Receiving a tax refund isn’t all it’s cracked up to be. When you receive a tax refund you have essentially given the IRS an interest-free loan the whole year. They are just returning back some of your own money since you overpaid your taxes throughout the year.
If you have trouble saving money then I guess a tax return could be a good thing. If you can’t trust yourself to save a little bit out of every check then let the government do it for you.
Nevertheless, when you do get a sizable refund the first thing that comes to your mind is where to spend it. I’m not going to list what stores you should shop at or what gadgets you should buy. Instead, I’m going to list 4 frugal uses for your income tax refund.
Emergency Savings Account
How’s your emergency savings account looking lately? Try and keep 6 months worth of regular living expenses in your account. You never know when you might lose your job or get your hours reduced, so it’s important to keep this account funded at all times. Padding your savings account with some tax return money is quick and painless.
If you don’t even have an emergency savings account set up, there’s no better time to start than now. Deposit your tax refund right into a new savings account to help keep yourself afloat during difficult times.
Credit Card Balance
One of the worst debts you can have is credit card debt. The interest rates are so high and that makes credit card debt extremely difficult to pay it off. Paying only the minimum payment every month is going to keep your credit report clean and the creditors off your back. But paying the minimums is not going to get your debt to go away.
To make a significant dent in your credit card debt you need to make large one-time payments to the principal. What better way to slash months (or years) off your debt than by applying your tax return to your credit card debt.
Social Security may not be there by the time you retire. If it’s still in existence, it may not pay out the full benefits you deserve. Plus you’re going to need more than just what Social Security can give you. That’s why it’s important to fund your retirement account as early as possible.
The key to growing your retirement account is to start early and continue to deposit money into the account. Every year around this time, take your tax return and deposit it into your retirement account. With the interest your account accrues you’ll be surprised how fast you can make your retirement savings grow.
Invest Your Return
Want to make some money with your tax return? Deposit the money into an investment account and watch it grow. You could buy stocks at Scotttrade, eTrade, Schwab, TDAmeritrade or ShareBuilder online. You could take a stab at peer to peer lending at Prosper or Lending Club.
If you’re not feeling that risky you could put your money into an online savings account. These accounts are FDIC insured so you can’t lose your money. They also pay more interest than the traditional savings account you can get at your local bank.