5 Wise (and responsible) Ways to Spend Your Tax Refund

Many of you have probably already filed or are getting ready to file your taxes. And majority of you are anticipating a tax refund. If you owe taxes, be sure to read my previous post: Ways to Prepare If You Own Income Taxes

For those of you who are expecting a tax refund, have you started thinking about what you are going to do with that money? Some of you have seen this Meme (or one similar) going around on social media.

As funny it is, it's even more funny because it's absolutely true. If you haven't noticed it's around tax return time that you see lots of ads for sales on TVs or you see an abundance of ads for those Rent-to-own stores. You might also see an increase in Used Vehicles posted on Craigslist or parked on the side of the road. I'm sure Jewelry stores also love this time of year, because they get an increase in orders for Hawaiian Jewelry. Although, it is nice to enjoy money and get things that you want. You must first make sure that all of your financial obligations are met and that you are in a financial state to spend money on things that aren't necessarily a necessity or things that won't bring you closer to a state of financial peace or success.

Whether your tax return is large or small, you should carefully consider how you will spend your tax return. Here are some responsible and wise ways to make use of your tax return:

1. Starter Emergency Fund 

If you haven't done so already, establish a starter Emergency Fund. This amount ranges between $500-$1000 depending on your income level and martial status.

2. Pay Off Debt Smallest to largest balance

Regardless of the interest rate for your outstanding debts, pay off the smallest balance you have. This will do 2 things immediately, (1) give you a sense of accomplishment, small wins help to provide the motivation needed to keep attacking your debt and (2) reduce the amount of debt accounts you have, which will help to better your credit score.

3. Put Money Aside for Annual Expenses

Many times we are so focused on our monthly bills that the annual expenses sometimes creep up on us even though we know that they should be coming. For example, car registration, insurance premiums, gym memberships, etc. This includes any big vehicle services that you might anticipate this year, for example if you know that you will need new tires this year, put aside what you think it will cost you, that way when you do need new tires it's not a Financial Emergency, as well as a Car Emergency.

4. Invest in Life Insurance

Use your taxes to pay for a life insurance policy. Invest in the financial security of those you love.

5. Start a Savings/Investment Account for your children

If you've been meaning to start a savings account for your children, use the money from your tax return and get them started. Depending on how much money you have to save/invest you might want to consider opening an UTMA or 529 Plan.

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