If you're planning to get a tax refund this year (or you already have), it's important to have a plan for your money. Without giving your money a purpose, it's easy to spend on unnecessary things. Giving your tax return a plan can set you on the right track financially for 2023.
The following are good options for your tax money, and should be the top priorities for your refund.
1. Start and/or Increase Your Emergency Savings
An emergency savings fund should always be your first move financially. An emergency fund is there to help you with any financial hick-ups or unforeseen issues that may surprise you. Without having money put away for emergencies, a car breaking down could be a financial disaster. Whereas a healthy emergency fund will help you get your car fixed while still being able to pay the bills and get groceries from your paycheck.
2. Pay Off High-Interest Debt
Your next step after establishing a healthy emergency fund, should be to use your tax refund to attack any high-interest debt you may have accrued in the past. Things like credit card debt, car loans, and pesky student loans are the perfect kind of thing to put your tax money towards. This type of debt is often hard to get rid of, so using this newly found money can be a great way to eliminate it.
3. Use It On Something You Really Need
There's a difference between a "need" and a "want". You may want a new HD TV, but you need to get your car fixed. Now that you may have some extra cash in your possession, it'd be smart to take the car in to get checked out.
4. Start A Savings Account
Many times people put off creating a budget and start smart saving because bills and payments take priority. But now is the perfect time to sit down, create a budget, and start specific savings goals for important future events or purchases.
5. Refinance Your Mortgage
When you refinance your mortgage, you have the opportunity to save thousands of dollars per year, but initially you still have to shell out money for closing costs and fees. This could be covered by your tax refund check.
6. Invest In a Tax-Sheltered Account
It doesn't matter whether or not you've started a Roth IRA or a 529 College Savings Plan. Adding to your current accounts or getting a head start on one of these accounts could set you up for great financial success in the future.
7. Invest In a Taxable Account
Maybe you've already contributed the max to your tax-sheltered accounts, you may want to consider opening a brokerage account with a discount broker (i.e. TradeKing, or Scottrade). Lean toward conservative and diversified investments that have lower expenses.
8. Donate to Charitable Causes
When money is tight, donations to charity may get overlooked as a good way to spend your refund. However, charitable donations are an excellent way to use capital, and it is more beneficial than one might think. You can claim the tax deduction, and your dollars will help the community in a major way.
9. Get a New Business Up and Running
Have you been looking to kindle that entrepreneurial spirit and start a new venture? Your return would be great seed money to get a new business moving in the right direction. It is an opportunity to turn that extra cash into income for years to come, and get few small business tax deductions along the way.
10. Set It Aside For Something You Want
This is the perfect time to be smart about a family vacation or a nice date night. By setting a designated amount of your tax return aside for something like a family vacation, it allows you to be smart even about the "wants" in your life.
Final Thoughts
No matter how much your tax refund is, it should be treated like "found money"- and if you put it to good use, it can help improve your financial situation.
What are you planning to do with your refund this year?