May 1, 2014

How to Spend Your Tax Return

The first of the year brings the dreaded tax season with it. It’s the time of the year that many Americans dread because we don’t know if we are going to end up owing the government money or if we will be getting some money back. I’m not sure about you, but this time of the year makes me anxious until I get the call from my accountant telling me the “verdict.” Like everyone, there are years when my husband and I have come out ahead and received a tax return but then there have been other years when we have had to pay Uncle Sam.

For those who will be receiving a return this year, it can be pretty tempting to go out, splurge and spend it all. After all, it is your hard earned money being returned to you right? I know how tempting this is from experience. While spending a well-deserved tax return will feel liberating at the time, chances are it will be followed with a feeling of regret when all the “extra” money is gone. Below are a few suggestions for how you can spend your tax return without experiencing “buyers’ remorse” afterwards.

Open a Savings Account: Studies have shown that the majority of people are living paycheck to paycheck with very little money saved, if any at all. In fact, the average American hast more debt than they do savings. If this is you, then why not open a savings account with that tax return? Let that money stay tucked away in case an emergency arises in the future. There are some savings accounts that earn interest, which is always nice.

Pay down Debt: As mentioned above, most Americans owe more than they have in savings. If this is you, then paying off a credit card, medical bill or another outstanding balance is a great way to start working your way out of debt. There isn’t another feeling quite as good as making a final payment on something. If you have some money left over, put it in savings or opening a savings account is still an option worth considering.

Buy an Investment Property: While debt is generally considered a bad thing, there is a time when it isn’t bad and that’s when the debt is making money for you. For instance, most business owners have to take out a loan when they start up a business, but the money they make from the business pays for the business and then some, making that a good kind of debt. You may not be ready to start your own business but are looking for a way to increase your net worth, then buying an investment property is an option worth considering. Investment properties are a great way to increase your monthly income while building your investment portfolio. Your tax return can be used to purchase the house and make necessary improvements before you find a tenant…or resale it for a profit. It is worth noting that while investing in real estate is a good thing to do, getting rid of all your little debt (credit cards, student loans, etc.) should be your first priority.

Hopefully the ideas above have given you some inspiration for how to spend your tax return. Do you have any other ideas for spending a tax return wisely?