Most people are overjoyed at the idea of a large sum of money coming to them all at once. Some people even look forward to their tax refunds because they can buy a new wardrobe or a few fancy dinners. However, from a financial point of view, what is the wisest thing you can do with your tax refund?
If you want to take your tax refunds as far as possible this year, it is best to start by reigning in debt. If you don’t have much debt, that’s great, but the average American can’t afford to miss more than two paychecks, and is also in debt. If you have any debts, your tax refunds are the best way to pay them off. That way you are using your refund wisely to ensure that your debt won’t grow further out of control. In a way, using your refund like this just helps you buy your freedom back while raising your credit score.
Next, put your leftover money in a savings and/or investment account. This is a less fun option, but it is the wisest one beyond clearing yourself of debts. If you can use your refund to clear your debt and make a low-risk investment, you can effectively kill two birds with one stone. First, you are freeing yourself in the short term by having fewer financial burdens. The investment will help you beat inflation and save some money for the future. You’ve worked hard for your money so that you can pay your bills and taxes. Once those issues are dealt with, why not let your money work for you?
