25+ Wise Ideas for What to Do with Your 2020 Tax Refund
Time to file taxes is here, and some taxpayers are expecting tax refunds. Short of a solid plan, the refund will add little or no value to your future financial goals, so you need to be on top of your game.
Treat the tax refund as your money, because it is. It is money you should have invested, instead, you ‘loaned’ it the government free of charge. When such money comes back to you, the prudent thing to do is to give the dollars a purpose. Use it on something valuable, an investment, a bad credit loan repayment or something that will help you achieve your financial goals.
How to Spend Your Tax Refund Money Wisely
Depending on your financial situation, choose from the list below, the preferable way to use your tax refund.
1. Pay Off Your Debt
There is nothing as stressful as a messy financial house caused by credit card debts and high-interest rates. The best remedy for credit card debt is to craft a payoff plan. This year, and with your tax refund, resolve to pay off those debts that weigh down your paycheck every month.
A credit card with lower interest rates will also help as much. If you have other types of loans like mortgages, short term loans, student or car loans, your refund will come in handy in reducing the amount you owe the bank.
For example, you can owe the bank a total of $1300 plus $1200 late. If your negotiating skills are good enough, you could ask them for a deal on complete payment. There are cases where people paid only what they originally owed without the late fees, saving tons of money. So, in this example, by paying the full amount of $1300, you could save up to $1200 on the forgiven late fees.
2. Set an Emergency Account
Once in a while, we find ourselves in a financial dilemma, and saving money for a fallback is a wise thing to do. Considering that unforeseen circumstances could find you broke and days away from your payday, setting aside emergency funds should not be optional. If you have an emergency account, deposit more cash for unexpected expenses, if you don’t have one already, your tax refund will help you set one immediately.
You should have at least three months of emergency funds apart for any case. Suppose a natural disaster hits your city, like an earthquake or a flood, or suppose someone you love has an emergent medical condition. The emergency money can be a life savior in these kinds of cases. At least 10% of every dollar you earn should go into your emergency account.
If you are skeptical about keeping your money idle, waiting for an emergency, bond investments will earn you some interest. At the same time, you can quickly get liquidity when the need arises. Another option to obtain money fast is to apply for a no credit check loan, in case you don’t have an emergency fund.
Preferably, as experts recommend, you should have an emergency fund to take you through a minimum of three months of paying your living expenses.
3. Invest the Money
Tax refund money feels like free money, and one may be tempted to misuse it. You worked for the cash refunded to you, why not treat it like your weekly or monthly earning? Just like you do a budget on your paycheck, do the same to your refund. Investing money is one of the best options you will find on how to use your tax refund. Apart from increasing your savings portfolio, the interests earned can also help in paying off your bad debts gradually.
Plenty of investment options exist out there, so you need to exercise caution as not of fall for ultra-risky ventures, among others cryptocurrency. Investing in public markets, index funds, and other low-cost mutual funds are some options you can consider.
Invest your money, and if possible, keep investing your refunds every year and let compound interest work for you. You will be amazed at how your money will drive you to financial prosperity in a few years.
But you also have to be patient when you are investing, especially in business. You might not get immediate profit, and that is totally normal. Long term investments are the best ones, both from security and returns. So, if you decide to invest your tax refunds, be patient. Statistics show that commodities are far more stable than currencies when it comes to the change of their value.
You could invest in commodities such as gold or silver, and in the long run, you could use those commodities to buy a nice piece of real estate at a great price. You can even ask your broker (if your broker is good enough) to make a couple of smart investments that will bring out a profit in the next month. This profit is called portfolio income.
4. Pamper Yourself
Taking yourself for a treat should not be an entitlement to a surge in your expenditure; remember this is your hard-earned money and not a gift bonus from IRS. If you have set all your finances right, paid emergency funds, retirement savings, and debts, then doing something fun with your money is in order.
