When calculating your taxes for the previous year, you may find that you’ll be receiving a refund. This is usually because your employer deducted more taxes from your paychecks than you owed. And while the impulse to buy a new T.V., fly to Europe or update your wardrobe may be strong, you should carefully consider how to spend your tax refund check. Here are five ways that you can make money with your tax return, whether through savings or investments.
Down payment on a house
Buying a house is an exciting process, but the upfront costs can be expensive. And since your monthly mortgage payments and interest rates often depend on the initial down payment, it’s a good idea to save up as much as possible before buying. In fact, many mortgage companies will charge an additional insurance fee if your down payment is below a certain amount. Using your tax refund to bolster your down payment can save you hundreds or even thousands of dollars over the life of the mortgage. It will also add to the equity you own in the home, which can mean a larger home equity line of credit down the road should you need one.
Down payment on a car
Auto loans are similar to mortgages in that they can both be affected by the initial down payment amount. If you’re in need of a new vehicle, consider using your tax return as part of the down payment.
Pay off debt
One of the best uses for your tax refund is to pay off outstanding debts. Interest from credit card balances, student loans, car loans and other debts add up over time, and can make reducing these balances an uphill battle. When paying off debt, it’s usually best to start out with the highest interest balances, which are usually credit cards, and work your way down.
Invest
If you don’t carry any high interest debt, consider investing as a way to grow your money. Talk to a financial adviser about the investment products that best align to your short- and long-term financial goals.
Go back to school
If you’ve been thinking about returning to school, why not use your tax refund to get started? Many companies value continued education, and you may receive a pay raise for expanding your expertise.
Keep in mind that when receiving a tax refund, you’re getting back money that you already earned, even though it might feel like an end-of-the-year bonus. There’s nothing wrong with spending it on something frivolous or entertaining if you can afford to, but reinvesting your tax return can improve your financial situation for years to come.
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We bought a washer and dryer, which could be considered an investment of sorts. I figured out that, for the price we paid, they will pay for themselves in not having to go to the laundromat in just 10 months.
I’d say that’s an investment when you factor all that in. I try to use mine for home improvements too.
Great ideas! Especially about increasing personal capital with school.
That wouldn’t of been on my list before….I have all you PF bloggers to thank. 🙂
Great post, I think paying off debt needs to be top priority when getting a tax refund. Its imperative to always, always, pay off the debt which has the highest interest rate, first!
I agree, Jim. It probably should of been listed first. I might move that later.
This may seem biased, but I see lots of people, parents especially, who put off routine medical service for themselves until they get a tax return. Investing in your health is a good use of refund money in my opinion. Now, if you’re buying $300 sunglasses or plastic surgery, that doesn’t count!