Tax refund season is definitely on! Have you thought about where you’ll spend your tax refund money?
According to the IRS, around 80% of tax filers get an average refund of $3,000 every year. If you’re expecting a tax refund from the IRS, you must start looking into different ways you can spend your tax money wisely especially if you’re expecting a considerable chunk of money.
Here’s a table of how Millennials, Gen-X’ers, and Baby Boomers plan to spend their expected cash back.
Everybody has different financial needs. So what works for others might not work for you. It’s up to you how you’ll spend your money but make sure to use it wisely and not blow it to things that could hurt your shot at being financially independent in the future.
We, at ALTCP, have curated a list of wise things you could spend your tax refund in 2019.
Smart Ways to Use Tax Refund in 2019
Pay Down Debt
Paying down debt regardless if it’s short term or long term is one of the top priorities of American employees. According to Principal’s survey, 33% of employees plan to pay short-term debt while 29% plan to pay long term debt using their tax refund.
Your tax refund might be of little help if you have a considerable amount of debt but this will still help. It might not bring immediate relief on your mortgage, car loan or credit card debt but you’ll feel its effect within a few months.
Read: Financial Spring Cleaning: 7 Proven Ways to Boost Your Retirement Savings
Set Up Emergency Funds
A survey published by Bankrate recently revealed that a lot of Americans couldn’t handle a $1,000 financial emergency, which is alarming. Here’s a chart of how many Americans can handle a $1,000 emergency.
If you don’t have enough savings, the best thing to do is put it in a moneymaking account or savings account that earns interest. Regardless of age, you should have at least three months’ worth of money that can cover your daily living expenses available all the time. If you’re behind, then it would be wise to use your tax refund to build an emergency fund.
Save for Your Health and Long Term Care Needs
The cost of healthcare and long term care continues to rise, so it’s imperative to plan for this ahead of time. Based on the interactive map of the average cost of long term care, a private room in a nursing home costs $97,455 while a semi-private room costs $85,775 annually.
The cost of long term care varies in every state. There are expensive states to receive long term care and there are also affordable states too and here are some of them.
Even if you have affordable options, you still need to plan for your future care needs and consider buying long term care insurance. Having insurance for long term care can give you peace of mind knowing that you have coverage for your future care needs and help you avoid becoming a financial burden to your loved ones.
Did you know that: family caregivers spent an average of $6,954 out of pocket expenses and more than 3 in 4 or 78% of family caregivers incur out of pocket caregiving costs.
Investing in Self-Development
Investing is not limited to doing it the traditional way by investing in mutual funds, bonds, stocks or real estate. Most often than not, the best investment you can make are the ones that help improve yourself.
Using your IRS tax refund in self-development and improving your career skills is an option that career-oriented people should look into. If you want to increase your chances of getting promoted or increased job security, use your tax money by enrolling in a short course or program or by attending a conference that will benefit you and your company in the long run.
If you have a business, you can invest in equipment that increases your production and can make you a better entrepreneur.
This is the kind of investment that can take your career or business to the next level and can pay off in a big way.
Boost Retirement Savings
This is the perfect opportunity to revisit your investments and use your tax refunds to buy more stocks, bonds or increase your 401(k) contributions. Most Americans are cash-strapped because of their daily living expenses, and there’s nothing left for their retirement funds. Now that there’s a state tax refund, they now have the chance to boost their retirement savings.
Those who 50 years old and up can make the most of catch-up contributions. Maximizing your contributions can give you $150,00 extra in the bank when you retire. Contributing to 401(k) is a sure win because it helps lowering taxes. The logic behind this is simple; the money used to fund this type of account is tax-free, which becomes instant savings for the following year.
Read: Retirement for Dummies: 5 Things You Should Do Before Retiring
Put it in a Savings Account
Putting your tax refund in the bank is what most American employees would do with their extra cash. It’s a good idea since money inside the bank earns 0.07 annually. It is low, but it is getting higher according to the Federal Deposit Insurance Corp. The purpose of putting money in the bank isn’t limited to earning interest and letting it grow but also to make it accessible in case you’ll need it.
Use it to Maintain Home
Maintaining a house is hard especially if you have limited funds and can’t make it as one of your priorities. Your tax refund is not enough to make home improvements, but it can handle small enhancements. Use your extra money to clean your gutters to avoid water pooling, which can result in a flooded basement, paint rooms or cabinets, replace faucet or bathroom sink with leaks and improving your backyard.
