What To Do With Your Tax Refund
Pay Off High-Interest Loans
Paying off high-interest debt can be a real bummer, especially if you have a bunch of accounts with big balances. Credit cards and personal loans are especially hard to deal with, since the interest rates are usually way higher than other kinds of debt. This means that you might owe a lot more if you don't make payments towards the principal balance. To avoid getting stuck with a huge interest bill, it's best to make regular payments so you're chipping away at the principal.
Also, you could try transferring your credit card balance to one with a lower rate or consolidating your loans. This could save you tons of cash over the life of the loan.
Types Of High-Interest Debt
- Credit card balances
- Personal loans
- Payday loans
- Auto loans
- Student loans
Invest In A Retirement Account
Investing in a retirement account is a cool way to get the most out of your tax refund. An IRA or 401(k) is a safe way to take care of you and your family. Plus, contributing to these accounts is usually tax-deductible and can be a nice addition to your retirement income. Lots of employers also offer matching contributions, which is an even sweeter incentive to save for retirement. So, why not use that tax refund to invest in a retirement account?
Types Of Retirement Accounts
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- 457 Plans
- Thrift Savings Plans (TSP)
- Profit Sharing Plans
Start An Emergency Fund
Having an emergency fund is a great way to prepare for the unexpected and give yourself some peace of mind. It's really important to have some cash on hand in case of an emergency, like a medical bill or job loss.
Plus, it's wise to have some money saved up for those times when you need to cover an unexpected expense.
With your tax refund, you can start an emergency fund and have cash available in case of an emergency.
Emergency Fund Uses
An emergency fund can be used for a variety of unexpected expenses, including:
- Medical bills
- Home repairs
- Car repairs
- Job loss
- Natural disasters
- Unexpected travel expenses
- Unexpected legal fees
- Education expenses
- Funeral expenses
Make A Downpayment On A New Home/Pay Down Mortgage
Using your tax refund to make a down payment on a home or pay off a portion of your mortgage is a fantastic way to get ahead.
Not only will you get a lower interest rate and monthly payments, but you'll also save on interest, shorten the length of your loan, and increase your equity.
Typical Down Payment Percentages
When making a down payment on a home, the typical down payment percentage will vary depending on the type of loan. Generally, the following down payment percentages are standard:
- Conventional loan: 10-20%
- FHA loan: 3.5-10%
- VA loan: 0-5%
- USDA loan: 0-5%
Invest In The Stock Market
Investing in stocks, bonds, and mutual funds is a great way to get long-term growth and build your wealth!
Diversifying your portfolio with stocks and bonds can help increase your returns, while mutual funds are a great option too - you can invest in a variety of different stocks and bonds with just $500.
So, even if your tax refund is a bit small, you can still get started. Investing in stocks, bonds, and mutual funds with your tax refund is a smart way to build your wealth and create a secure financial future.
Top 5 Mutual Funds
When investing in mutual funds, there are lots of different options to choose from. Here are five of the best mutual funds that are a great option for investors:
- Vanguard Total Stock Market Index Fund (VTSMX)
- Fidelity 500 Index Fund (FXAIX)
- Vanguard Total Bond Market Index Fund (VBMFX)
- Vanguard Target Retirement 2025 Fund (VTTVX)
- Vanguard Wellington Fund (VWELX)
Fund A College Savings Plan
Setting up a 529 plan with your tax refund is an excellent way to invest in the future of your children or grandchildren.
Not only are contributions to these plans tax-deductible, but the money can be used to pay for tuition, books, and other college expenses.
Also, since the money grows tax-free, it can be withdrawn without taxes or penalties when it's time to pay for college.
Learn More About 529 Plans
If you're interested in setting up a 529 plan with your tax refund, there are lots of great resources available to help you.
You can start by checking out your state's 529 plan website, where you can find information about different types of plans and how to get started.
Invest in renewable energy technology, such as solar panels or wind turbines, to reduce your energy costs.
Investing in renewable energy technology can be a bright way (pun intended!) to reduce your energy costs and make your home more eco-friendly.
Solar panels can provide a clean and renewable source of energy, while wind turbines can help to generate electricity.
Plus, installing renewable energy technology can help you save money on your utility bills, as well as reduce your carbon footprint. Investing in renewable energy technology with your tax refund can help you save money and make your home more environmentally friendly.
