Nobody likes the tax season. Well, apart from tax preparers. That’s because of the high pressure, especially on procrastinators. However, there is often one source of solace; tax refunds. The average taxpayer will get about $3,000 annually in refunds. The question then becomes, what’s the best thing to do with this tax refund?
1. Paying off your debts
While most people’s minds would go into buying something for themselves or a loved one, it’s essential to set priorities straight. High-interest debt, such as the one accrued from credit cards, can be a significant drag. You can use your refund to pay off that debt or at least make it more bearable to carry. When you pay it all off, you are then sure that you will get a return on your cash that’s equal to the interest rate you pay to the lender.
2. Take a trip
Have you been planning on going for a trip for months but haven’t because of your financial situation? Why not use your refund to make it happen? You can use the refund to see friends, family, or head off to a tropical destination to get that short vacation you have been thinking of. When you get back, you’ll feel relaxed, refreshed, and ready for the rest of the year.
3. Create an emergency fund
Most US citizens lack the necessary savings to shelter them in case of a sudden urgent financial need. This lack of savings results in vulnerability in case you lose your job, get a medical emergency, or need to repair something. Without an emergency fund, you will have to take a high-interest short term loan, which will hurt you financially. The refund can go into an account that can be used in case of an emergency!
4. Boost the college fund
You can also use your tax refund to boost your child’s or grandchild’s college fund. As higher education becomes more expensive by the day, a few thousand dollars every year can go a long way in boosting the fund. This way, your kids don’t need hefty loans to finance their diploma or degree. This can be a double win for you because, in some cases, you can get a deduction, which also helps you with the IRS.
5. Investing in the stock markets
While you might be tempted to fulfill an immediate need with your tax refund, you might want to look into the future and invest. Historically, the stock markets have more significant returns than CDs, savings accounts, and bonds. While the market fluctuations present some risk, stocks are a worthy investment and can help out a lot in the future.
6. Make home improvements
Home improvements tend to be quite pricey and therefore need some planning before you get started. To make the proper improvements, you first need to have an idea of how much you will be getting as a refund for the taxes. Here you can use some readily available resources to structure your finances so that you know how much you can expect to receive.