Many people think of an income tax refund as “found money”. So, they spend, and spend, and spend. But, if you think your tax refund as an investment tool, you could be setting yourself up for success.
Investment #1 – Pay off Credit Card Debt
But isn’t paying off debt the same as spending? Yes and no. Yes, because you spent some money at one time on a nice meal or an expensive pair of shoes. No, because the interest you are paying on that long-forgotten meal has now doubled or tripled the amount it actually cost!
Check your credit card debt. Usually, that is the highest amount of interest a person will typically have in their monthly list of bills. Why put your refund check in a fund that yields less than the amount of debt you are paying out?
Investment #2 – Save It for a Rainy Day
Emergency funds are the most overlooked type of savings that is needed most often. Flat tire? Medical or dental emergency? Sudden job loss? When living paycheck to paycheck, any of these very real and often very common circumstances can occur leaving you scrambling to come up with the cash or, even worse, putting the balance due on a credit card or high interest short-term loan.
The fortune “gurus” often spout out emergency fund savings in terms of months of pay. In reality, between 6 to 9 months of pay is a typical amount that you need in order to be secure. Shockingly, roughly 7 out of 10 Americans have less than $1,000 in their savings accounts! By saving even a portion of your income tax refund, you will be better off than most working Americans and you have peace of mind.
Investment #3 – Prepaying the Mortgage
If you have a mortgage, making an extra yearly payment can shave years off a typical 30-year mortgage. There are many ways to prepay a mortgage, but if you are going to use your income tax refund for this purpose, just remember, in order to reap the benefits of retiring your note early, you have to make that extra payment every year.
Interest.com shares different ways to pay off your mortgage early, such as making bi-weekly payments or adding one-twelfth to your mortgage payment each month. Both equal one extra mortgage payment per year and cuts down the overall amount of interest you pay.
Investment #4 – Invest in Yourself
Whether it’s a course you need to further your career or updating the equipment or tools at your business, investing in you is always a win/win scenario. Remember to choose those updates wisely and get the most bang for your buck. Don’t be scared to invest in the most important asset you own-yourself!
Investment #5 – Fixing Up Your Home
Keeping your home in good working order not only increases the resale value if you ever decide to move, but it can also lower your monthly bills. Replacing windows, upgrading appliances, or even purchasing solar panels can add cash into your monthly budget in terms of lower utility bills.