How to Spend Your Tax Refund Wisely

48

By Ted James.

The average tax refund in the United States totals about $3,000. That’s a good chunk of change, so it’s no wonder that Americans are eager to take advantage of this financial boost. While many people spend their refunds wisely, others use it to make a major purchase, splurge on a luxury item, or go on a vacation. Instead of going the frivolous route, focus on doing something that will reap long-term rewards with your refund. Get some ideas below, presented by Jobbinghood.com.

Pay Off Your Debts

According to Debt.org, the average American household has a debt of some $137,063. Reasons for debt include everything from housing to credit cards, medical bills, and education. If you have unpaid debt constantly looming over your head, you can use your tax refund to chip away at it. This is a valuable step towards getting debt-free, can boost your credit score, and will also bring you peace of mind.

Get Life Insurance Coverage

If something happens to you in the future, you want your family to be financially secure and free from worry. Life insurance is the answer. You can use this online calculator to see what it will cost before shopping around. Make sure to make note of your life insurance details in your estate planning documentation, so that your family knows this money is available to them and how to access it. If you haven’t yet drawn up a will or trust yet, this is a good reason to do so. Your estate planning documentation should also take into account assets like savings, investments, and retirement accounts.

Invest in Your Own Health

Ideally, your family won’t need to rely on your life insurance anytime soon! Investing in your own health with your tax refund helps ensure your longevity; for example, you can buy a gym membership. If you have trouble motivating yourself to get to the gym, consider getting an under-desk elliptical machine. This is especially ideal if you work at home, as you can choose to use it while sitting down or standing up. Regardless of which option you choose, make sure it’s something you will want to stick with for the long term.

Look Into Investing

If you aren’t investing your money yet, getting your tax refund is the perfect opportunity to start. Index funds are a low-fee and easy way to get started; this gives you a diverse selection of various stocks in a single package. The benefit is that you aren’t putting all your eggs in one basket. If one stock dips, you won’t lose all your money.

Start Saving for a Down Payment

If you haven’t yet, you can use your refund to create a down payment savings fund. While many homebuyers assume that they’ll need to put 20 percent down on a new home, there are less expensive options available. There are many loans that require less than 20 percent down, but you will have to purchase mortgage insurance.

Start an Emergency Savings Fund

You never know when emergencies will arise. Your car might need repairs, for example, or you might need a new laptop when your old one breaks down. When these situations arise, ideally you’ll have a nest egg to rely on instead of needing to borrow money (which will mean incurring interest on the loan). Look for a high-yield savings account to put your tax refund into. These accounts have higher interest, meaning you earn more.

Put It Toward Your Retirement

Even if retirement is a long way off, it’s smart to start saving now. Money is a major concern for many seniors. Some 67 percent expect that they will outlive their retirement savings. Look into a 401(k) or Roth IRA. Your employer may offer a 401(k) which allows you to get a tax deduction when you put money into the account. With a Roth IRA, you make contributions with money that has already been taxed and don’t have to pay taxes on the funds you later withdraw.

While it can be tempting to blow your tax refund on something extravagant like new electronics or a tropical vacation, be smart. Taking one of the above steps is a better idea. You will be set up for a more stable financial future as a result.

Jobbinghood.com can help you contact employers and recruiters in a smart and inventive way. To learn more about our pricing, click here.

Photo Credit: Unsplash

Comments are closed.