When you get the income tax refund check, your first instinct prompts you to just spend it right away.
Hold back! This refund is from your own hard earned money. Why not put some thought and make use of it wisely?
1. Make way for retirement
If you can’t think of any immediate use for the tax refund money, it makes perfect sense to put the money aside for your retirement. You can deposit the money in an Individual Retirement Account (IRA). Opening an IRA also allows you to take advantage of some tax benefits.
Saving up for retirement early on is a smart practice adopted by many successful individuals. You should join the league too! A tax lawyer can help you channelize the money appropriately. Look for a tax lawyer in your area and start your tax planning as soon as possible.
2. Prepay the mortgage
You can utilize the tax refund money to make payments of your home mortgage loan principal. This way, you’ll be able to ease off the interest payments on the mortgage and save a huge amount in the long run. You might be able to pay off the loan earlier than its term! This decision can really make a huge difference to your finances in the future.
3. College degree fund
It’s never too early to start for a fund for your child’s college degree. We agree, it’s not possible to foresee how the education costs will burgeon in the future. But any money you can save up can ease your burden significantly when the time comes. Besides, you may even get to claim a deduction on the deposits made to the education fund. If your children are already married and settled, you can also consider starting a college fund for your grandchildren.
4. Start your own venture
So, you’ve been aspiring to start a small business? You don’t need to shop around for investors anymore. You may not even have to look for bank finance, or ask your friends and family for a loan.
You can use the tax refund money to sponsor your own small business or arrange for its working capital requirements. It may only be a small step, but it will undoubtedly get you closer to your dream venture.
5. Pay your dues
Rather than frivolously spending the tax refund money, you can use it to settle your debts. You can pay off all of the outstanding payment on your credit cards. Credit card companies charge interest at quite high rates. If you can repay the total dues (not just the minimum amount due) you’ll end up saving some money on the interest charges.
6. Spend on home improvement
You can spend the tax refund money to upgrade your old home with necessary improvements. Some of your appliances and fittings may have become too old to function efficiently. You can buy new stuff with better technology that will also be energy efficient and save money on your utility bills.
7. Save it up
The IRS can split your tax refund money into three different accounts. The IRS office also arranges for depositing the money directly in the respective accounts. You can make use of this facility and choose to get some money directly in your savings account. Not only will you be spared the temptation to spend the money, but you’ll earn some extra money on the interest on your bank saving account’s balance.
8. Buy life insurance
At a young age, you may assume that taking life insurance is unnecessary. But life insurance is one of the most important financial security for your family as you grow older.
If you’ve got some spare money as a tax refund, it is a good idea to buy life insurance and secure the future for your family.
9. Make money on the bourses
There’s a huge potential for earning some profits on the stock exchange. If you’re interested in the markets, you can use the tax refund money and build a stock portfolio. Even if you don’t intend to make money by trading, you can make long term investments in high performing stocks.
10. Set aside for emergency
In times of emergency, you may need to urgently access some funds. The emergency could be related to your health. It may even be a financial contingency like a fine or penalty. If you put your tax refund money in an emergency fund, you’ll be spared the trouble of arranging a loan with high interest rate at short notice.