excessive Debt
- Home Investment: Making some home improvements is one way you can see return on your investment. By updating certain spaces, you can increase the value of your home, if you should ever decide to put it on the market.
- Retirement Boost: It’s important to invest in your future as soon as you can. Increasing your contributions will allow your retirement investments to grow exponentially over the years. The more you contribute, the greater your growth can be.
- Self-Investment: Another great investments you can make is in yourself. If you have been wanting to further your training with classes or professional development opportunities, spend your tax refund on tuition, fees, etc., to make that happen. If you desire to start a business, you may decide to invest your tax return to get your business up and running.
- Donations: Because tithing and charitable donations can be difficult to manage from month to month, donating your tax return can be an excellent way to give back without taking away from your personal monthly expenses and savings goals.
While it’s easy to splurge on the latest gadgets with your tax return, there are several ways you can spend your tax refund that will help your financial wellbeing. If you have excessive debt and little to no savings, invest your money in a way that will make you more financially stable to take on whatever life throws at you. When you’re a bit more financially healthy, play around with ways you can make your tax refund work for you.
If you’re ready to take control of your finances and invest in your future, it helps to work with an experienced financial advisor who understands your situation and supports you. At Focus Financial, we can help you find an independent financial advisor who is eager to learn about you and your personal financial goals. Whether it be to tackle debt and manage spending or learn about smart investment opportunities, we’re here to help you create an individualized financial plan to achieve your goals.