4 Beneficial Ways to Use Your Income Tax Return
March 21, 2016 / Sara Davis / Use My Tax Refund Wisely
Receiving your tax refund in the mail or by direct deposit is possibly the only fun part of filing your taxes.
And after a long year of hard work and a long tax season of stressing about how to get your taxes done, that check can feel pretty rewarding. It's no wonder why some people use it to treat themselves to unimportant items and frivolous purchases.
However, according to Bankrate, these people and their purchases are becoming less common by the year.
People are beginning to spend their tax refunds more wisely based upon a recent poll:
- 30% of people said they plan to use the refund to help pay down debt
- 28% said it would be going toward an investment or a savings strategy
- 26% plan to spend it on necessities
If you haven't planned out how you are going to spend your tax return this year, consider the following smart strategies.
Strengthen Your Emergency Fund
It's important that every adult has an emergency fund set aside. In the event of a job loss or an expensive medical emergency, this money is there to keep you afloat and prevent you from going into debt.
Ideally, your emergency fund has enough money to pay your monthly necessities, like rent, food and utilities, for between 3 and 6 months.
If your emergency fund is lacking, consider putting your refund directly into this account. While it can feel anti-climactic now, it will save the day if something unfortunate happens.
Save For Your Children's Futures
If you are like many Americans with a college degree, you probably emerged from the world of higher education with a sizable amount of student loans.
If you have kids, you might be hoping they will go to college and earn a degree as well. However, you probably don't want them to be burdened by the high price of education.
One way to reduce the impact of college tuition is by saving now.
A 592 savings account is a great way to get started. This account is one where you set aside money specifically to be spent on education.
Your children will thank you for it one day.
These accounts are good savings strategies because they will grow tax-free until the money is taken out, according to Savingforcollege.com.
Fund A Business Venture
A good tax refund might be just what you needed to finally get your dream side business off of the ground.
Invest that money into whatever it is you need to get started. Once it's up and running, you can begin supplementing your income, or even dive into it full time.
Plus, as Money Crashers pointed out, the money you put into your business can be tax deductible.
This will benefit you when tax time comes around again next year.
Give It Away
Spending money on yourself, your children and your future are usually fun and good ways to use your tax refund. But when was the last time you gave to charity?
According to the National Philanthropic Trust, Americans gave $358.38 billion to charitable causes in 2014.
This is an impressive amount, but many know they can give more. If you have all of your finances in order, consider donating a chunk of your return to a good cause.
You can make this into a family experience. Talk to your children about what causes they feel passionate about, and donate the money together. Not only will it benefit your community, but it will also teach your children the importance of giving back.
Additionally, it can increase your tax refund next year. As Kiplinger noted, these gifts are tax-deductible.
These are just additional ways you use your tax refund to your benefit and feel free to divide up your money among these different ideas.
Additionally if you have all of your finances squared away, have already donated to a good cause, and have a realistic budget you know will keep you financially secure in the year to come, there's no harm in spending a little money on yourself.
You worked hard to save money all year, a reward can be just what you need to keep your motivation up to be frugal in the coming year.
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