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Smart Things to Do With Your Tax Refund

Smart Things to Do With Your Tax Refund

Use that money wisely

 

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One thing many people look forward to every year is their tax refund, a payment to the taxpayer when they pay more tax than they owe. You could use your tax refund on a lavish vacation, trendy new clothes or a fancy meal at an insanely expensive restaurant. But there are other things you can do with your refund that may be smarter and more beneficial to your future financial health.

Create an emergency fund

Create an emergency fund

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Though many people are experiencing unexpected unemployment, if you have not experienced job loss due to the pandemic, now is the time to build an emergency fund. Using your tax refund is a great way to get started so you can be prepared for a major medical emergency, property damage or any other major unexpected expense.

Put it in savings

Put it in savings

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The IRS gives you options for which account you want your tax refund to go to. It’s a great opportunity for you to put some money into your savings account while you are at home. And don't touch those funds until you absolutely need it. 

Save for an upcoming expense

Save for an upcoming expense

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It is always better to be proactive and not reactive when it comes to your money. Save your tax refund for a purchase that you know you will have to make in the future, such as a down payment on a house, a new car or college for your kids. It is sometimes good to have a goal in mind when saving, and your tax refund can  help you reach that goal.

Prioritize bills

Prioritize bills

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Your tax refund can go to anything that is essential to your life. Essential bills such as rent and utilities are good ways to put your refund to use. 

Pay student loans

Pay student loans

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Your tax refund can help you get a good start on paying debt off, including student loans. Paying off your student debt is a great way for recent college grads to build credit.  

Pay credit card bills

Pay credit card bills

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If you have been doing a lot of spending with your credit card, now might be the time to pay it off. Using your tax refund to pay off the debt you have accrued from using your credit card will help you improve your credit score.

Pay your car loan

Pay your car loan

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Prioritizing which amounts of debt are the most important for you to pay off is a decision you should consider when getting your tax refund. If you have a car loan payment, consider using your refund to chip away at that debt so you won't have to worry about it. 

Put it toward your mortgage payments

Put it toward your mortgage payments

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Use some of your tax refunds to lighten the load when it comes to your mortgage.

Fund your retirement

Fund your retirement

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It’s never too early to start thinking about your future. Putting money away for your retirement that is not a part of your normal paycheck is a great way to get started. There are many tax tips for your retirement that you may need to think about when you get to that age. 

Put it toward your child’s future

Put it toward your child’s future

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Ensuring that your child gets a good start is never a bad idea. Your child has the ability to contribute up to $5,500 for an IRA as long as they have that much in earned income, and as the parent, you can be the one to fund the account. Caring about your child’s future is one of the ways your life may change by having children

Seed the college fund

Seed the college fund

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Colleges across America are becoming more expensive and it is important to start saving for your children. Putting your refund into your child’s college fund for their benefit can also benefit parents down the line. 

Invest in the stock market

Invest in the stock market

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There is always a risk factor for investing in the stock market. If you don’t have any immediate financial need, using your tax refund in the stock market can have a positive financial impact for you down the road. Before investing though, there are some words you should know to understand the stock market

Improve your career

Improve your career

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Extra money from a tax refund can be invested in a new class that can help you learn skills that you otherwise would not have the opportunity to learn. 

Replace broken appliances

Replace broken appliances

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Buying new appliances such as a fridge, TV or air conditioner that use less energy will in turn help you save money. You may have something that needs replacing and your refund check can go toward that. 

Start a business

Start a business

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If you have a passion or an idea that you think you can turn into a business, your tax refund can be a great start to getting it off the ground, even if you shouldn't quit your day job just yet. If you are ambitious and passionate about your potential business, you might have the personality traits of many entrepreneurs

Buy life insurance

Buy life insurance

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Life insurance is extremely important, especially for those with a family and children to take care of. Even though it can be overlooked because you may think nothing will happen to you, you can never be too sure. Putting your tax refund into paying for a life insurance policy will help your family to maintain as much of its standard of living as possible in case something happens to you.

Increase liability coverage

Increase liability coverage

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If you live in an area that is prone to flooding, hurricanes or any other kind of natural disaster, making sure you’re covered is extremely important so your property can be replaced. If you do not have coverage, using your tax refund to get it is a smart use of money.

Donate to charity

Donate to charity

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Getting your tax refund gives you the opportunity and ability to donate to a charity or organization that helps a cause that you are passionate about. It is also important that when you make a donation that you save your receipts so you'll have the proper documentation if you itemize your deductions next year. It is a great way to bring joy and be kind to people.

Make home improvements

Make home improvements

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Is there a home maintenance project you can’t do yourself? Putting your refund check toward home improvements, whether it’s a broken window that needs to be fixed or parts of your home that need to be painted, will keep your paycheck in your pocket while getting these needed tasks done.

Invest in yourself

Invest in yourself

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Maybe there was a class in college that you did not have a chance to take. Maybe you want to learn how to cook or paint. Invest in yourself and learn a hobby that you normally would not get the chance to do or learn. There are plenty of online classes you can take to fill the time.

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