Tax refunds are the amount the government pays back to a business or individual when the tax paid is found to be higher than the actual tax amount that they are liable to pay. Most people look forward to this annual payout as a bonus that is a bit of extra money or disposable income to spend and be happy about. Low-income households who receive this payout find it helpful during hard times. Some people, however, realize that this payout is their own earned money that has been forcibly saved by the government and held interest free for a year before being paid out. They use this amount to help improve their financial portfolio. There are ways to use this amount in a more sensible manner than just spending it all. Pay off debt Getting a tax refund check and using it to pay off debt is a good way to reduce one’s financial burden. It is even better if this is used to pay high interest or high-value debt. Credit card debt has a high-interest rate and money paid towards this is essentially money that is saving you that percentage of interest. Student loans and mortgages can also get slowly lighter by making this additional annual payment. Save for emergencies One should always have some money put away for the proverbial rainy day or any unforeseen emergencies or expenses. Using the annual tax refund to slowly grow an emergency savings fund is a sensible thing to do. There are high-yield accounts that are the best place to grow such a fund. Add to Health Savings Account (HSA) Those who have a Health Savings Accounts can augment the savings in that account by putting their tax refund into this saving. These accounts are also tax-free. So, the amount saved not only saves you taxes but can be used towards medical treatment which is tax-free subject to the terms and conditions that apply. Contribute to an IRA An Individual Retirement Account or IRA is a good place to route a tax refund amount. It has good tax benefits and is a good way to save for the future. This can also create a nice nest egg that can pass on to one’s heirs if unused. Put the money into stocks While stock markets are volatile with a few exceptions, most funds invested in the market are subject to the market conditions, there can also be great success and profits made. One who is hesitant to invest their regular income in the stock market can use the annual tax return amount as a seed investment in the stock market that might make fantastic returns. Save for children’s education If one already has retirement and emergency savings in place, the tax refund can be used towards saving for one’s children’s education. There are college savings plans available that are tailored for such purposes. Contribute to charity If one has a cause or charity that is close to their heart and beliefs, tax refunds can be routed to those charities. One can use the money to make a difference and derive much satisfaction from it.