Types Of Renewable Energy Technology
Investing in renewable energy technology with your tax refund can help you save money and make your home more environmentally friendly. Here are some of the renewable energy technology you can buy with your tax refund:
- Solar panels
- Solar water heaters
- Wind turbines
- Geothermal systems
- Hydropower systems
- Fuel cells
- Biomass systems
- Tidal energy systems
- Wave energy systems
Invest in a home security system to protect your family and property.
Home security systems can help deter criminals and alert you to any suspicious activity. With modern technology, such as the Internet, Bluetooth and WiFi, you can monitor your home from anywhere in the world.
Home security systems can also be used to control lights, door locks, and other devices in your home, giving you peace of mind that your family and property are safe.
Home Security Systems and Providers
When investing in a home security system with your tax refund, there are lots of great options to choose from. Here are some of the top home security systems and providers:
- ADT Security
- Ring Alarm
- Nest Secure
- Link Interactive
Improve Your Home With Energy-Saving Upgrades
Not only can these upgrades save you money in the short-term, but in the long-term (when it comes time to sell), these add-on’s can boost your overall property value! Could this be the biggest bang for you buck? Maybe.
Top Energy-Saving Upgrades
Making energy-saving upgrades to your home can be a great way to reduce your energy costs and make your home more eco-friendly. Here are some of the top energy-saving upgrades you can make with your tax refund:
- Replacing old windows with double or triple-paned windows
- Adding insulation to your attic or walls
- Upgrading to energy-efficient appliances
- Replacing old light bulbs with LED bulbs
- Installing a tankless water heater
- Replacing your HVAC system with an energy-efficient model
- Installing solar panels
Home Repairs & Renovations
While this is similar to the above recommendation, the reality is that when you throw in the word “renovation”, it goes from a modest upgrade to a complete project. I’m not saying that this will fit every budget, or that you have to go huge (full kitchen remodels are $$$!), however, little changes here and there can really add up and in the long-term help increase your home value.
Contribute To A Health Savings Account
Contributions to an HSA are tax-deductible and the money accumulates tax-free. Also, you can use the money to pay for qualified medical expenses at any time, and the remaining balance rolls over from year to year.
There’s almost no reason not to start a HSA, although, if you already have one, there are many items on this list that you can do, like…
Donate To A Charity or Non-Profit
There are thousands of charities and NPO’s out there. Possibly, there are even a couple you’re dedicated to helping. If so, that’s awesome! I thought it’d be a cool little add-on to mention that if you have no high-interest debt, you’ve contributed to your 401k and otherwise have no other pressing financial needs, it might be nice to help people (or animals!) out with a tax-deductible donation.
Top 10 Charities
When looking for the best charities to donate to with your tax refund, there are lots of great options to choose from. Here are ten of the most popular charities:
- American Red Cross
- St. Jude Children's Research Hospital
- United Way
- Doctors Without Borders
- The Nature Conservancy
- Feeding America
- The Salvation Army
- Make-A-Wish Foundation
- Habitat for Humanity
- World Vision
What NOT To Do With Your Tax Refund
Don't Blow Your Tax Refund On Luxury Items
Just say no to that Hermes bag, Tesla Model X and gold plated toilet! It’s not easy, I know. We all love gold toilets.
Don’t Invest In Get-Rich-Quick Schemes
If someone’s buddy tells you they can turn your $5,000 into $25,000; run, don’t walk. I almost didn’t even want to mention this, but it needs to be said. Don’t be the person that takes a gamblers mentality to finance and feels compelled to take lump sum amounts and try to earn quick multiples on it.
It simply doesn’t work.
Don’t Pay For Extravagant Vacations
Tahiti? Hawaii? Bali? Topeka, Kansas. You might want to rethink that luxury destination. And in the case of Topeka. Dude, what were you thinking. It needs to be way higher on this list! ;)
Don’t Loan It To Friends & Family
It should probably go without saying that you just mix friends & family with business. If a friend or family member is asking you for a loan, learn how to say no. Your odds of repayment drastically drop when you loan money to F&F, and many relationships have been ruined because of this.
Don’t Use It To Gamble
If you absolutely must gamble, do it with an amount you can afford to lose and don’t go blowing lump sums of money. See: Don’t Invest In Get-Rich-Quick Schemes above.
Don’t Buy Expensive Gifts For Friends & Family
If you wouldn’t loan them money, you sure as heck shouldn’t be buying them luxury gifts. They don’t need that $8k Rolex, $2k handbag or season tickets to the 49ers.
If you do, that’s a different story, but you really should be rethinking expensive purchases altogether, at least until you’re close to debt-free and have an emergency fund.