It’s everyone’s favorite time of year, tax return season!
That’s a joke if you couldn’t tell.
People often have a negative perception of taxes, but there’s no reason to. If you have simple taxes, and most people do, it could take less than an hour using tax software – and you can do your state taxes at the same time. So, whether you use tax software or meet with your tax professional, just get started and get those taxes squared away.
Depending on your tax outcome this year, you may qualify for a tax refund. There’s always a temptation to go out and spend that money on material things. Retailers are known for having incredible “sales” around the tax return season to entice you to spend the money with them. But if you make smart financial moves with your tax refund, it can be a great opportunity to set yourself up for a financially brighter future.
Let’s talk about smart ways to consider using your tax refund.
Nobody likes the feeling of debt looming over their head. Putting your tax refund toward any debt is an excellent way to save on future interest charges – and protect your overall credit. Learn more about getting out of debt.
Student Debt. Tackling student or educational loans is a great place to start with your tax return. Paying these loans down sooner will save you money on interest. While it may feel like your tax return won’t make a dent in what you owe, your future self will thank you, especially if you make it a habit every year. With dedication, you can beat that debt and gain financial freedom, and your tax return funds can really help.
Mortgage. Using your refund as a payment toward your principal means you’ll save on interest. Be sure to verify with your mortgage lender if there are any restrictions on lump-sum payment amounts with your specific mortgage. Usually, a payment from 5% to 20% is allowed without a penalty.
Using your tax refund to pay for larger expenses you’ve been putting off might be a great way to care for yourself. We’re all guilty of pushing off purchases when we expect a big bill, but your tax refund can be a great help. (An installment loan might be able to help with the rest.)
Dental or Medical Expenses. If you’ve been putting off an elective procedure, surgery, or dental care, using your tax return to feel better is always a good investment. Time to kiss that pesky aching tooth goodbye.
Car Expenses. When money is really tight, it can be easy to ignore the check engine light that’s been on for months. But your car is your transportation to work and everywhere else, and if it stops running, you’re sunk. Using your tax return for necessary repairs – or a down payment for a new car, if you need one – is a good use of the money.
Home Repairs or Improvements. Using your refund for household improvements can save you money in the long run. Replacing older windows, switching to energy-efficient appliances, fixing damaged shingles, etc. can help lower your monthly utility bills while maintaining your property value.
While most of us don’t like the idea of using our tax refund for savings, it's easily one of the best options. Using your tax return for any kind of savings, including retirement investments, can help pave a path to financial freedom for you.
Emergency Fund. Most experts recommend aiming for three to six months’ income in your emergency fund, but you have to start somewhere. Using your tax return to build your emergency fund is an excellent decision. After all, Fortune.com says 57% of Americans can’t afford a $1000 emergency expense. While options like cash advances or installment loans can help, your best option is to get that emergency fund going so you aren’t caught unprepared.
Stocks or Other Investments. Investing your tax return in a retirement or investment account is always a good idea – especially if you work for a company that will match your contributions. Contact your HR department to learn more.
Did you know? According to Fortune.com, 60% of Americans wouldn’t be able to pay for a month’s worth of expenses if they lost a job.
Each and every one of us has room for self-improvement! A little cash can go a long way to help us reach a personal goal. Consider an investment in yourself, like these, as a use for your tax return funds.
Go Back to School. While a tax return won’t cover your entire tuition, it might be enough to pay your application fees and get in the door while you look for loans or scholarships. Maybe start out by taking a course in a new subject to see if you like it, or just to learn something new. A certification from Google or another organization could help you go a long way career-wise for a not-so-big investment.
Fund a Hobby. Hobbies are great for the mind, body, and soul! They’re also an excellent way to battle depression and other post-pandemic challenges. A tax return can be a great source of funding for your hobbies, whether you like to play golf, work on cars, sew, craft, or just watch movies on the service of your choice.
Have an Adventure. If your finances and emergency fund are already in good shape, a tax return can present a great opportunity to get out and do something you’ve always dreamed of. Scuba diving? International travel? Skydiving? Whatever you’re dreaming of, using your tax return for an experience you’ll never forget could be priceless.
Any time is a good time to step back and evaluate your financial position. We all have different circumstances, different demands on us, different jobs - and a common responsibility to plan for our future. Tax refunds are a great way to get a jump on any financial goal in your life.
Mortgage Principal: the amount you borrowed for a home and have to pay back. This amount excludes interest and other amounts included in a mortgage payment, such as taxes.
Mortgage: a loan for a house or property. With a mortgage, you make an agreement with your lender giving the lender the right to take the property if you fail to repay the money you've borrowed plus interest.
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