Smartest Things to do with your Tax Refund

If you are one of the 47 percent of Americans who is on the receiving end of a check from Uncle Sam, your first impulse might be to spend it; splurging on something that has been your heart’s desire for 12 months. However, is that the smartest thing you could do with your short-term windfall? The fact is, probably not. Instead, consider four smart moves you could make with your tax refund that will pay you back even more than an impulsive purchase.

1.    Pay down debt
If you have debt, consider using your tax refund dollars to pay off your debt, or pay down a large portion of it. Interest is akin to throwing your money down a black hole. The less interest you pay out, the more money you have freed up for yourself, period.

2.    Save it
Consider putting your tax refund in a Roth IRA or high yield annuity. If your refund was around the $3,000 mark (the national average), you could earn as much as $250 per year. Over time, what you earn in interest alone adds up to a substantial amount of dough.

3.    Invest it
Consider investing your windfall in stocks, silver or gold for a short-term and long-term payoff. However, if the stock market is not for you, consider putting your money back into your home to build equity. Since most homes have a three percent rate of return year over year, investing your money in something that pays you back makes more sense than spending it on a short-term delight.

4.    Start a business with it
You could use your tax refund to start a business and create long-term, repetitive cash flow for yourself. Set aside some money and begin doing research on different franchising opportunities available within your price point. If one is for you, use your tax refund money as seed cash to get a business up and running.

No matter what smart choices you make this year with your tax refund, the smartest decision you can make is putting yourself in a position where you do not receive a tax refund ever again. Whatever you get back from Uncle Sam was your money to begin with, and it is only because you did not claim adequate exemptions on your W-4. Talk to a certified accounting professional about your withholding and adjust it to a level where you keep more of your money each month and stop giving interest free loans to the government. The extra-added cash you bring home is yours to invest, save and structure however, you choose. By keeping more of your own money up front, you put yourself in a position to earn more year round by saving and investing wisely. Make smart choices with your tax refund this year, but then make smarter choices with your money year round, by being a person who does not need to rely on a tax refund as a cash windfall now or ever.