Some people dread tax day on April 15 since it means they must come up with money to pay the federal and/or state government. However individuals who are able to get a refund for overpaying taxes on their income often love this date. They anxiously wait for a check to arrive in the mail providing them with several hundred or even thousands of dollars depending upon their particular situation. Each person has the opportunity to use the money as they desire, but there are some popular and common ways people spend their tax refund.
Tax refunds are great for paying off debt since they allow individuals to make a lump sum payment towards their debt. For individuals with tax refunds of more than $1,000 this can be quite significant and make a huge impact on lowering their overall debt amount. Many choose to apply their tax refunds specifically to credit card debt since it often has the highest interest rate. Others choose though to use the money to pay towards their mortgage or installment loans for items such as a vehicle. Applying a tax refund to debt payoff can result in the loan or debt being paid off much sooner than making monthly payments.
Big Ticket Items
Tax refunds can be rather large ranging from a few hundred dollars to more than $1,000. This is a huge amount of extra cash for many people, some who may be living paycheck to paycheck. With all the money they earn from work going to put a roof over their head and food on their table, many spend their tax refund on big ticket items they aren't able to purchase with just their paychecks. Big ticket items often include a vehicle, television, computer or materials to upgrade or remodel their home.
Some individuals receive enough money back from the government to take a vacation either by themselves or with family and friends. This can be a great way to enjoy a tax refund especially if you receive it in the middle of winter and use the money to travel to a warm climate. Others use the tax refund to provide them with the money they need to travel to see family and friends who they've been unable to visit due to not having enough money to make the trip.
While others choose to spend the money they receive back from the government, some individuals decide to save or invest their money instead. They see their tax refund as an opportunity to contribute additional dollars to their retirement or savings account. Investing the money from their tax refund allows them to accumulate interest on the money and grow the amount the individual has. Saving the tax refund ensures that the person has the money available to them should an emergency occur for which they need it.
Although not everyone receives a tax refund from Uncle Sam, individuals who do have several options for what to do with the extra money they earned from working. To determine what you should do with your tax refund, it's important to consider your finances and what's important to you.