6 Great Ways to Spend Your Tax Refund
Tax season is upon us again! If you’re like more than 80% of U.S. households you’ll spend the tax refund within 1 week of receiving it. I suggest here 6 ways to spend your tax refund that are great for your personal finances and will also support a path of wealth accumulation! At the end of this post you’ll also find a link to a podcast I recorded discussing this topic! I hope you enjoy, if you do please comment and share. 🙂
Use it to pay down debt.
If you have debt, consider using this windfall of cash to help you destroy debt. If you have high interest credit card debt or a payday loan you wont regret applying the tax return to those expensive and stressful debts. It could be a real blessing to your peace of mind.
Use it to fund your emergency fund.
An emergency fund is in excellent tool to help keep life’s little emergencies from breaking the bank or causing stress and anxiety. A good rule of thumb is an emergency fund should be at least three months of household income. If you don’t have a fully funded emergency fund yet this is a great chance to get one started.
Put it towards retirement.
If you were out of debt and have an emergency fund it would be great to put this money to work for your financial future. Putting your tax refund into a Roth IRA or into another retirement account means that money could double or triple over 10-20 years but it also means you wont be using it for a while. So if you think you may need the money for something like a home purchase, it’s best to keep the funds outside of a retirement account.
Add it to your investment account.
If you want to save and invest the money outside of a retirement account I suggest putting the money into a brokerage account and investing in index funds. Vanguard has excellent funds and their brokerage accounts are easy to open. Read here to learn why I think index funds are the best market based investment.
Use some of it to meet with a tax professional.
You’re getting in big tax refund. Excellent! …or is it? A large tax refund means you paid too much money to the government out of each of your paychecks. A tax professional can help you make adjustments so that you get the most money in each of your paychecks. Personally, I like my money in my paycheck instead of loaning it to the government for free.
No, not all of it! I do believe the majority of it should go to one of the suggestions above however taking 10% of it to get something for yourself or a loved one wont hurt. I think its a great way to treat yourself while also being responsible with the money.
Listen to the Murphy on Money podcast below which focuses on this topic.