Few people look forward to tax season. However, there is a light at the end of the financial tunnel: tax refunds. It’s always refreshing to end up with some extra cash in your pocket after doing your civic duty as a taxpayer, but it does pose a difficult question: How should you spend it?
While it might be tempting to use it for personal treats or luxuries, there are a few clever ways to turn your refund into a solid investment. After you’ve determined your refund with a tax return calculator, consider these six savvy ways to spend it.
1. Pay Off Your Debt
Do you have any home, car, or student loan payments looming on the horizon? Maybe you’re working on paying off your credit card balance? No matter what kind of debt you face, it’s always a good idea to take your refund and use it to lighten your financial burden. Not only will this payment give you less to worry about in the future, but it can also boost your credit score. If you have several outstanding debts to address, aim to pay off the high-interest ones first so you can save money down the line.
2. Invest in the Stock Market
The stock market can be a risky business. You never know for sure which stocks will plummet and which ones will soar to giddy heights. However, studies have declared time and again that stocks can provide greater returns on investment than traditional savings accounts. Perhaps more uncertainty is involved in the process, but there are also more significant rewards in store.
3. Prepare for Emergencies
You never know when a rainy day will come around, and we’re not just talking about the weather. It’s always a smart idea to put aside some funds for when you need them most. When your refund shows up, consider storing it away in an emergency account. That way, you’ll have some resources in place should a natural disaster strike or your finances take a turn for the worse.
4. Get Ready for Retirement
Amid the chaos of your daily responsibilities, it can be challenging to find the time to think about the future. However, if you’re not worried about paying off debts or other expenses, consider taking your refund and contributing most or all of it toward your retirement account. This intelligent investment is sure to continue growing, so whether you can contribute the maximum amount of $6,000 or only a few hundred dollars with your refund, your future self will thank you.
5. Plan for Education
College only gets more expensive with each passing year, so it’s a smart idea to put your refund in a college savings plan like a 529. Like other savings accounts, your money will only continue to appreciate over the years, so it will pay off (literally) to start investing early. Better yet, planning for education might qualify you for tax breaks or deductions, putting you in good economic shape.
6. Work on Home Improvements
Are your savings accounts in good shape, your debts accounted for, and your college plans in place? Then feel free to put your refund to practical use around the house. Whether you have some repair jobs you’ve been meaning to finish or a home office you want to complete, your refund might provide just the income you need to work on your property.
Taxes aren’t fun, but you can make the most of an unpleasant process by putting your tax refund to good use. Consider any one of these smart investments to make your refund count in the long run.