Tax season is upon us, and those of us who are expecting refunds are not hesitating to file. The windfall of a tax refund is something we have come to look forward to and anticipate. It’s tempting to use the money to treat yourself, but don’t start spending that return before you even get it. If you are in a financial struggle and trying to get ahead, the refund you receive could be just the boost you need if you put it in the right place. No matter where you are in your debt journey, here are four smart moves to put that extra money from your tax refund to use. The good news? It’s simple math.
Add Momentum to Your Debt Hit List
Are you a Spending Faster working on your Debt Hit List? a Debt Hit List is a list you make of all of your outstanding credit card debts and bank loans, not counting your mortgage. You first target the one causing you the most damage in interest regardless of how big the balance is. The more you put into it at once, the faster you take the power out of that ugly interest rate. A tax refund is a great way to make quick progress on the challenging task and it helps build momentum toward finishing your debt ahead of schedule.
Pro Tip: Learn all about how to create your own Debt Hit List in my book, The Spender’s Guide to Debt-Free Living: How A Spending Fast Helped Me Get From Broke to Badass in Record Time.
Subtract it From Your Budget
You may be so anxious to get your refund because you’ve already spent the money. I’ve been there. I know what it’s like to look forward to finally getting that check so I can catch up on payments. That’s a bad situation. You have to be able to pay your way out of debt without relying on a tax refund every year. Stick to your budget as is and don’t trust in a check from the IRS to bail you out. Instead, put that money into savings to build your emergency fund. Make a promise to yourself not to touch it for debt relief. keep it in an account where it will be safe until you really need it. That may mean keeping it in an account that’s separate from your regular savings if you are used to dipping into it to make ends meet. Emergency savings accounts are not for unexpected things that come up. A true emergency saving is for rare situations where you find yourself without an income for a while.
Multiply it with an Investment
If you are able to put the money away and not look at it for a long time, consider making higher interest work for you. You don’t have to have thousands of dollars to invest in stocks and bonds. You can start doing it easily and with as little as $5. Investment apps like Acorns round-up money you spend to the nearest dollar and invest it in a portfolio based on your risk tolerance. You can also set up weekly deposits and even put in your tax refund amount for an investment in your future. Robin Hood is another app that makes it easy to buy and sell stocks. If you invest conservatively, you could see gains that far outway the interest you earn in a savings account.
Divide it Between Accounts
Another smart move is to split up the refund and put it in multiple places. You can have your check direct-deposited into up to three separate accounts. That means that you don’t have to use the whole check for just one thing. Maybe it will benefit you more to use some of it for debt, and put most of it aside. You can break up your tax refund to add, subtract and multiply all at the same time! consider using some of the money to pay debt while putting the rest in a couple of safe places where your money can mature.
What tips do YOU have to make the most of your tax refund? Tell us in the comments! And, if you found this post useful, we’d be so thankful if you shared it with your friends!