5 Ways to Make Money Moves with Tax Refunds

  It is officially tax season! I remember a time period in my life where this time of the year was my personal Christmas! By the time taxes rolled around, I would be so behind on my credit cards and other bills that I really needed the money to get current on bills. Once I would bring my bills to satisfactory status, I would use the remainder of the money to reward myself. What exactly was I rewarding myself for? I have NO IDEA. Testing limits and not getting my lights cut off or car repossessed? Who knows. All I know is I would get an expensive bag or high price shoes I only wore twice because they hurt my feet. My fave reward was the trips I would book.

I remember during that time period being one of the first to file, even printing off my w2 because I couldn't even wait for my job to mail them out. After embarking on a financial wellness journey, I have long abandoned the need for taxes to save the day. When I say long abandoned, I mean maybe two or three tax seasons. That is a long time right? I have now successfully eliminated all debt with the exception of student loans. Because I have eliminated all debt, my bills are current and I have money left over for other things. Although it is nice to not be in a position to NEED tax refund checks, there are still so many ways to maximize them to build wealth (which is a goal I set for myself yearly). Here are five ways I have learned to maximize tax refunds to get financial freedom (in no particular order).

• 1. Pay off debt. Nerdwallet reported that the average credit card debt for U.S. households is $15k according to a 2017 survey. Although I did not have that much, I had quite a bit. I had to realize as long as I had debt, I would never really have money. I could not effectively and efficiently build wealth while I owed someone else or while I was making someone else rich with the interest I paid to borrow whatever item I charged. It was amazing how much I had left every bill cycle once I eliminated debt!
• 2. Build a savings account. One way to stay out of debt is to have a savings account. That way, if there is an emergency, you can borrow from yourself as opposed to borrowing from someone who is going to charge overall more than you paid initially. Savings accounts are so essential to building wealth. This is why I opted for an online savings account to ensure that I do not have easy access to the money. Dave Ramsey says that everyone should have at least $1000 in savings and then work to save up six months of living expenses.
• 3. Pay off your car. I know I know. I already said pay off debt. But that talked specifically about credit cards. Cars are another ball game. According to credit.com, the average interest rate for car loans is 4%. Let's say you are financing a $20,000 car for 5%. Over the course of the loan (5 years) depending on your monthly payment, you will have paid an extra $3,000 give or take for a vehicle that will not be worth half of that $23,000 once you are finished paying for it. And that is considering your interest rate is 5%! Putting your income tax towards your car loan will be very beneficial in the long run for wealth building and keep several of your dollars in your bank. Or in any area on this list!
• 4. Invest! The average American does not have nearly enough money saved towards retirement. I absolutely do not have a source to cite for this fact, but if you google it you will see that I am right and can even find online calculators to show how much is needed to see specifically where you stand. Putting taxes towards retirement contribution, in a money market account (IRA, C.D. Bond, Stock) or a 529 for your babies is never a bad idea and one of the best ways to build wealth.
• 5. Invest in YOU. Got dreams of being an entrepreneur? Have a skill that can earn you more income but feel you need more training? You can always use your tax return to take a class or buy materials that will help with increasing your income. We spend so much of our lives being consumers and investing in others business goals. You could always use your income tax to invest in yourself!

These are just a few of my personal tips to take steps to financial freedom using tax returns. There are so many more ways to do this. Tax Refunds alone will not get you the success needed alone. Unfortunately, that only happens with time and true discipline. But I can say depending on how much you get back, it definitely contributes significantly to helping meet financial goals. At least it did for me. Happy Spending!