Tax season is around the corner, and many of us may get a sizeable windfall in the form of tax refunds. The IRS paid an average individual tax refund of $2,979 as of December 27, 2019.
Receiving $2,979, unencumbered and in a lump sum, is a phenomenal amount of money for a lot of people. According to a report on the economic well-being of U.S. households, over 40% of Americans are so cash-strapped, they cannot come up with $400 to cover an emergency expense.
If you are one of the 40% of Americans who’s unable to cover a $400 emergency expense, or the 78% of Americans living paycheck to paycheck, this year’s tax refund presents a perfect opportunity to turn your finances around.
If you were planning to use your tax refunds to purchase a new handbag, a new flat-screen TV, or to go on a lavish vacation, then you are precisely the kind of person who should be reading this post; especially if you also live paycheck to paycheck, or you’re part of the 40% statistic cited above.
We will suggest ten ways to use your tax refund as a springboard to transform your financial situation.
10 Ways To Use Your Tax Refunds To Transform Your Finances
There is no gainsaying the fact that transforming your finances is not going to happen on its own. It has to take a determined and sustained effort on your part to make that happen.
Below are a few things you can do with your tax refunds that will catapult your finances to a firm and solid ground.
1. Invest In Yourself
Investing in yourself by furthering education is a time-tested way of guaranteeing an increase in your earning power.
If you are living paycheck to paycheck or you can’t afford a $400 emergency expense, is it possible that you aren’t earning enough money?
Some people earn a lot of money but are financially irresponsible, and they end up living paycheck to paycheck.
But the vast majority of people who live paycheck to paycheck could use a spike in their income. Luckily, that’s a problem that can be fixed very quickly by investing in your education.
I don’t want to sound simplistic, but the data backs me on this one.
According to the U.S Bureau Of Labor Statistics, educational attainment correlates directly with earning power. The more education you have, the more money you can potentially make.
How To Use Your Tax Refunds To Invest In Your Education
There are many ways to invest in your education without breaking the bank. Below are just a few of them.
Enroll In An Online MOOC
MOOC stands for massive open online courses. These are courses offered online by reputable colleges and universities, including Harvard University.
You can earn a diploma or a degree for a fraction of the cost that on-campus students pay. You can also learn for free.
For example, for $49 a month, you can become a Front-End Web Developer in as little as three to six months and earn an average salary of $105,852.
You can find these life-changing courses on the following websites:
Enroll In A Tuition-Free Community College
There are states in the US now that offer tuition-free community college education. However, tuition-free doesn’t mean everything is free.
You still need to buy books, school supplies, and other essentials. You can use your tax refund to pay for those. Your investment is going to pay off for years to come.
Buy A Laptop For School
If you’re planning to go back to school, whether on-campus or online, you will need a laptop. It is especially true if you decide to do the MOOCs.
Investing in a reliable laptop will be a good use of your tax refund.
2. Establish An Emergency Fund
I can’t tell you how many people have fallen victim to predatory lenders because of a loan they took to cover an emergency expense.
Having an emergency fund can help you avoid such a situation.
No matter how comprehensive your budget is, you cannot possibly plan for everything. There’s always going to be unforeseen circumstances.
Having the finances available when such a situation arises will give you the confidence you need to tackle it.
Use your tax refund to set up an emergency fund. Having an emergency fund is a good overall strategy for maintaining financial stability.
3. Build Your Savings
Setting money aside for the rainy day is a pearl of age-old wisdom that still rings true today.
Having money in the bank does a couple of things for you, a few of which includes: increased self-confidence, peace of mind, a sense of financial stability, and financial security.
GoBankingRates conducted a survey and found that 32% of American adults have zero in savings. Some 26% of respondents had less than $1,000 in savings.
The statistics are appalling, and if you fall within that dataset, you can reverse your lot by building your savings account with your tax refund.
4. Start Investing
Investing is one of the fastest ways to build wealth. Most of the wealthy people in the world have made their money by holding investments in stocks and bonds.
You can use the money from your tax refund to launch your investment journey.
These days, you can purchase stock by a tap of a button on your phone. There are numerous investment apps out there to get you started.
5. Pay Your Debt And Repair Your Credit
Having an excellent credit score can seem like the golden key that opens all doors– from amazing credit cards with unique perks to low-interest mortgage and auto loans, it does it all.
Though the national average credit score hovers around 706, millions of Americans still struggle with debt and poor credit scores.
If you are one of those suffering under the burden of debt or a poor credit score, using your tax refunds to pay off those debts or to repair your credit can be an excellent idea.
Doing so will free up money in monthly interest and principal payments that you and apply to more important things.
Related:
- DIY Credit Repair Hacks – Step By Step Process To Repair Your Credit
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6. Start A Business
Owning a business is hard work, but when done correctly, it gives you a sense of security and fulfillment.
If you’ve ever thought about starting your own business, the windfall from your tax refund can be your seed capital.
You don’t need hundreds of thousands or tens of thousands of dollars to start a business. You can bootstrap your business with a few hundred dollars.
Read “The Lean Startup,” “Start Your Business on a Ramen Noodle Budget,” or The $100 Startup” to get some insight on how to start and grow your business on a shoestring budget.
7. Start A College Fund
College is very costly right now, and no one knows how much it’s going to cost in the future. If you have kids, using your tax refund to start a college fund is a great idea.
There are several college savings products out there; most notable is the 529 Plan, named after the IRS section code that allows adults to save money for their children’s college tuition.
You can check out the IRS page to receive guidance on how to proceed with a 529 Plan for your kid.
8. Get Life Insurance
Getting life insurance may be one of the best gifts you can leave your family and loved ones.
Death is not a great subject to talk about, but it is the one thing that’s guaranteed to happen to all of us. If you have life insurance, it can mitigate the impact of your passing on your family.
With your tax refund in hand, now is a great time to go shopping for life insurance.
Depending on how much money your tax refund is, you can pay for up to two years of life insurance.
9. Get Dental Or Medical Care
America is one of the few industrialized countries that does not guarantee universal health care to all its citizens.
While it is true that millions of Americans have some form of health insurance, millions more are either uninsured or underinsured.
If you are one of those uninsured, now is the time to think about doing something about your health.
With your tax refund in hand, you can get some much-needed dental or medical work.
10. Get A Cheaper, More Affordable Car
Maintaining a high monthly car note when you’re living paycheck to paycheck is the height of irony.
If it is going to save you an extra two to three hundred dollars a month by ditching your current ride for a more affordable one, why aren’t you doing it? Remember, appearing rich and being rich isn’t the same thing.
It is better to be modest, build your wealth quietly, and when you’re successful, you can then splurge on a luxury car.
Bottom Line
Having money is not all there is to life, but it is an essential ingredient for living a happy and fulfilled life. That’s a major reason why we spend so many years in school and so many hours at our jobs.
If you are experiencing financial hardship, as most people do, now is the perfect opportunity to turn your financial woes around.
Rather than using the windfall from your tax refund to satiate some temporary pleasure, you can use that money to transform your finances.
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