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If you’re receiving a tax refund this year, you might have some ideas of what you want to spend it on. I remember every time I got a tax refund, I was ready to spend it. It was already earmarked for something big, fun, or both.
We’d buy a new tv, use it for a vacation getaway, or simply just start spending more that month. It was all great, until the money was gone. Then, we were right back to where we started.
In recent years, we’ve wisened up a bit. We’ve realized that we can really get ahead if we applied our tax refund to something that would grow our wealth in some way…even if it took us just one step ahead.
I’m hoping that these tips help you make better choices with your tax refund too. You’ll be so glad you did.
Here are some of the best places that your tax refund money would go a long way.
1- Start or Grow an Emergency Fund
Many of us use the excuse that we can’t afford to build a strong emergency fund. We don’t have extra money to put aside to build an emergency fund and it becomes something we plan to do “someday”.
This is the perfect opportunity to start or grow your emergency fund for real. It will save you when you need it most.
2- Saving for a Car or a House
A car or a house is something a lot of us strive for but always feel like our savings is just not growing fast enough. Imagine putting aside money every year toward this goal without having to put in any extra effort.
You’d get to your goal so much faster.
3- Extra Payment to Mortgage Principal
If you already own a house or a property, this is a perfect way to pay off your mortgage faster.
Just make sure that you indicate on your payment that the entire payment should be applied to principal. We once made the mistake of thinking that if we paid an extra payment, it would automatically go toward principal. But, the bank ended up just applying it as a regular payment. So, make sure you tell them exactly how to apply it.
Paying off additional principal can shave off several months and sometimes years off your mortgage repayment if you apply your refund to it regularly.
I am not someone who is well versed in investment strategies, I just invest in my 403B at work and my husband takes care of it for me (I know, shameful).
But, here are a couple of investment books for beginners that some of my colleagues highly recommend.
A little side note, I’m planning on picking up these two gems so I can learn more about investing as well.
You can also browse your local library to see if they have a copy you can borrow. I do this when I’m not planning on writing notes in the book.
Investing even just a little bit of money over time can really compound your wealth exponentially.
Have you ever heard of the question about whether you would take $1M or 1 penny per day for 30 days compounded? 1 penny would make you more than $5M in 30 days. Compound interest is a BEAST! It will literally make you rich.
5- Invest it in a College Fund
I wish I had done this when my kids were little. This is a great opportunity for you to build up your kids’ college fund(s) each year without having to think about it.
The best college savings program will be unique to the area you live in. If you live in California like I do, I’ve heard that the 529 Plan is a good one. Here is an article about how to open a 529 plan.
6- Save It
If the first 5 don’t seem like items you want to put your money toward, you can always simply save it in a money market account. A money market account is essentially a higher yield savings account that you can write checks against if you need to.
Perhaps you can delve into the other options mentioned when you feel a bit more comfortable.
Your Tax Refund Will Get You Ahead
The point is, that using your tax refund wisely can really pay off in the long run. I can tell you from experience, there are many tax refund years that I can’t even remember what we spent the money on. It’s really sad, but I wasn’t always intentional with my money.
Nowadays, we are strategic with where we apply our tax refund and it has really helped us reach a lot of financial milestones.
Even if you receive a few hundred dollars, those will add up in the right account. Think about it like this, you are paying your future self with money that would otherwise be spent on unnecessary items that you won’t remember in a year.
By using your tax refund wisely, you’ll be setting yourself up for success and wealth.
It’s one of the best decisions we’ve made and continue to make every year that we receive a tax refund.
Soon, our kids will be grown and we’ll start owing taxes. This is the perfect time to get the most out of what we receive.
Intentional living, intentional spending, intentional investing. This is what wealth is made of.
How do you plan on investing your tax refund this year? Let me know in the comments below!
Until next time my frugal friend.