By Jim McKinley, SCACPA Contributor | firstname.lastname@example.org
A tax refund can be unexpected money in your pocket, and as a result, many people don’t have a good plan for what to do with it.
When you get that special “bonus” check, here are some especially smart ways to make sure it works extra hard for you.
Maintain Your Best Asset
For most people, a home purchase is their most important asset. Thus, investing tax refund money into home maintenance makes good sense. A new roof can be expensive, but now might be the perfect time to take it on without the dread. Give your roof a once-over for signs it’s ready for retirement, such as broken or cracked shingles, mold or damaged fascia. If it’s looking rough, ensure you hire a qualified, professional roofer. Hot water heaters, the HVAC system and siding problems are other worthwhile expenditures when you have funds to put toward repairs.
Start a Side Business
If you’re looking for extra income this year, starting an e-commerce business could be the perfect way to spend your tax refund. Whether you’re selling on Amazon, eBay, or Etsy, there are many products you can sell online that could earn you a profit. The good news is that startup costs are relatively low, and you might not have to worry about stocking inventory if you dropship items. To learn more about private label selling, overhead costs, niche markets, and many other e-commerce concepts and topics, you can consult online guides and wikis such as Oberlo.
Pay Down Your Debts
Debts often keep us from doing other things we’d like to do. Getting out of debt becomes a realistic possibility with a tax refund. If you have a lot of debt, compile a list before deciding where to plunk down those newly found funds. Make notes about interest rates, payments and balances. From there, you have options to weigh. SmartAsset recommends paying the debt with the smallest balance to free up that minimum monthly payment quickly and then apply it to other debts. Another idea is to pay in order of highest interest rate first. This appeals to a lot of people, as the interest and fees you pay on things like credit cards eats more money than you might realize.
Whatever method you choose, stick with it, and watch those debts dwindle away.
Invest in Your Education
There are many reasons people return to school as adults. Perhaps you’re considering a career that would boost your income level, your position is dissatisfying, or a degree or certification would advance you in your field. Whatever drives the decision, furthering your education can be a worthwhile investment of your tax refund. Consider what schools offer options that meet your needs. Online courses offer more flexibility to people who have other obligations, or a local school could be wise for those who prefer attending in-person. There are also grants and scholarships you can consider to supplement how far your tax refund can take you.
Will You Be Ready for Retirement?
Depending on your situation, a hard look at retirement preparation could be in order. All too often, people get off-track on retirement goals, and applying your tax refund toward your golden years can help you get where you want to be. You can use a retirement calculator to gauge how much you will need versus how much you have set aside. You can invest in an IRA, or if your employer offers retirement savings, there is often matching, and the money is set aside for you, tax-free.
When that refund balance arrives, think through your choices and invest it in ways that will improve your circumstances. If you hired a CPA to prepare your return, you will find that many are expanding their scope of services to include being a financial advisor. Whether it’s your home, your debts, your career or your retirement, there are many ways you can put your tax refund to good use for the long haul.
About the Author: As a former banker, Jim McKinley uses his background and skills to provide advice and valuable resources to anyone who needs help with their financial literacy. Jim enjoys spending his spare time with his family and his dogs.