With tax season upon us, many of us put a great deal of effort into organizing the previous year’s charitable donation receipts, childcare costs, business expenses and other tax-deductible transactions to maximize the amount of our tax refund. After all that effort to get the biggest tax refund possible, it also makes sense to carefully think about what we should do with that refund.
Here are some tips on how to make sure your hard-earned refund continues to grow, instead of getting frittered away on a new wardrobe, a 1-week vacation, or an outdoor whirlpool spa that just adds to your monthly utility bill (unless of course, you enjoy having an ice-cold hot tub).
As with all major money decisions, consult a qualified accountant or financial planner to see which options are best suited to your needs tax relief Minneapolis.
Save for your child’s education. Putting a lump sum amount into your child’s college education plan is a great way to boost the fund’s principle while taking advantage of compound interest over the next few years. Some governments even match your contributions up to a certain amount – a great way to recoup any interest you lost while the government held onto your refund all year.
Make energy efficient repairs around your home. New windows, doors, insulation and energy efficient appliances are great ways to extend the value of your refund by saving you money on your monthly utilities and increasing the resale value of your home. Everyone wants to do their part to save the environment, and in some countries, the government will support your green efforts with tax credits on certain energy efficient home repairs.
Pay down your mortgage. If you have a mortgage that allows you to make pre-payments without penalty, applying your tax refund towards the principle can save you hundreds of dollars in interest and take you one step closer to being mortgage free.
Pay down high-interest debts and consumer loans. The sooner you can get rid of high-interest credit card debt and car loans, the sooner you can free up that money for other living expenses. Some credit cards can charge up to 17% per annum. Here’s another way to make paying off your high interest debt an even more efficient use of you tax refund: have the amount you were paying each month put it into an automatic savings program. You won’t miss the money and at the end of the year you’ll have a nicely padded savings account with a few hundred dollars in it.
Create an emergency fund. One of the reasons many people go into debt is that they don’t have an emergency fund to handle unexpected expenses. The car breaks down and needs to get fixed right away. A family member out of town falls ill and you need to buy plane tickets and take time off work. A major household appliance stops working. These types of expenses can easily end up on your credit card if you don’t have a reserve of emergency cash to cover the bills. Putting aside all, or even a portion, of your tax refund to cover future unexpected bills can keep you from ending up with unnecessary credit card debt.
Donate your tax refund to a cause close to your heart. Give to a local hospital, an animal shelter, an environmental cause—anything you believe in and feel passionate about. Investing your income tax refund in the well-being of your community improves your quality of life. Giving to others is good for the soul and also a necessary component of creating more prosperity, joy, and affluence in your life. At the very least, handing your tax refund over to a charity in the form of a donation will help reduce next year’s income tax bill!
Contribute to your retirement savings. Like a contribution to your child’s college fund, making a contribution to your own retirement fund will give it a boost along with the added bonus of earning compound interest. The sooner the compound interest starts to grow, the more it will make in the long term.
Getting a big check in the mail can be exciting: it feels like a small windfall, perhaps even free money. But don’t forget, your tax refund is money that you earned (and the government held onto it interest-free right up until tax time). If you normally make sound decisions about how you spend your money throughout the year, getting a large tax refund calls for equally sound decisions about how you use it.