Like it or not, tax time is upon us as taxes are due a little more than a month from now. Many dream of getting that large income tax refund and going out to blow it on something nice they’d not normally be able to afford, but there generally isn’t much wisdom behind that. I’m assuming that since you’re reading this article, you’re looking for wise ways to use your income tax refund. If that’s the case, I’d like to share some of the ways you can use the influx of cash to your benefit. As an aside, I’ll not be discussing if you should have a large or small refund, but instead ways you can use your tax refund to best improve your financial situation.
Go On Vacation
Wait, didn’t I say that you shouldn’t blow your income tax refund on something foolish? Yes I did, but I believe given the right situation using your refund to help fund going on a vacation could be a great way to use your refund. I have done this in the past and possibly will in the future, assuming I get a big enough refund. I will give a caveat on this though, that if you’re carrying some sort of consumer debt, then this likely isn’t a wise use of an influx of funds. If you’re not in debt, then a nice tax refund could be great seed money for your next summer trip.
Pay Off Debt With Your Income Tax Refund
If you’re in the middle of paying off debt, then using your tax refund to pay off debt can be a great way to speed up your debt repayment process. Remembering back to my personal debt payoff journey, I looked forward to tax time as I knew that I’d likely be getting a nice sum of money that I could instantly throw at my credit card debt. That alone saved me several years of interest. If you’re in this situation then pay off the cards as opposed to whipping them out once the tax refund rolls in.
Start or Fund Your Emergency Fund
Emergency funds are regularly knocked in the personal finance community, but I believe they’re a vital part of financial health for many. If you’ve always wanted to start an Emergency Fund but have not had the resources to build one up yet, then your income tax refund is a great way to get one going. If you’ll be getting a solid lump sum back, then you could easily get started with $500 or $1,000 in your emergency fund that can get you started on building a fund that’s appropriate to your needs.
Invest the Found Money
I know investing “found” money is a bit on the boring side, but if you’re out of debt and wanting to wisely grow your money then this could be a great use of your income tax refund. Take a look at your investing needs and see how an influx of cash would benefit it. A great first step would be your Roth IRA. Are you able to max it out each year? If not, then this could be a perfect destination for those funds. If you don’t have a Roth, then this is the time to start one with your newly found money. 🙂
What will you be doing with your income tax refund this year? Will it be something fun like a vacation, or more serious like paying down debt?
Image by Lending Memo / Flickr
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