Better ways to spend your tax refund money
As I and many other parents impatiently await tax refunds, it is likely we’re all thinking of how we’re going to spend it! It’s tempting when you get any type of tax refund to splurge either on yourself or your child. They’ve taken your money all year. Treat yoself! Right? While it would be nice to blow through your money in things you want. What you need is to treat yourself to peace of mind. Lessen any financial burdens that have been lingering over you.
Here are 7 sensible ways to spend your tax refund in 2021.
- Debt pay down
- Build an emergency fund
- Pay a bill for a couple months
- Treat yourself in moderation
- Invest in yourself
- Invest in the market
- Start a college fund
Debt Paydown
This is the number 1 best way to use your tax money. The less obligations you have on a monthly basis, the easier it will be to manage your money throughout the year. I recommend using the snowball method for debt paydown. By using this method, you will actually eliminate monthly payments instead of just putting a little dent in some of everything. Making a big payment on a card that you can’t payoff usually doesn’t lessen your payment. Then you’re back in the cycle again next month.
If you snowball, however, you can actually use the money that was previously tied up in smaller debt to make more than minimum payments on your larger debts. Or, if your expenses exceeded your income, you can continue to make those minimum payments comfortably now.
Tip: don’t use all your cash on debt even if you select this option. Consider setting aside an emergency fund.
Build an emergency fund
Which brings me to my next point. Spend your tax refund building an emergency fund. You may not receive enough to set aside 3 months of expenses as recommended. But you should aim to use at least $1000 of it to start an emergency fund. Then, don’t stop there. Set up monthly transfer to the account to grow it year round. Even if it’s just $25 biweekly or monthly, it will grow!
Prepay a bill
For me, daycare is my worst nightmare. When I was receiving help from my son’s dad, his money would be enough to just cover it and I could spend my money on the day to day expenses and my bills to keep a roof over our head and reliable transportation. Now that I’m waiting on child support to enforce payment (and he hasn’t made one in months) I’ve racked up debt and my expenses severely exceeds my income because I make too much for any kind of assistance.
I plan to either set aside or pay in advance for this expense and you should too. Daycare is expensive and to help you out while you wait on other forms of income, it can lessen the burden temporarily.
Other expenses to prepay include: rent, car insurance, home/renters insurance
Expenses I don’t recommend prepay: mortgage, car loan, anything an additional payment does not pay it off that would still require the same monthly payment next month. This does not put you in a better position for future months and I only recommend these types of payments if you don’t have other obligations to pay.
Treat yourself
Now this is the fun part you were all waiting to hear. That thing you’ve been looking at for a while but couldn’t afford, that’s this category. That wax pack that’ll actually save you $70, it’s time to buy it. Those clothes you’ve been wanting to buy your kid but didn’t have the ability, you guessed it, buy them!
Any leftover money after paying down debt, and decreasing monthly payments is for you. I wouldn’t even be opposed to you setting aside a small portion in the beginning so that you know you can get a few things.
Invest in yourself with your refund
This can feel very similarly to treating yourself. If you’re really passionate about what you want to do outside of you 9-5, then investing in your personal goals is a treat to you from you. Spend a portion of your tax refund building your business. If it’s a blog you want to start, head over to Bluehost and get started. If you want to take your business website to the next level, give Studio Mommy. Want to get your business in front of more people? Try promoting with Tailwind.
Bottom line: there’s many ways to grow your business. There may not always be funds available to do all that you think is necessary but a $5 promotion could be the thing that explodes your business and earns you $5000 in sales! Utilizing even a tiny portion of your refund could be a worthwhile investment.
Invest in the market with your refund
Another way to make your money make money is to invest in the market. There are apps that make this easy and require little funding. And there are also trading platforms that allow you to monitor the market.
Whichever avenue you choose, with the right portfolio this can be a lucrative long-term investment. Especially if you have time to watch the market and you enter buying low, and exit selling high. This isn’t one of those get money right now type of investments.
Start a college fund with your refund
If you’ve gone back to school and received a collegiate education as I have, there are certain opportunities your child won’t qualify for. I was the recipient of a low income, first generation scholarship that paid for my entire undergraduate degree. Not only will schools THINK I make too much money even as a single parent, but my son also will no longer be a first generation college student.
While this is a good problem to have, it’s a problem nonetheless. Our parents never had the luxury of saving for our education and had to just hope it worked itself out with scholarships and loans IF you wanted to go. So this isn’t something we’ve been taught. This category scares me the most and I admittedly haven’t started one yet since I’m living paycheck to paycheck.
Tax season is a good time to start a fund. Use your refund to get a tax free, interest-bearing account started. Look into long-term CDs at both your current bank and other financial institutions For competitive rates and guaranteed returns.
What are you using your refund for? Let me know in the comments below ⬇️ ⬇️.
