Tax season is here and some of you may be getting a refund. Rather than blow it on a big screen TV or other non-essential items, why not choose a more frugal options. Below are six frugal options for your tax refund.
If you do not have an emergency fund, now is the perfect time to start one. As the name simply says, it’s a place where you stash money in case of emergency. Unexpected house or car repairs, medical bills, or job loss. These are just a few of the events that an emergency fund can be used to handle. The key to an emergency fund is that the money needs to be very liquid. You are only using this in a case of emergency, so you need to be able to access it quickly. A money market account is my recommended location for your emergency fund. You earn a little bit of interest to offset inflation and can access the money quickly.
Pay Down Debt
Do you have high interest debt? Use that tax refund to get an instant return on your investment by putting it towards your existing debt. The money you save on interest payments is your return on investment. Once that debt is completely paid off, use the newly available cashflow for something else.
Make a lump sum contribution to a myriad of investment accounts. This account could be an IRA, 529, taxable, or many other options depending on your employment status. You can even save the refund in your checking account and make changes to your payroll deductions so that you can make a 401K or HSA contribution. The money you kept in your checking account will be used as “income” in place of those payroll deductions.
Invest In Yourself
Do you have a side hustle business or dreams of starting one? Use the cash to invest in that business. You could also use the money to take classes, do online training courses, or gain a certification that will grow your skills. If you have a traditional 9-5 job, the newly acquired skills may help you get a raise or promotion at work. Growing your top line is a great way to save more money!
Buy An Item That Will Save You Money
Is there some item that you think will save you money in the long term but you just haven’t purchased it yet? Maybe you want to cook at home more to save money on food. Perhaps it’s time you finally buy that Instant Pot you have been eying. Is finding time to cook an issue? A Slow Cooker might be beneficial. Can you save money by making your home smarter or more efficient? A Smart Thermostat is a good place to look. You can read my review of the Nest Temperature Sensor if you already own a Nest but feel like it’s not properly located. New windows, better insulation, LED lights, and more efficient appliances, these can all save money on energy bills and can pay for themselves depending on how long you stay in your home. These are just a few ideas for items that might save you money in the long term.
Save Towards A Goal
Are you saving up for a car, home, or other large purchase? Use the tax refund to accelerate that savings goal.
So there you have it, six frugal options for your tax refund. While these are all good options, they might not all be right for you. Think about your priorities and goals and figure out which option is best for your family. For my family, we usually do a combination of a few of these depending on our goals for the next few years. More recently we have been investing most of our refund but for several years prior we saved it towards one of our larger family goals. Whatever you decide, think about it before making your choice!
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