Once a year, most of us come across a large cash windfall in the form of a tax refund. Before the cash even hits our bank account, we daydream about what to spend our money on.
While plans for a new car or an extravagant vacation may be on your mind, try to be open to something different this year. Staying disciplined with smart financial decisions now can help you become financially independent in the long run. Before you cash your check, consider these five ideas on how to maximize your tax refund for 2019!
Build an Emergency Savings Fund.
In a recent survey, it was discovered that only 40% of people had enough savings in their account to cover a $1,000 emergency. In addition, only 43% of people said that an emergency savings fund was a top financial priority for them in 2019. These startling statistics are a major factor of why many people continue to be crippled by debt. Unexpected life events such as losing a job or having a baby do happen and it can put a wrench in your bank account, if unprepared. Financial experts recommend savings 6 to 9 months of monthly expenses, but $1,000 is a good starting point and your tax refund is a great source to jump-start your savings nest egg!
Pay Off Debt.
Being in debt has become a common theme in American households, but that doesn't mean you should be the status quo. It might seem like a large amount to give away, but paying off debt actually means more money in your pockets in the long run. Paying the minimum amounts on credit card bills or student loans will hardly make a dent in reducing your amount when interest is being tacked on to the remaining balance. The only way to pay it off is to cut down the balance in huge chunks. Seeing that balance go down is motivation to destroy your debt with a vengeance!
Save for a Down Payment.
If you are in the market to buy a high ticket item such as a house or a car, a tax refund is a perfect source to supplement your savings for a down payment. Of course, it's possible to buy both without any kind of down payment, but that is also setting yourself for potential failure. Without a down payment, you may be subject to higher interest fees and/or higher monthly payment. Patience is key. Saving throughout the year in combination with a hefty tax refund amount may get you closer to your goals than you thought (and with less money out of your pocket).
Fund Your Individual Retirement Account.
It is common knowledge to fund your 401k through your employer, but if you have hit your contribution max for the year, it's important to invest your money elsewhere. With very little effort, you can continue to set yourself up for retirement through a Roth IRA. As long as you are under the age of 65, you can contribute up to $5,500 annually. Most investment firms require as little $1,000 up front to open up an account. Most importantly, the older and more responsible version of you will be forever grateful.
Invest in YOU.
How many times have you had a conversation about something you've always wanted to do, but somehow never had the money to try and make it happen?
Don't let this year be another excuse as to why you didn't do something! For example, if you want to be promoted at your job but don't feel you have all the required skills, commit to taking a local class that will teach you the skills to get there. Always wanted to lose weight? Invest in a personal trainer or a cooking class that will show you what it takes to do it. The possibilities are endless!
There are a variety of ways to maximize your tax refund for a better financial future. Splurge and have fun, but set yourself up for success in the process. And for more tips on how to maximize your tax refund, see more of our tips!