You could be among the 90% of American taxpayers who are going to get tax refunds this year from the IRS. Although you might be tempted to blow the money on a shopping spree or a holiday, don’t forget that the economy has still not recovered fully. Spend your tax refund wisely so that you get maximum benefit out of the money. Here is some advice on spending your tax refund money.
If you are in a debt, then this is a great opportunity to clear it. It’s not the most exciting option, but it will make your financial situation stronger. The amount of refund that should be directed towards debt repayment would depend on how much money you owe and how much interest you are paying on it.
This is a good time to get rid of your debt as interest rates and prepayment fees are likely to rise in the near future. After paying off your debt, you would be able to spend a larger part of your income freely. Make sure you repay those debts first which have the highest interest rates as they put the most strain on your income.
Put a part of the money in your emergency fund. It is important to have savings equivalent to your usual expenditure of 3 months in an account from which you can easily access your money. This is even more important if you have temporary job or if you are unemployed. You can use this money for various contingencies such as medical bills or repairs. If you have savings, then you wouldn’t have to spend your entire monthly income to deal with an unforeseen situation.
The third place where you can invest your tax refund is your retirement fund. You can put some money in your IRA or 401(k). If you haven’t started building your retirement fund yet, then you should use this opportunity to start now. Investing early will give you the benefit of tax deferral.
If you are unemployed or don’t have a stable job, then you can invest some of your refund money in yourself. You can try acquiring a new skill, get training on how to do well in interviews, and explore new opportunities.
Finally, leave a small part of the money to have fun, but without being too lavish. Take your family out for a nice dinner or plan a trip to a nearby place.
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