While at it, exercise caution and be smart on the quality of your choices. For example, you can take some days off work to attend concerts or sporting events which will help you unwind. Also, you can decide to pay for a short course online to boost your professional profile, making you a more sought-after professional in the job market.
Self-improvement is a never-ending job, so investing your money in you is the best thing you can do. The more you learn, the more you earn, after all. Having fun also has a lot to do with self-improvement. Statistics show that people who have more fun have a bigger boost of dopamine (which is the reward hormone) in their system, and tend to be 50% more successful than the people who don’t prioritize having fun.
5. Fund a Charity
Whether you are donating to charity money or time to a cause that you love, you will undoubtedly make a difference in someone’s life. By giving, the giver feels good physically and mentally, while the beneficiaries experience immense joy, knowing someone cares for them.
You may not have enough in your budget to keep up a giving culture regularly, but if you are getting a refund this year, giving some of it to the needy will make a difference in their lives. You will also have planted good karma which one day will come back to you in unexpected ways – as they say, ‘If the good is sown, the good is collected.’
Besides the fact that you will feel a lot better for helping someone, you could also use charity as a means to make some phantom income. Phantom income is money you don’t have to pay through taxes, and some programs reward you through tax-lowering for being charitable consistently.
6. Stay Peacefully
Don’t know what to do with a tax refund? Knowing that you have money aside can be very relaxing. What’s the best way to spend your tax refund? Maybe for the moment, you don’t have to spend on anything. Just stay peacefully, with the knowledge in your mind that you have an extra budget that you can use whenever you want to.
Don’t just rush into spending because you have money in your hand and the urge to do something with it. Give yourself time to reflect on what you could really do, so that you put thought into your spending habits.
7. Improve Your Home
You are probably wondering how to spend a tax refund? For less than $1000 you can make improvements at your home to make it look as good as new. Maybe you need refurnishing, or some other kind of home improvements that you have been passing on for the moment. This is the time to go back and make those improvements. Before you spend this extra cash, you can at least do one good thing for the place where you are living.
This home improvement now can pay off later, saving you more money in return. For example, you could reinforce your home’s foundation, which can decrease the chance of having wall cracks into the future.
You can accumulate some good karma by donating some of the tax refund money, for people who might need that cash more than you. It is always good to know that you are helping someone out there, and you will even feel a lot better after you do so.
You can even buy food for the homeless people and just hand it over to them. The amazing feeling you will get from doing good for someone else can be truly priceless. This way, you also become an excellent example for other people watching.
9. Put Them into Your Savings Account
You can have a savings account that can come in hand later. This is the best tax return advice. In the future, you could invest that money in a business idea that you just haven’t come up with yet.
From a recent survey in 2017, only 12% of people had around $3000 in their savings account. Being on the side of the people who is debt-free and saving money can be advantageous in the future. For example, you can have $2000 in your savings account two years from now, and you meet someone who has a ‘hot’ application idea for which you can be an investor. You never know what life might throw your way.
10. End Your Current Liabilities
Have you prolonged your dentist appointment too much because of money issues? Well, now it’s the time for these liabilities to come to an end. You will feel a lot better later. The best use of a tax refund would be to end the things that are holding you back for the moment.
Current liabilities can become a burden during the rainy days, so it’s best to take care of them now and find out what to do with tax return as soon as possible. Don’t let them build up to more significant problems.
More Ideas to Spend Your Tax Refund Money
11. Invest in the Stock Market
While this list is by no means exhaustive, some of the main benefits of investing in the stock market are the compound interest, the time value of money, the tax deferral, and the diversification. Thus, just make sure not to miss these opportunities to get handsome returns as well as wealth creation in the long run.
12. Invest in Acquiring New Knowledge, Like a Course
Nowadays, the knowledge may be the new money and, unlike money, when using or giving it away – you won’t lose it. Acquiring new knowledge will make you think beyond your circumstances, putting your life in perspective by essentially helping you doing your best through other people’s experiences and wisdom.