The cost of home repairs and maintenance could set you back for hundreds or even thousands of dollars. It’s wise to set aside money for home maintenance or better yet use any extra cash you have, in this case, your tax refund to make necessary repairs as soon as possible and avoid spending more than what you can afford and tapping your retirement savings.
Invest in Your Car
You can also use your tax refund to maintain your car to make sure that it’s in perfect condition all the time to avoid accidents and costlier repairs later on. According to AAA, about 1 in 3 car owners can’t afford to pay a $500 – $600 car repair bill without taking on debt.
Investing in your car will come a long way and can actually help you save hundreds of dollars if you are keen on maintaining your car.
Pay it Forward
Making charitable contributions might not be the first thing that comes into everyone’s mind once they receive their refund but if you have your finances in order, then why not use your extra cash to help others.
It’s not just about feeling good but also a great way to help a cause you are passionate about. You can turn this into a family thing by getting everyone involved in choosing the advocacy you want to help as a family.
Money-wise, paying it forward is considered as a deductible expense if you itemize. But the new tax law nearly doubles the standard deduction this year to make it more appealing to taxpayers.
Children or Grandchildren’s Education
Do you plan to help your children or grandchildren pay for college? If yes, then you should start a 529 plan now. It is a college savings account that helps taxpayers save money for the college education of a designated beneficiary and is exempt from federal taxes.
This is a smart way to use your tax refund since you can help your loved ones go to college and avoid becoming a statistic and be one of the 44 million Americans with student loan debt.
Treat Yourself
Spending your tax refund on having fun and treating yourself and your family doesn’t sound smart at first. But according to some financial experts, it’s a smart move if you spend 10% of your tax refund on doing something fun.
Sometimes, saving money isn’t the only smart thing you can do with your extra money. Spending it to relax and unwind with your family or buying something you’ve always wanted like an espresso machine, a multi-cooker that would make cooking easy or smart lights that would lower electricity bill have value too.
Start a Dream Fund
This is like taking “treating yourself” a notch higher. If you’re financially sound and you can afford to set aside money for your biggest financial dreams, then do so.
You can’t buy a new home, a new car or go around the world with just one tax refund. But you can open an account and start a dream fund where you can squirrel away your IRS tax refunds and other extra cash you have.
Set Up an Estate Plan
Make your future wishes known by setting up an estate plan. Using your tax refund for estate planning is smart since these documents – living trust and durable power of attorney, can protect your financial assets and ensure the health and care wishes in case you can no longer make your own decisions.
Get a New Business Up and Running
Who doesn’t want extra income, right? If you want to earn more for your future and for your family then you should use your tax refund to turn your business idea to reality. Who knows this might also help you transition to retirement when you decide to leave your job and become self-employed. Setting up a new business venture is also an opportunity to get additional business tax deductions the following year.
Have some fun and go on vacation
Give yourself a break and allow yourself to go on a vacation. Splurging a little for experiences is actually great. According to studies, people are happier and enjoy more of what they’ve purchased when they’ve planned or saved up for it before they make a purchase. Buying experiences such as vacations can lead to a happiness that will resonate to your family, friends and even in your workplace. So, it’s a win-win if you invest in your happiness.
Invest in the stock market
You don’t need to be rich to start investing in the stock market. In fact, you can buy stocks even if you have less than $500, which makes your tax refund a perfect way to fund your new investment.
Start looking at small investment opportunities first and tips that can help understand all the available options for growing your investment. Some of the best investment ideas you should look into include DRIPs or DRPs, individual stocks, mutual funds, and exchange-traded funds.
Get fit
If you’ve been eyeing to get fit this year, use your tax refund to propel your journey to a healthier lifestyle. Sign up on a workout program that suits you, buy a new bike if you’re into outdoor activities or you can also buy sports equipment that you can use at home.
Invest in Microloan
Is anyone familiar with microloan? It’s a type of loan that helps people all over the globe start small businesses. It works this way, you put up the money and you receive repayment of the loan once it has matured plus interest.
Since the risk of default with microloan is higher, it’s interest rate is higher-than-average. If you’re into an investment that yields high interest and not afraid of taking risks, you should use your tax refund in microloan.
Conclusion
Regardless of the amount of tax refund you’ll receive this year, you can use it for your own good whether it’s a preparation for your healthcare and long term care expenses, to improve your financial standing or use it as a reward for yourself.
Are you receiving a tax refund this year? What are your plans for your refund? Share your thoughts and insights below.