This week, many Swedes have received money back from the Swedish Tax Agency. Someone may have been unlucky to get residual tax but for those of you who have received money back, here are some tips on how to best use the extra money you receive (which is better than putting money on the money).
The tax refund is somehow like winning a lottery
It’s money that pops up quite suddenly and you didn’t really know how it would turn out. Sure, you always hope to get money back, but you rarely know how much you can possibly get, and it usually feels like a pure bonus when this money rolls in.
It is not very often you know exactly how much to get or if there is definitely some money left and therefore you do not usually plan how to spend them. When the day comes when the tax refund shows up, you can be pleasantly surprised and in that situation, many people also start thinking about all the fun things you can do for their “extra money”.
My tips will mostly be about sensible and financially responsible ways to spend money you get back on tax. Some people certainly want to buy this money for pleasure or treat themselves to something special and for those with a good economy it can clearly be ok to have fun for the money. However, I think that at least some of them can be used for savings.
Put the money in your buffer
I often write in the blog that it is important to have a buffer saving – that is, money that is easily accessible (preferably not invested without being able to reach them directly when you need them) and which is for those occasions when you need extra money .
The buffer is used to borrow from, for example, if you have an unexpected expense such as the car or fridge / freezer breaks, if you do not have enough money to fix this within the regular monthly budget. The money is also for if, for example, you would get higher expenses or lower income for a longer time and need to top off their income with a little extra money.
A buffer can differ in size depending on finances / salary, but recommendations are usually that you should have at least one month’s salary in the buffer. Many people would like to have at least two or three monthly salaries, to be less vulnerable.
It is very important to have a buffer saving. Despite this, many people have no buffer at all or a very small one. If you do not have a buffer, it is a good idea to start saving for one, for example by putting away a thousand dollars each month.
If you receive a tax refund of a few thousand, it may be a good idea to put that money into the buffer savings so that you get started or increase your saved amount some. It is always better to have some money than no one at all tucked away as security and if you have a small buffer, a supplement with money from the Swedish Tax Agency can be the starting shot you need to speed up the savings.
Invest the tax refund
Why should you put a damper on your tax refund by traveling or buying something nice when you can make money on it instead? A very good tip is to invest their extra money. You can choose to invest the whole amount or parts of it. Of course, it depends on how big your refund is.
If you usually hold shares, it might be a good idea to invest this money in shares that you believe in. Of course, you can also invest in mutual funds if you prefer. You do not immediately get a lot of money from savings accounts now that the repo rate is super low, so just leaving the money on such an account is not optimal. Of course, if you add them to your buffer savings, you may assume that you have poor interest rates, but if you can save the money for investments, you can advantageously look for something that gives better returns.
The tax refund is often bonus money for many and it often makes you very eager to spend the money on something fun. But if you have a little ice in your stomach and a little patience, that money can multiply a lot and then you can afford to do even more fun things later.
If you did not expect to get any money back on the tax but then actually get it, then you have not really directly planned anything for that money. If you wish, you can deposit them in your investment account immediately when they come in and then pretend that you did not actually receive any money back over the main thing. Then you will not miss them and as a big bonus you have received a lot of money more to invest. In the end, it clearly means more cash in the cashier for you.
Pay on the mortgage
A variant of investment is to repay the mortgage. It may not sound so exciting, but it is never wrong. All installments on their loans should be regarded as investments as they lead to reduced costs. It’s a way to make / save money that always works.
The advantage of amortizing the tax refund instead of investing in other ways is that it is a very safe investment. When you buy shares, they may go down and you may lose money, but when you repay you will know for sure that you will save money on this.
Right now the interest rate is of course very low so there will not be a large amount per month that you save in the current situation but over time the interest rate will go up and then it will be more expensive to have a loan. Then the money that you have today amortized can be worth a lot and over a long time it will actually be a pretty good waste.
Treat yourself a little and put away the rest
As I have written before, many people probably think that money back on the tax is a nice bonus and you immediately get the urge to treat yourself to something fun or nice for that money. Since the tax refund somehow feels a bit like a lottery win or something like that, it will be extra money that you haven’t really planned for. Such money is clearly used more often for luxury consumption than for utility items such as paying bills or savings.
An idea might be that you decide that you should do something fun for part of the refund, for example 20 – 25% depending on how much money you get back, and that the remaining amount goes to something useful such as savings. This way you can still feel that you are getting a little fun for the tax refund but instead of spending everything on fun things you still spend a majority of the money on good and useful things.
For example, if you get back SEK 4,000 on taxes this year (which may be more than many get, but we can take that as an example anyway) then you can then take SEK 1,000 for something that is just fun or luxurious. It could be something you wanted to buy for yourself or the family or that you put the money in the cash register etc. The remaining SEK 3,000 should go to something useful. For example, put them in your buffer savings or invest them.
In this way, you do not feel completely fooled by the bonus money and have some fun while still spending most of something good. You can change the distribution in percentage a little back and forth depending on your financial situation. If you have a good economy and already have good savings and a sensible buffer etc then of course the need is less. Then you can, for example, spend 50% on something useful and have fun for 50%.
Even if you have a good economy, it is smart to spend some money on eg savings. If you invest the money instead of spending it, you can probably get them to grow up pretty well if you can fix a reasonable return. A few years later you have even more money to spend on fun things.
Do a good deed
If you have no great need for the money from the tax refund in your own finances and feel that you can actually evade them, then a suggestion is to donate them to charity or similar. If the alternative is to do something fun for the bonus money then you might instead want to take it all a step further and do something good for someone else.
Of course, this is not the first option for those who need a buffer and to increase their savings, but it may be an idea for those who have a good economy and who otherwise would have just wasted their tax refund on luxury items that you don’t really need.
There are many good things you can donate, from cancer research and heart research to Save the Children, Plan Sweden or SOS Children’s Villages. There may also be someone in your immediate area who needs help such as local work with the homeless or otherwise. If you have the opportunity to help, many would appreciate this very much.
Unfortunately, you are often worse off giving to charity than you would like and then it can be a great place to give some money just when you have received an unexpected / extra supplement. If you cannot save the money but need it yourself, you should of course give in moderation. You can of course give a decent large / small portion of your refund.