Many of you may have already filed your taxes and some may even have received your tax refunds by now (if you haven’t even filed your taxes, you have about a week left to do it). To most people, getting the tax refund check is a welcome relief as it may amount to a substantial chunk of cash. It also means you have not become the victim of identity theft where your refund check was stolen by criminals. But what you do with your refund is just as important as receiving it safely from the government. Click here to read or watch more IRS Help resources.
Here is some sound advice on what you can do with your tax refund.
Save it for a rainy day
This is the most obvious thing you can do. Saving it does not necessarily mean putting it into your savings or checking account. You could deposit it into some form of investment like a college fund or start a new business to generate even more money. In any case, you should always have at least 6 months’ living expenses in your savings, so if you have not attained that amount, you should just save up your tax refund in case of emergencies.
Pay your debts
This is perhaps the second most common thing people do after saving it. Since we all have debt, there is always some debt you can pay down that will reduce your financial burden and improve your credit rating. It also eliminates future interest and improves your net worth.
Contribute towards a 529 plan or IRA
A 529 plan helps you pay for college education by saving now. Starting a 529 plan now will reap you the rewards in later years when you have to send your children to college. If you don’t have children (or even if you do), consider contributing towards an Individual Retirement Account (IRA) which is a form of retirement savings. It’s different from a 401(k), which are what your employer contributes on your behalf. An IRA is what you open for yourself. What’s more, an IRA also entitles you to further tax breaks.
Spend on your home
If you want to spend the money, my advice is to at least spend it on an asset that appreciates in value and which you can derive benefit from. What better asset than your own home? Houses and other such properties tend to appreciate in value so should you sell your home in future, you can fetch a higher price if you have put in some money to upgrade or renovate it. So spending your tax refund on your own home is a form of investment for the future.
Give to charity
An alternative to spending on yourself is giving to the less fortunate. All you have to do is ensure the charitable organization you donate to is registered so that your donations are tax-deductible. That way, you will be saving on next year’s taxes at the same time.
Give yourself a treat…just not too much
If you already have a high net worth and your family is well-provided for, go ahead and give yourself a treat. But don’t overdo it.