With tax season around the corner, it’s a good idea to start thinking about what are you going to do when the federal government or the state government gives you back some money.
For starters, there are some really bad things to do with your tax return and there are some really good things you can do with it.
You know what the bad things are, right? Don’t go out and blow your tax return on stuff you don’t need to impress people you don’t like.
Here are some really smart things you can do with your tax refund that can really put that money to work in the long run.
1) Get Out of Debt
First, you could use your tax refund to get rid of debt, particularly bad debt.
If it’s not an asset that can produce money, it’s probably bad debt. Get rid of debt that’s carrying large interest rates. If you’re paying 18% interest on a credit card, that’s a huge rate of return and so effectively you’re getting 18% returns just by paying off your credit card, so that’s a great first step.
2) Replenish Your Emergency Fund
Second, you can use your tax refund to replenish your emergency fund. You should have enough to cover you for the next six months.
What does it cost you to live for six months on just the absolute bare necessities?
Having a six-month backup fund is really important. I would actually do that before I paid off my personal debt on credit cards.
Get that emergency fund started and ultimately build it up to six months of money that covers you and all of your expenses.
3) Further Your Education
Third, you can invest in getting an education. Knowledge is incredibly powerful. Getting an education and continuous learning is the best investment you can make. Even Warren Buffett thinks so.
Take classes, listen to podcasts, and start building up your knowledge. If taking a class for $5,000 is something that’s over your head, then learn from free resources like blogs, books, and podcasts.
Read personal development books. It’s a phenomenal use of your time and your money.
Invest in yourself with my 14-Day Financially Fit Challenge.
4) Boost Your Retirement Savings
Fourth, you can use your return to boost your retirement savings.
The money you get into retirement right now is the money that you’re going to live on down the road.
You can put that money into IRAs. In other words, if you haven’t already filled up your IRA for the year, 5,000 to $6,000 if you’re single, or $10,0000 to $12,000 for a couple, you should do that. Since it’s a tax refund, it’s not going to cost you any taxes to put into a Roth IRA. That would be a fabulous place for it.
5) Invest in Wonderful Companies
Fifth, you can invest your tax return into stocks that you think are awesome right now or a wonderful business that’s on sale.
A wonderful business is something that:
- You’re capable of understanding. Because you should never invest in a company that you don’t understand.
- Something that has a big moat, or intrinsic characteristic, that protects it from other companies attacking it and taking away its profit.
- It’s got management that has integrity and it’s run by people you trust.
- That’s on sale.
The best thing you can do with those surplus dollars is to learn how to invest them in the Rule #1 style.
All five of these options are great things to do with your tax return. What smart things are you planning to do with your tax dollars?
Invest In Yourself
If you need to get your finances in order, I’ve created a 14 day financially fit challenge for this year. This is designed for you to get your finances in order. It consists of one simple thing to do each day.
At the end of 14 days, you’re going to be in a much better place financially, and you’ll have a plan and start working on. You might even have some money to invest, which would be good as well. Click the button below to download the challenge and get your finances in order now.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.