Receiving a tax return is both good and bad. Some people also prefer to receive a larger refund versus a small one. The reason you receive a large or small return depends on how accurately money was being deducted from your yearly paychecks. If you receive a large one, too much in taxes was deducted. If you owe money or receive a small return, the amount of taxes being deducted were fairly accurate.
If you were left with a large return, you might be wondering how your should spend it. We’ve researched a couple of different ways to spend your tax refund. Keep reading to find out more!
Using Your Tax Return on a Car
Edmunds recently released an article on this very topic. They mention that during tax season you see a hike in specials that car dealerships are running. This is because the average refund is $3000 according to the IRS.
Edmunds offers the following ways to spend your tax return on a new car:
- Use the money as a down payment on a new or used car.
- Fix or upgrade your current car.
- Buy a really inexpensive used car.
- Make a large drive-off payment on a new-car lease.
- Pay down an existing car loan.
- Refinance your current loan.
How to Invest Your Tax Return
So if you don’t need a car, you might be looking at other more financially responsible ways to spend your tax return. NerdWallet recommends that if you have around $1000 or if that is the portion you want to invest, that you should be realistic in your investment choices. They say that you most likely won’t be able to work with a broker and most mutual funds have a minimum deposit of $2500. They say to instead look at making that $1000 investment in these financial areas:
- 401(k) – If your company offers a 401(k) then look into the fine details. You would be surprised to know that companies will match a certain percentage of your investment. It is harder to make an initial deposit though as most 401(k)’s are set up through direct deposit. Do some quick math to see what you need to increase your contribution by for the next couple of paychecks.
- Online Brokers – These still have minimums but it is much more cost friendly and user friendly. If this is your first account outside of a 401(k) look into a Roth and Traditional IRA.
- Robo-Advisors – When you open IRA’s you can use an automated investment management service. You start by signing up and sharing details of your goals and when you want to meet them. From there, the robo-advisor will begin to build your portfolio.
- Wipe Out Your Prior Debt – If you are still suffering from paying back personal loans, auto loans, credit cards, student loans and more, make a large payment to one of your accounts to lower the cost. Aim to pay off your higher interest cards first.
32 Ways to Spend Your Tax Return
If you’re still on the fence about how to spend your return, Kiplinger provides the following 32 options:
- Build a High Yield ETF Portfolio
- Buy a Top-Notch Fund
- Be a Lender
- Take a Flier on a Low-Priced Stock
- Grab 10 Shares of a Blue Chip
- Create a Kitchen Command Center
- Upgrade Your Home Office
- Indulge Your Fantasy at a Camp
- Get Wine by the Month
- Splurge on a Spa
- Take a Class
- Remake Your Bed
- Reap Credit Card Rewards
- Take a Language-Immersion Trip
- Make Catch-Up Contributions
- Beef Up Your Emergency Fund
- Pay Off a Chunk of Debt
- Prepay Your Mortgage
- Strengthen Your Estate Plan
- Take an Early Spring Vacation
- Book an Off-Season Cruise
- Rent an RV
- Power Up During an Outage
- Belly Up to a Home Bar
- Add Skylights
- Spruce Up for Airbnb
- Hire Organizing Help
- Join the Fight Again World Diseases
- Help an Underfunded Cause
- Open a Roth for Your Kid
- Contribute to a 529 Plan
- Patronize the Arts
Remember these are your only options though! If you’ve been saving for that new TV then purchase it or have a nice dinner and save the rest. There are countless ways to spend your tax return. So we have a question for you: Will your save or splurge?