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Published On: Mon, Apr 10th, 2017

3 Tips for Spending Your Tax Refund Responsibly

A tax refund is like a blessed holiday at the start of spring. Tax refunds can feel like “gifts” from Uncle Sam. Most people have big plans on how they are going to spend the money but the question remains whether having a plan like this is a smart move or not.

There are those who will use the refunds towards big purchases like a big screen TV, a full home entertainment system, or an expensive gaming PC. Others will opt to make a down payment on a new car or boat. All the above can seem like smart money moves when it comes to spending your tax refund but what you need to know is that they are not.

While a tax refund can seem like a gift, spending it is a waste; you need to invest. Yes, investing the money may not be as fun as spending, but utilizing it the right way will go a long way in securing your financial future. In the long run, it is a much better financial decision.

Pay off High Interest Credit Card Debt

Paying off your high interest credit card debt is considered one of the smartest ideas for spending your tax refund. Credit cards are highly convenient. They allow you to make purchases with a single swipe (or insertion) via the Point of Sale system. The danger though is that the money you are spending is not yours.

The risks of overspending or building up interest with credit cards are why it is sometimes advised to only use your credit card for emergencies. It would be a much wiser decision to pay for fuel or groceries than buy a pair of jeans or shoes. It makes much more financial sense to pay interest rate for an emergency rather than a piece of clothing.

Credit card debt affects your credit score. If you do not remit monthly payments on time, it will result in a dent in your credit score. This should be avoided since your credit score plays a big role in your finances. For starters, it allows you access to financial opportunities like mortgages. There are landlords who inquire about your credit score before allowing you to rent an apartment or home. One thing you need to note is that not using your credit card also affects your credit score negatively.

When you receive your tax refund, pay off your high interest credit card debt. This will lower your monthly payments, allowing you to complete your payments faster. Furthermore, it will free up some monies for use elsewhere.

photo/ Michael Jarmoluk via pixabay

Invest in the Stock Market

If you receive a tax refund of $1,000 and above, then you don’t need that big screen TV or home theater. Instead, consider investing in the stock market. But before you jump into the stock market and end up looking like a fool who wasted his money, it’s best to take time to research first.

One thing you need to consider, especially with minimal amount of funds to invest, is not what to invest in but how to go about investing. Not doing it right from day one will lead to being bombarded with minimum deposit restrictions, commissions, and need for diversification.

Since all investment firms have minimum deposit requirements, you need to know this beforehand. If you only have a small amount like $1,000 for investing, you probably need to deal with a discount broker. They charge lower fees because the clients are in charge of the investment decisions. Thanks to improved technology, you can take advantage of online trading and take advantage of low or no minimum restrictions. Apart from stocks, you can invest in mutual funds and bonds too or you can learn to trade penny stocks. They are simpler in terms of minimum deposits.

They can both be purchased through brokerage firms or your local bank. Thanks to the rise in stock value, you will end up reaping profits allowing you to re-invest when the price is low or diversify to other stocks. You can also look to join trading chat rooms, where you can find ideas on where to allocate your hard earned money, and start to learn the tricks of the trade.

Remember to never jump into something before researching. Learn the ropes from experienced traders who have been there and done it. This will eliminate the chances of you losing your money.

photo/ См. ниже via wikimedia commons

Save It for Vacation

The common saying that money can’t buy happiness can be both true and not true. If you use money to purchase experiences related to a passion like traveling, you will provide yourself a lasting and priceless experience. Today, there are thousands of attractions and vacation spots one can visit, and even more places that are lesser known “hot spots” for travelling that can still expand your cultural awareness and experiences.

If you love the tropical climate and beaches, there are thousands of islands you can visit around the world, from Hawaii to Bali. If you want a safari excursion in the wild, you can visit Africa’s biggest national parks like Serengeti or Masai Mara, and get to experience the migration of the wildebeests. If you love mountain climbing, there are peaks throughout the world where you can leave your mark.

With thousands of travel options available for you, it is important to save your tax refund towards the vacation. Planning eliminates the chances of forgetting something important or overspending. To begin planning a family vacation you should first find your destination! You can use online web platforms to learn more about a particular vacation spot, refer to a travel agent, or chat with your family members and ask them for ideas where they would want to go.

Secondly, you need to budget for the vacation. You need to know how much will be spent on airline tickets, accommodation, and other extras. Lastly, never forget about travel insurance which can save you a lot when in another country.

Final Thoughts

Now that you have received your tax refund check, don’t get overexcited and spend the money quickly. Sit down and consider investment options that will enable you to secure your financial future. Your tax refund took all year to get to you—spend a little time to decide what the best option is for spending it.

Author: Pankaj Deb

About the Author

- The generic Dispatch designation, used primarily for press releases or syndicated content, but may be used for guest author requesting a generic nomenclature

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