13. Travel as Much as You Feel Like It
Traveling will significantly enhance your attitude and productivity, it will sharpen your mind and give you the chance to try some new things, meeting new people and experiencing other cultures.
14. Eat Healthier
Although it’s not always easy, committing to a healthy diet may be one of the smartest decisions you can make. It will help you look and feel better and also save you money on future health costs. Keep in mind that some small changes in the right direction will help improve your life today, fattening your wallet too.
15. Go to a Physiotherapy Session
There are so many benefits coming with seeing a physiotherapist, especially if you take the time to find the right one for your needs.
16. Help Someone Else with Their Vision
Helping someone else will bring fun and fulfillment to your life, connecting you to others, which in the end is beneficial for your mind and body.
17. Refinance Your Home
No doubt, there are a lot of advantages to refinancing, but the process isn’t without some drawbacks. Thus, the costs of refinancing could outweigh the benefits; however, if you are planning on staying put, it could potentially put far more back in your wallet.
18. Become an Angel Investor
Although angel investing is not an easy and straightforward way to invest, the benefits offer a payoff, unlike any other investment opportunity. Make sure to pick the options that best fit your abilities and goals for your retirement funds and availability.
19. Save For Your Kids College Education
If you want to help your children start off their adult life without a haunting mountain of debt – it’s a good idea to begin saving for their education as soon as possible.
20. Invest in Real Estate
Though illiquidity can be a concern for some investors, real estate offers competitive risk-adjusted returns, with attractive income streams.
21. Pay Off Your Car Loan
Consider paying off the car loan early, although it takes a lot of discipline – it also comes with some significant benefits, helping your financial future for years to come.
22. Invest in Your Office
Put simply – the workspace should be a place to be enjoyed, taking into account that an average person spends one-third of their life at work.
23. Go to Your High School Reunion
Where are you in life? Is this where we wanted to be? Reunions offer an excellent opportunity to find out the answer to this question and to check in and assess whether we’ve turned into the best version of yourself.
24. Explore Your Creativity
If you want to be healthier, happier, and enriched – don’t delay reaping some of the benefits of creativity beginning today, just be free and don’t be afraid of failures.
25. Invest in Old Ideas
While many are trying to dig deep down for some new, innovative ideas, getting confused from all the different options, the easiest and the best solution could be to invest in some old ideas.
Bonus fun ideas for what to do with your 2020 tax refund
Here you have some more ideas to spend your tax refund money smart and with pleasure for yourself:
- Start a New Hobby
- Take Your Partner out on an Expensive Date
- Spend on Something You Have Always Wanted
- Upgrade Your Clothing Line
- Buy New Appliances
- Change to a Better Phone
- Help a Family Member
- Learn a New Skill
- Update Your Library
- Create a Garden in Your Backyard
Ways You Shouldn’t Spend Your Tax Refund
- Don’t Gamble
- Don’t Spend on Things You Don’t Need
- Don’t Keep it in Your Regular Account
- Don’t Go on Expensive Vacations
- Don’t Rush into Spending
Your tax refund may be hefty or otherwise. Both ways, if you do not have a plan in place on how to spend it, you might find it worth not receiving in the first place. Be wise and put some good thoughts on how you are going to put your money into good use.
You will make a big difference in your finances. Above, you have tax refund ideas to help you have a better idea of what your options are.
What’s the best thing to do with a tax refund? Lastly, if you are all set with debts, retirement savings, and investments, then this could be a chance for you to treat yourself or your family on a nice vacation. After all, it doesn’t hurt to use your hard-earned money to have fun; you earned it!
Mike Lefler shares his interest in a wide range of different subjects, including his love for finance-related writing. The passion for writing, related exceptional skills and his years of study, along with a Master’s Degree at Southwest Minnesota State University led him to become one of the brilliant authors in the massive finance arena and in the area of Financial Planning and Lending Industry.
At the same time, his ability to identify the main points of various aspects and intention to significantly contribute makes him a great team member and a valuable part of 1FirstCashAdvance.
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