Everyone loves or hates this time of year: Tax Season. If you have to pay taxes, well this article may not be for you. But if you are lucky enough to receive a refund during this season, how would you like that money to multiply?
Here are 5 Ways to use your tax refund this season. Each way promises to grow the refund you’re eager to spend if you just have patience!
The old me would have been planning the next big trip with my refund. But now that I’ve put Dave Ramsey’s practices in to place, I’m more excited to see how this money can grow! Here are a few suggestions:
- Put your Tax Return towards your Mortgage. Yeah, it’s not the most exciting way to spend your money this season, but it will yield big gains down the road. What if I told you that paying an extra payment on your mortgage each year could shave 4 years off your loan? That may not sound like much. However, if you think of a $200k mortgage at 5%… that’s over 32k in savings. Tons more than the meager amount you are getting back this season. Here’s a cool tool for seeing how much you can save by putting more towards your mortgage. It’s a mortgage payoff calculator. We plugged in our numbers and put in an extra $200 a month (you can see how it looks on the right). Look at how much we will save over time! I’d say I’d rather have an extra $32k down the road instead of a few thousand now.
- Give it to the Kids. No, not literally right now. Instead, take that tax refund and use it to set up a 529 plan for your child. It’s a tax deferable account that can accumulate money for your child’s college fund. You can gain money from your money, and less headache when it comes to college. Another bonus is that the accounts are transferable if your child decides that college isn’t for them. And in some states, including ours, it is tax deductible.
- Hit Zero. On your credit card that is. Eliminating balances on high interest credit cards should be your first move as soon as you come into cash. You had to have it “now,” but now it’s time to pay up.
- Remove a payment. Is there any current bill that you have that your tax refund could pay to zero? Pick something in your budget to pay off and eliminate. The savings over time will be greater than the payment you made, and you’ll be able to put the money each month towards another bill….saving even more over time.
- Divide it in half! If you can’t stand the thought of not spending your newly acquired cash on something you’ve had your eye on, try this! Divide your refund in half. Take half and use it towards that something you wanted and take the other half and put it in a savings account. Did you know that 69% of Americans don’t even have $1000 in the bank? Check out these shocking statistics by USA today and other budget ideas. Are you part of the majority or minority? What will you do when the furnace breaks, the kids need braces, or your car needs new tires? While this one won’t grow your money, having an emergency fund will save you later in times of crisis and prevent you from wasting money by using credit cards to bail you out. We all have had an emergency before, so use your tax dollars to make sure next time you don’t have to classify it as an emergency.
So which piece of advice will we be using?
We currently use all five strategies in our home (practice what you preach). This year we will be using our new refund and applying number 5. Half will be going in the bank to continue our savings and half is being used on a new (used) minivan. Utilizing another one of Dave Ramsey’s principles, we were able to pay cash for the van, and now have two vehicles which can fit our huge family.
So how will you spend your tax return? We’d love to hear other ideas you have on how to make your tax return help your family financially!