The shopping malls are always crowded when the government starts sending out income tax refunds. Some malls are so crowded it almost feels like Black Friday as everyone rushes out to splurge on a new Zojirushi rice cooker or Cozyna air fryer with their expanded bank accounts. Unfortunately, many people blow through their tax returns in a matter of weeks and find themselves once again counting pennies and living paycheck to paycheck.
If you are willing to skip the mall and put some thought into how you spend your refund check this year, it could enhance your financial security for years to come. There are five smart investments that will take you much further than luxury items from the store.
- Pay off as much debt as possible. Order a credit report from all credit bureaus and make a list of blemishes dragging your credit score down. Use your refund check to pay off as much of that debt as possible. If you can’t pay it all off, consider clearing credit cards with the lowest interest rate and moving remaining debt onto those cards. This at least reduces the interest you will pay over the next year.
- Complete eco-friendly home improvements. If your old water heater is driving up your electric bill, consider switching it out for an energy-efficient tank. You may even consider a tankless water heater to free up some space in your home. Energy-efficient windows will help you save money on monthly bills and may increase the value of your home. If you have an older home, updated insulation may help with energy efficiency.
- Start a savings account for each of your children. They will eventually use this money for college, trade school, or their first vehicle. Even if the only money you ever put into this account comes from your tax returns once a year, the money will benefit your child far more than the clothing and other items you may buy them at the mall.
- Invest in that side business you have always wanted to start. If you have a talent or skill that you know is marketable, your tax return could give you a start in the business world. Create a business plan and invest that money wisely because you want to create a thriving business that allows you to make money doing what you love.
- Put a down payment on a new home. In many states, mortgage prices are less per month than rental properties. If you can save money every month by purchasing your own home, sinking your tax refund check into a down payment could set you up to save money for years to come.
While shopping is more fun in the short term, making good investments and delaying gratification will lead to financial security, which will enable you to have more fun later down the road. If there are things that you need to purchase with your tax returns, commit to investing at least half of the money and spending the rest.
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