A tax refund can either be something you invest wisely, or waste frivolously. Which are you planning to do this year?
Let’s hope the latter.
Each year, you may be accustomed to getting a tax refund. You’ve worked hard over the previous year, and if the government is returning money to you, you probably don’t have any extra cash to spare.
Think critically about ways to use your tax refund. You want to make the most out of every dollar. Don’t let the opportunity go to waste.
If you’re drawing a blank, then read ahead and discover some time-tested and proven ways that people have traditionally invested their tax returns over the years.
Top Five Ways to Use Your Tax Return
1. Start a six-month emergency fund
The Covid-19 pandemic was a wake-up call to people around the world that the economy, and the way we work, can change quickly and dramatically. If your job suddenly ceases, you might not have any options left over but to use your emergency fund.
Chances are, if you got a tax refund in the first place, you didn’t earn all that much in the previous year, or it had to all go to necessary expenses. It’s wise to set aside whatever little money Uncle Sam returns to you until you lose your job. In today’s economy, it is a distinct possibility. Just be prepared.
2. Start funding an IRA
If you are not already set up with an IRA, then start one when you receive your tax refund. If you’re not yet 50, you can put in about $6,000 each year. If you’re over age 50, then you can put in $6,500 to catch up.
Whatever age you are, it doesn’t matter. If you’re still working, setting aside some money for retirement is one of the best things to put your money toward. Any windfall that comes your way should go straight to retirement. If you set aside all your tax refunds in an IRA fund from an early age, you would have a significant retirement income to live off of. You want to retire comfortably (maybe even retire early) and not be working into old age tirelessly.
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3. Start your own small business
Over 700,000 businesses were started last year, and the tiny bit of money offered by the government in your tax refund can be a good seed investment in any kind of small business idea you have. You might not want to invest all of your money too quickly, but you can start out small.
A great way to create your own business is to start consulting in your line of work. You can put you money toward advertising or your website. You can also start a blog or open an Etsy store. Whatever you decide to do, you will reap the benefits of being a business owner.
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4. Invest your money in a traditional way
For example, you can use an exchange fund or a mutual fund. If you are a current investor, you can add a lot more money to your current holdings, or you can add to your existing portfolio with a lot of new income.
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5. Start a college fund for your kids
A 529 college fund is the most common one. If you don’t have children of your own, you can always invest in your relatives’ children. People can do this with their nieces and nephews, and a lot of them will end up going to college with the money. It is a great idea for a lot of young people.
You Choose the Order of Importance
These five ideas will help you put your tax refund to the best use. Most of these things are essentials. They either critically help you earn more money, or they are for necessary expenses that you have to invest in over the course of your life anyway, like retirement, work, or college. You choose which idea is best for you, based on its importance to your life.