How to Make Your Tax Refund Work For You

There’s no better feeling than finally seeing your tax refund deposited into your checking account. With hundreds, if not thousands of extra dollars in your account, you may be tempted to go out and buy a few luxury items or take a trip. But what if you made a smarter financial decision for this unexpected money?

Your tax refund doesn’t have to just be extra money. In fact, you can use it to your advantage to better your financial situation now and in the future. Here are ways that you can make your tax refund work for you.

Pay off Debt

Despite what you may assume, most Americans actually use their tax refund for a good purpose: paying off debt. According to a study conducted by GoBankingRates, 27% of people use their tax refund to pay down debt.

By putting such a large amount of money towards a student loan or credit card debt, you can make a huge impact on your financial standing. Large payments towards debt can reduce your monthly payment while also saving you money on interest charges.

Using your tax refund to pay off debt is also beneficial in that it will give your credit score a boost. Improving your debt to income ratio can have a huge impact on your credit score, which means more favorable borrowing terms when the time comes.

If you decide to use your tax refund to pay off debt, it’s often best to put it towards the highest interest debt you have.

Save It

Saving isn’t always easy, so when you have the opportunity to stash away hundreds, possibly thousands of dollars, do it! There’s nothing better than having peace of mind knowing that you are financially set to handle any money problems that may come your way.

Unexpected expenses happen when we least expect them, and often times when we’re least prepared. By choosing to put your tax refund into your savings account, you can pay for a flat tire or make it through a job loss.

If you already have a healthy savings account, consider putting your tax refund into an emergency fund. As a rule of thumb, you should enough money saved to pay all of your expenses for three months.

Invest It

Another great option to make your tax refund work for you is to put it into an investment account. There are all sorts of investment account options, including:

• IRA
• 401(k)
• HSA
• Certificate of deposit
• Money market

You could even use funds to play around in the stock market! But how do you invest your tax refund if you don’t have much knowledge about which investment account is best for you? This is when a financial advisor can be extremely beneficial.

A financial advisor will work with you to determine which type of investing will yield you the most earnings. You can compare the 5 best financial advisors in Orlando on the Careful Cents site. With professional assistance, you don’t have to become an expert in investing. Instead, you just have to present your financial goals.

By investing your tax refund, you can make thousands of dollars, which will greatly benefit you in the future.

Start a Side Business

It takes money to make money, and if you’ve just been given a couple of thousand dollars, why not start a business? If you’ve always had an interest in becoming your own boss, now just may be the best time to do just that!

With your tax refund, you can buy the supplies or inventory you need in order to get your business up and running. You can also use that money to register a website and to start marketing your brand.

While a couple of thousand dollars may not cover all of your startup costs, it’s a great start to getting your business off the ground.

Renovate Your Home

We all have home projects that we’d love to tackle, but rarely do we have the money to do so. Most home projects cost thousands of dollars, which is way more than most homeowners are willing to randomly dish out.

Whether you’re planning to sell soon or just want to upgrade your decade-old kitchen, your tax refund is the perfect way to fund such an expense.

When choosing to renovate your home, stick to projects that increase your home’s value. A new kitchen, bathroom, or even a simple fresh coat of paint can have a huge impact on what your home is worth. You’ll also want to see which interior design is trending so that you don’t renovate your home, only to make it outdated.

Conclusion

Your tax refund doesn’t have to be used to pay for a frivolous expense. There are all sorts of ways that you can make your tax refund work for you so that in the end, you make even more money.