Every paycheck, a part of your income is taken out and placed aside for the IRS. At the end of the fiscal year, you get a check back for the difference between what you were supposed to pay in taxes and what you paid.
If you’re like many Americans, you’ll probably get a pretty sizable check. In fact, the average tax refund is $3,008 in the United States. When you have all of that money all of a sudden, it’s tempting to spend it all immediately on new technology and gadgets.
But there are much more smart ways to spend your tax refund. Making the right investment or helping yourself prepare for the future is an important use for your money. Read on to learn more.
1. Start Saving for a Down Payment
If you ever want to own your own home, you will need to have enough money in the bank to make a down payment. Otherwise, you will have to purchase insurance for your loan that can be costly.
Use your refund to increase those funds and avoid having to pay for mortgage insurance. Or if you already have a home, you can use your money to invest in the equity of your home by making a large payment.
Doing so will allow you to make those funds available again in the future when it comes time to sell your house. Or you can access it more immediately if you decide to refinance your home.
2. Pay Down Your Debt
If you have a lot of debt, it’s important to pay it down so that the interest doesn’t add up and your credit score doesn’t go down. Start by paying off the debt that carries the highest interest rate. That way, you will save the most money in the long term.
Next, pay down other loans like your car and student loan debt. The sooner you make those payments, the less you will have to pay overall.
3. Invest in Your Side Hustle
If you have been dreaming of starting your own business, but haven’t taken the first step yet, why not use your tax refund as an influx of cash to get started?
Use the money to buy business cards, establish a website, and get the ball rolling. Create a plan that will help you grow to a place where you can continue to reinvest and grow your business.
If you don’t think this year’s refund will be enough, you can always place to money in short term investments so that it increases until you have next year’s refund to use as well.
4. Give Back to Your Community
No matter how hard you have it, there is always someone who is suffering more than you. One way to remind yourself how fortunate you are is to see your dollars go a lot further than anything you could do by yourself.
The best way to do that is by donating to a community-based organization with a mission you believe in. Take the time to look into the programs that are in your neighborhood and reach out with a helping hand.
If you choose to give to charity, make sure that you get a receipt so that you can declare it on your tax return next year.
5. Start a College Fund
Starting a college fund for yourself or one of your children is a great way to spend your tax refund. Education is the gift that keeps on giving.
Today’s college grads make 56% more than high school graduates according to data from the Economic Policy Institute. Make sure that you are giving yourself and your child every advantage in this world and see your refund as a long term investment.
6. Make Home Improvements
When you get your tax refund, it’s a great time to make improvements around your home like getting a new HVAC machine or replacing your flooring. These kinds of repairs can cost a lot of money and your refund is a great way to take the heat off the cost.
Home improvements like these are the kind that you can enjoy today and still reap the benefits tomorrow. They add resale value to your home and create a form of equity.
7. Start a New Hobby
Many people get up and go to work in the morning every day and come home and do chores and errands until the next year. They rarely put thought into other activities or make time for things that they like to do.
But starting a new hobby is a great way to get a new lease on life. If you’ve noticed yourself falling into a pattern of behavior that doesn’t vibe with who you truly are, investing a bit of your tax refund in a new hobby is a great way to start getting to know yourself again.
Smart Ways to Spend Your Tax Refund
The smart ways to spend your tax refund on this list will ensure that your money has an important purpose that will give you value for years to come.
One of the best suggestions on the list is improving things around your home. This is a way both to make yourself happy now and to be able to recoup the value of your investment when you go to sell your home at a later date.
If you need someone to help you with home repairs, contact us today to schedule with our handyman service.