It may only be January, but before you know it you’ll be filing your taxes and maybe even getting a substantial refund back. Of course, it’s exciting to think about the possibilities of how the “extra” money could be spent. Maybe you’d like to take your family on a memorable trip or buy yourself something nice. It’s always fun to dream about short-term satisfaction, but what if you chose to use that money towards propelling yourself forward toward your financial goals that will last for the long-term?
Here are 3 ways you can make that money work for you by investing in yourself:
#1 Build-up your savings
Most times when you spend money, it is building wealth for others. Saving is one of the best ways to build wealth for yourself. There a few ways you can consider using your tax refund towards savings:
Start an emergency fund – Don’t get caught off guard and pushed into crisis-mode when an unexpected expense comes up. You can maintain your peace of mind by having some emergency savings set aside.
Use it to start saving towards a goal – We all have different priorities depending what point of life we’re in and what we value. Some may want to start saving for a down payment on a house, while others may be thinking about saving for their children’s college tuition, and others may be considering how much they need to save to retire comfortably. Whatever your future goal is, a tax refund is a great way to boost you closer to achieving it.
Regularly add to your savings account – Sometimes people like to think of their tax refund as the gift or free money when in reality it is hard-earned money that was withheld from your regular paychecks. Your refund is money that you worked to earn so instead of waiting once a year to get a large check, consider giving yourself a raise within your paycheck. By increasing your W-4 withholding, you will have less money taken out of your check for taxes and therefore take more home. Instead of spending this increase on something temporary, consider setting up an automatic savings transaction or IRA contribution so you are able to regularly add to it. Yes, you won’t get that large check around tax time, but it won’t matter because you will have that savings available to you throughout the year to use whenever it’s right for you or to put you in a more sound financial position once you retire.
#2 Ensure you’ll have reliable transportation
Cars are widely considered a necessity; about 91% of Americans get to work by car. Considering how heavily we rely on our cars, it should not come as a surprise that a car amounts to 20% of expenses for the average American family. The bigger problem lies here: lower-income families spend about 42% of their income for purchase, operation, and maintenance of personal vehicles—cars that don’t often last them through the year.
Take Randy and Brandy Hancock, for example, Each year they spent their entire tax refund on a high-mileage, used car they hoped would last the year. More often than not it ended up needed major repairs a few months in and they were left transportation-less before the year was over. This forced them into a cycle of a bad car after bad car and made it impossible for them to establish a stable financial footing. By working with More Than Wheels, Brandy and Randy were able to learn how they could budget wisely and use their tax refund towards a low-mileage, reliable car that wouldn’t need expensive repairs. Not only has this car allowed them to save on expenses, but it will even still have value at the end of their loan. By using their tax refund towards investing in their transportation situation, they not only have a car they can rely on, but they were also able to start paying off their debts and saving for their future.
If you or someone you know could benefit from a reliable, long-lasting vehicle, click here to see if More Than Wheels can help!
#3 Dig out of debt
It’s not abnormal to have some debt. In fact, the average American owes about $7,300 just in credit card debt alone! Often times though, that debt can become a heavy burden to carry. When you add together a mortgage, car loan payment, credit card charges, student loans, and other monthly payments – the amount can seem almost impossible to overcome. Your tax return is a great way to shed some light at the end of the debt tunnel.
A lot of times your tax refund could completely wipe out an existing balance on a credit card or pay-off an education loan. Even though paying off debt might not seem like the most fun way to spend your refund, it will give you more opportunities for your future. By lowering your credit card utilization to under 30%, not only will you free up money with smaller monthly payments, it will also improve your credit score and allow you to secure lower interest rates on future purchases.
Tax-time is the perfect opportunity to invest in something that really matters: You. Take a few minutes to consider the things that are important to you in life and think about how you can make sure your refund has a long-lasting impact. Also, don’t forget to skip the tax preparation fees by getting your taxes done for free at your local VITA (Volunteer Income Tax Assistance) site.