If you’re one of the millions of Americans receiving a tax refund this spring, you may be asking yourself what to do with that money. It’s simple, right? Many will deposit their refund directly into their checking account and never look back. But with average return coming in around $3,016, you can do better than that! Depending on your current financial outlook, here a few options to make the most of that extra dough.
Tackle your debts
Debt can really put a damper on your budget. Things like extracurricular activities and everyday expenses may be hard to juggle depending on how much you owe. Not to mention the interest payments that are tacked on to your bills.
If you can completely pay off any high interest debts with your return, you may be able to free up some extra cash in your budget. You’ll also keep your credit score in check – something to think about if you plan on making a major purchase, like a home or a car, in the near future.
Save it for a rainy day
According to a 2017 survey from Bankrate, more than 50 percent of Americans aren’t prepared to cover an unexpected cost. That number is pretty staggering – because if you have a car, apartment, house or even a pet, you know how quickly accidents can translate into dollar signs. Whether it’s the water heater or an unexpected medical bill, the best way to prepare is to stash your refund in a savings account dedicated for expenses like these.
Level up your career
Another way to use your return is to take your career to the next level. Is there any training available to help you improve your work? Are there any skills you need to get that promotion you’ve been working toward? Put that money toward coursework or tools that will further your career. The money you spend on education and materials may quickly come back around if you’re able to increase your wage or salary.
Build your wealth
You may have heard the expression “it takes money to make money.” Well, now’s a great time to put that in to practice. For example, if you invested a $3,000 tax refund in an index fund with a 7 percent annual return, you could have $5,900 dollars after 10 years. While that may seem like a long time, you’ll nearly double your money just by using the power of compounding.
But let’s take this example a step further. Let’s say every year for 10 years you deposit your $3,000 tax return into the very same index fund mentioned above. After 10 years with a 7 percent annual return, you could have well over $40,000. Historically, the market has offered more significant returns than interest earning accounts like certificates or savings accounts. So if you’re ready to take steps toward building your wealth, investing could be the way to go.
Remember to treat yourself!
Hopefully now you feel inspired to put your tax return to good use. Whatever you choose to do with those funds, it doesn’t hurt to reward yourself. As long as you’re being responsible, you should feel free to use a portion of your return to splurge on something you want. A gym membership, a vacation, a new TV or anything you enjoy can still be a part of the equation. Consider it a small reward for making the most of that check from Uncle Sam!
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