Americans spend the bulk of their money on housing, transportation, and food. There is so much more you could do with your IRS refund than just take care of these basic necessities. A tax refund is traditionally unanticipated income, so it provides the opportunity to address important, but typically overlooked, components of your household budget.
Since tax refunds are typically paid out in one lump sum, they are usually a substantial amount of money received at one time. Not being part of the monthly budget, a wisely-utilized tax refund can be directed to help your overall financial picture. Here are some ideas that can help you put your tax refund to good use.
The point here isn’t to argue whether you should or shouldn’t get a tax refund. In some cases, you can’t avoid it. This article assumes you’re getting one, or you have one now, and you’re looking for productive and intelligent ways to spend it…
1. Start a Business
Your tax refund could plant the seed for your complete financial freedom. This may sound like a grand and hyperbolic statement, but investing in yourself can provide great dividends. If you have a great idea and the passion to pursue it, that tax refund money may be the tool you need to turn that idea into a reality. There are many reliable companies that provide crucial business services that could benefit your startup business, and help develop needed infrastructure.
There are three essential components of good entrepreneurship: desire, tenacity, and skill. If you want it, have the necessary skills and experience, and follow your dreams through the hard times, your business can be successful. You may also receive several benefits in the form of the tax deductions that are applicable to small businesses.
2. Increase Your Emergency Fund
This could take the form of investment in a savings or money market account. Although the purpose of this account is to provide for short-term expenses that are generally unforeseen, your emergency fund could be a lifesaver in paying for long-term costs or helping with ordinary recurring budgetary items.
3. Invest in a 529 Plan
If you are a parent, your tax refund could go toward an investment in the education of a child in the form of a 529 plan. There are two options when seeking a 529 plan: prepaid tuition plans and education savings plan. Although these qualified tuition plans are sponsored by states, state agencies, or educational institutions and are authorized by section 529 of the Internal Revenue Code, investments are generally not federally guaranteed.
In some instances, under Educational Savings Plans, investments in principal-protected bank products may be insured by FDIC. These plans are a great way to invest in the education of your children and offer a variety of alternatives.
4. Pay off Credit Card Debt
If you have credit card debt, you can use your IRS payout to eliminate it. Pay off debt that is currently due or that will soon become payable, as well as debt that bears the highest interest rate. Consider this to be an investment in your financial freedom.
These tips show that a tax refund can go a lot further than simply paying the bills for household necessities. With good planning, your tax refund could be a strong component of improving your long-term financial health.