Most of us have a love or hate relationship with tax season.
You might dread it because you know you’ll have to pay in, even after you kept elaborate receipts for deductions. Or you love knowing you’re finally getting some of your money back that you paid in all year.
If you’re in the latter category, you’re probably already thinking about what you’re going to do with your tax refund. Consider this the perfect opportunity to move forward with your financial goals, though, if you spend it right.
These seven savvy money moves will help you maximize your refund and get closer to reaching your financial goals.
1. Pay Off Your Debt
If only it were that easy, right?
Most of us aren’t going to get enough back in taxes to pay our mortgages or cars off. But if you are getting a decent chunk and it will cover at least one of your interest-bearing debts, the smartest thing to do is to pay that off.
Sure, it’s great to put some money into your nest egg. However, consider how much you’re spending on interest each month for your credit cards.
The average credit card interest rate is 14.52%, with many people having rates in the 20’s. Is your savings account paying you enough to make up that amount?
The odds are, probably not. Until your interest-bearing debt is paid off, put your extra money towards that, not savings.
2. Start Your Portfolio
Have you been considering investing but you didn’t think you had the money? Setting aside part of your tax refund towards a minimum investment will end up making you money.
Crowdfunding and other alternative sources of investments have made it simple and structured for new investors. A lot of stocks, bonds, and real estate can be part of your portfolio for hardly anything down.
Once you get it started, it’s easy to add a little at a time. You’ll quickly see your investment working for you, and you won’t even miss that initial money down.
3. Stay Away From Impulse Buying
This little thing on Amazon and that must-have item in the checkout lane weren’t a lot at the time. But suddenly your tax refund surplus is gone and you have no idea where it went.
Use the idea of having extra money to focus on the big things. Don’t get tempted by those small purchases you can buy any time you have a few extra dollars.
4. Invest in Your Health
There is truly no better investment than that of what makes you a better person. If you’ve been waiting for the money to start a new physical lifestyle, now is the time!
Whether it’s paying for a gym membership for the year, hiring a trainer, or taking a nutrition class, do what you need to do in order to feel healthier. This will reduce future expenses by improving your health.
Decreasing your likelihood of developing chronic, dangerous diseases means you don’t have to pay extra in insurance and medical bills later.
5. Invest in Your Future
Do you have goals that you want to hit but you aren’t sure how to get there? Depending on those targets, investing in a course might do the trick.
Financial savvy isn’t innate in everyone. If you need help getting on the path to economic freedom, use a little of your taxes to take a business course.
If you’re the one getting in the way of your success, you might need a motivational push. Invest in and attend a seminar or an interactive online class to give you the boost you need to break through that glass ceiling!
6. Add Equity to Your Home
When your house needs repairs, the expenses can add up. Using your tax refund to make home improvements gives you a return on your investment that adds value to your property!
You might not be getting enough for a new roof or other expensive repairs. However, these less costly improvements still add equity to a home:
- Landscaping your lawn
- Replacing your entryway door/porch
- Replacing windows for energy-efficient options
- Swapping out appliances for more energy-efficient choices
- Minor remodels to the bathroom or kitchen
Even if you’re not planning on selling anytime soon, when you make home improvements, your property value increases. Should you ever need to use the equity in your home, you’ll appreciate those little investments you made!
7. Fix Your Credit Score
Quite possibly the most expensive mistake people make is letting their credit slip. When your score drops below “excellent,” it can end up costing you thousands of dollars every time you take out debt.
Financial lenders use your credit score to see how much of a security risk you are if they approve your loan/credit card request. The higher your credit score is, the less of a risk you are. They are then willing to give you more of their money at a lower interest rate.
Check your credit score at any of the major credit bureaus. Experian, for instance, has a free app that shows you everything on your report. If there is anything on there you forgot about that is lowering your rating, try to pay it off.
Tax season comes around once a year. When your refund is gone, it’s gone!
You don’t want to miss this opportunity to move ahead with your goals. These seven financial strategies will help you make the most of your refund, big or small!