6 ways to use your tax refund to become richer
Tax refunds are a hot topic right now. Some Americans have been shocked by how small their refund is this year, due largely to changes associated with the most recent tax reform, as we report in “5 Things You Must Know About Your 2019 Tax Refund.”
Others likely are getting a refund closer to what they expected, and some taxpayers may even get a bigger refund than anticipated.
Whatever your refund status, you want to put that extra cash to good use. If you’re not sure what to do with your refund this year, following are some ideas that will make you richer.
1. Pay down debt
Using your refund to reduce high-interest balances cuts down on both interest charges and the overall amount you owe.
It also may improve your credit score by lowering your credit utilization ratio, as Money Talks News founder Stacy Johnson explains in “What’s the Fastest Way to Increase My Credit Score?” And a better score can mean easier access to credit at better rates — something that definitely can make you richer.
Look at it this way: Paying down a credit card charging 18 percent interest is like earning 18 percent of the amount you’ve cleared, risk-free and tax-free. There aren’t many investments that offer returns like that.
For more help banishing your debt, check out “8 Guaranteed Ways to Get Rid of Debt Fast” and consider contacting a reputable credit counselor.
2. Create an emergency fund
Living paycheck to paycheck often means there’s never enough cash to get ahead. Use your refund to build a financial cushion, ideally enough to cover at least three months of living expenses.
The advantages to doing so include:
Bills always get paid on time, saving you late fees.
You never need a cash advance, saving on the fees and high interest those charge.
You can stock up on bargains at the grocery store, enabling you to always get the best price.
And the peace of mind? Priceless.
For tips on creating an emergency fund, check out “9 Ways to Build an Emergency Fund When Money’s Tight.”
3. Save on insurance
Many car insurance companies offer a discount if you pay the six- or 12-month premium in full. Use a chunk of your refund to do that, and put the rest in a high-yield savings account so you can raise the deductible on your policy — a simple way to save 10 to 20 percent on your premium.
For more tips on cutting car insurance costs, check out “The Complete Guide to Getting the Best Possible Deal on Car Insurance.”
4. Take a class
Use the money from your tax refund to pay for classes in a skill you’ve always wanted to learn.
Taking classes to boost your skills might be good leverage for a raise at work. Or, you could begin training for a new — and more lucrative — career. Looking for ideas in new career fields? Check out:
5. Invest
You could start funding a 529 college savings plan, or open an individual retirement account for yourself. Earn 10 percent annually for 20 years, and a $3,000 refund will blossom into more than $21,000.
Make it a habit and invest $3,000 every year for 20 years, earning that same 10 percent, and you’ll end up with more than $200,000.
Think your refund isn’t big enough to bother investing? See “How to Get Started Investing With $500 or Less.”
6. Start a business
Use your refund as seed money for a side business. You could:
Launch a website..
Sell your own arts and crafts
Start a garden and sell your extra fruits and veggies at a farmers market.
