Congratulations if you receive a small tax refund from the federal government! A modest tax refund — or even owing a little amount of money — is really a sign of good financial management.
Don’t be discouraged if your neighbor brags about receiving a $10,000 check; a huge tax refund simply implies you’ve given the government a tax-free loan of your money. It’s best to save that money for yourself throughout the year.
Where to spend your tax refund?
If you do get a little tax refund, put it to work right away instead of letting it languish in a low-interest account. According to Go Banking Rates, the following are some suggestions on how to put your tax refund to good use, even if it’s not a large one:
- Start saving for your emergency fund – One of the finest things you can do with a small tax refund is to add to your emergency fund. Even if you have an emergency fund — and kudos to you if you do — the majority of Americans have significantly less than the often advised “three to six months” of savings.
- Lend money for investments – It’s never been easier to contribute tiny funds to your account thanks to the advent of zero-commission and fractional-share investing.
- Pay credit card debt – One of the most significant hurdles to wealth creation is credit card debt. The majority of customers who have credit card debt do so because their monthly cash flow is insufficient to pay it off.
- Add mortgage payment – Mortgage debt is seen as “positive debt” since it is utilized to acquire a wealth-generating asset and comes with tax advantages.
- Add money to your retirement account – Whether it’s through a tax refund or another source, a tax-advantaged retirement account is one of the greatest areas to deposit your money.
- Buy life insurance- Life insurance is a cost that appears to be an outlay but is actually a return on investment. Although you would never experience the financial advantages of an insurance policy in your own life, it may be vital to your family’s existence if you die too soon.
Spend your tax refund wisely!
Many Americans rely on their tax refund each year, and given the continued economic impacts of the coronavirus pandemic, this year’s tax refund might be even more essential than usual.
Per Fox Business, when it comes to determining what to spend money on – or whether to spend it at all – not all causes are created equal. And for homes still reeling – or attempting to recover – from the terrible economic repercussions of the coronavirus pandemic, spending the money wisely may be critical.