Income tax season is just around the corner and thoughts of a brand new smartphone, big flat screen TV, or a shopping spree might be dancing through your head. For those who are lucky enough to receive money back for being a good taxpayer throughout the year, it is a boost to your bank account you probably look forward to with great anticipation.
Have you ever looked back after receiving your income tax refund only to wonder where it all went or wished you would have spent it a little more wisely? Before receiving your refund this year, take some time to plan out how to use it more effectively. Here are 10 strategies to get you started:
- Stockpile the Essentials
Scour the sale ads at local stores you shop at and stockpile the essentials while saving some money at the same time. You can purchase items you will need throughout the year so that you don’t have to worry about running out when money is not so much in abundance during the rest of the year. Items such as toilet paper, laundry detergent, and canned goods are simple to stockpile as you find a good deal.
- Invest It
Build your personal wealth by investing some or all of your income tax refund into stocks, bonds, mutual funds, ETFs, or even REITs. Before investing your money, be sure to find an investment platform that works for you. Some of the most popular investing platforms include Robinhood or Charles Schwab. At DiversyFund, you can access alternatives and diversify your portfolio with your tax dollars.
Be sure to do your research and choose investments that have both short and long-term growth potential. When you use an investment platform, you will have access to historical data for each investment you are considering so you can see how it performs over time.
- Pay Off Debt
Although it can be slightly painful to let go of money that can be spent on fun stuff, paying off debt will only benefit you in the long run. Paying off your debt could increase your credit score and make you better able to save emergency money throughout the year. If you have interest accruing debt, you will also save more money in the long run by not having to pay fees on borrowed money. Even if you are unable to pay off all of your debt with your refund, try to lower your balances as much as possible.
There are several ways you can go about paying off your debt such as bringing down the balance on a high-interest line of credit, paying off a smaller bill to give yourself instant gratification, or even becoming current on bills you have been late to pay.
- Tuck Money Away into Savings
This one may seem obvious, but it is worth pointing out that any amount of savings will do you some good down the road. Whether you can afford to tuck away $100 or $1000, put some of your income tax refund money into your savings account for emergencies. Facing unexpected expenses and emergencies can force you to have to use credit cards or seek a loan that must be repaid and will cost you more in interest, as well as put you into debt.
- Start a Small Business
Have you ever dreamed of going to work for yourself and not having to fight traffic and other people’s schedules every day? Depending on how much money you get back from filing your taxes, you might just have enough money to start your own business. The beauty of starting a home-based business is that you will have little in overhead expenses and probably won’t have to hire employees to start out with.
Freelancing is a great career that allows you to set your own hours, set your own prices, and do the work that you love while not having to answer to a boss. Before you get started, document your business plan so you will have tangible goals to reach for.
- Home Improvement
Instead of haphazardly purchasing new cell phones and bigger TVs with your income tax refunds, purchase home improvement items. Has your carpet seen better days? Have you ever thought about installing hardwood floors, an air conditioner, or a new deck? Home renovations add value to your home so they should be treated as an investment. Make a list of all the improvements you would like to make and check them off the list each year when you get your money.
- Invest in Education
Furthering your education is also a good way to use your income tax refund as you can earn more money by obtaining a degree or a trade certificate. A single certificate or degree can increase your income substantially and you will reap the rewards of more money for many years to come. Lock in a better financial future by investing in yourself; it is never too late to go back to school.
- Charity Donations
Donating to those in need feels good and tax season is the perfect time to help others, especially if you are unable to donate money during the rest of the year. Charity donations can be written off next tax season, so it benefits you to donate to charity whenever you can. Find a cause that speaks to you and donate however much you feel comfortable giving. If you have time, sit down with volunteers or employees at the charity you wish to donate to, so you can gain a better understanding of what they do for the community.
- Start Saving for College
Do you have kids who will eventually head off to college? Start a college savings account for your kids or yourself and watch as the money in your account grows over time. Many banks offer special interest savings rates when you open up a savings account for your kids. If you start saving for your kid’s college tuition when they are young, their savings account could grow substantially by the time they are ready to head off to college. Shop around to ensure you get the best rate. Check out 529 college savings plans and others.
- Build a Vacation Fund
Everyone needs to get away and enjoy a fun-filled family vacation once in a while and it is perfectly fine to save for a vacation while paying off debt and building an emergency savings fund. If you struggle to find money in your budget to put in your vacation savings fund, use some of your tax refund money to do it. When there is a fun goal to achieve, your family may find it easier to look for other ways to save money during the year in an effort to reach the goal more quickly. Research your ideal vacation destination, plan out the costs associated with taking your vacation, and start saving for it!
If you are due for an income tax refund this year, make the most out of this amazing financial boost by planning ahead and figuring out how to use it most effectively for your personal situation. While it is fun to purchase big-ticket items, this money could be better used to help build a better financial future for yourself.
At DiversyFund, we recommend allocating a portion of your refund to investment. With as little as $500, you can instantly own a portfolio of real estate. In addition, real estate doesn’t see the same volatility that the stock market is currently seeing. This means you can invest for your future goals with peace of mind!