Tax refunds are always a hot topic this time of year. Some Americans get nothing back at tax time, but millions of others count on that yearly refund to put a little more spending dough in their pockets.
If you’re expecting a refund, put that extra cash to good use. Following are some ideas for using your refund to make you richer.
1. Pay down debt
Using your refund to reduce high-interest balances cuts down on both interest charges and the overall amount you owe.
It also may improve your credit score by lowering your credit utilization ratio, as Money Talks News founder Stacy Johnson explains in “What’s the Fastest Way to Increase My Credit Score?” And a better score can mean easier access to credit at better rates — something that definitely can make you richer.
Look at it this way: Paying down a credit card charging 18% interest is like earning 18% of the amount you’ve cleared, risk-free and tax-free. There aren’t many investments that offer returns like that.
2. Create an emergency fund
Living paycheck to paycheck often means there’s never enough cash to get ahead. Use your refund to build a financial cushion, ideally enough to cover at least three months of living expenses.
The advantages to doing so include:
- Bills always get paid on time, saving you late fees.
- You never need a cash advance, saving on the fees and high rates of interest those charge.
- You can stock up on bargains at the grocery store, enabling you to always get the best price.
And the peace of mind? Priceless.
For tips on creating an emergency fund, check out “9 Ways to Build an Emergency Fund When Money’s Tight.”
3. Save on insurance
Many car insurance companies offer a discount if you pay the six- or 12-month premium in full. Use a chunk of your refund to do that, and put the rest in a high-yield savings account so you can raise the deductible on your policy — a simple way to save 10% to 20% on your premium.
For more tips on cutting car insurance costs, check out “How to Get the Best Possible Deal on Car Insurance.”
4. Take a class
Use the money from your tax refund to pay for classes that will teach you a skill you’ve always wanted to learn.
Taking classes to boost your skills might be good leverage for a raise at work. Or, you could begin training for a new — and more lucrative — career.
You could start funding a 529 college savings plan, or open an individual retirement account for yourself. If you invest your refund wisely every year for a decade or two, you could save up a bundle.
Think your refund isn’t big enough to bother investing? See “How to Get Started Investing With $500 or Less.”
6. Start a business
Use your refund as seed money for a side business. You could:
- Launch a website.
- Sell your own arts and crafts.
- Start a garden and sell your extra fruits and veggies at a farmers market.
What are you planning to do with your tax refund this year? Tell us below or on our Facebook page.