7 Ways to Use Your Tax Refund Wisely
If you’re expecting a tax refund this year, that’s great news! It may be tempting to spend it all at once, but a tax refund is a great opportunity to set yourself up for a brighter financial future. Remember, the government isn’t sending you a bonus check. You worked hard for this money and it should’ve been yours from the start. Don’t treat your refund check any differently than your monthly paycheck – use it wisely!
Looking for ways to put that tax refund to work? Here are 7 smart things you can do with your tax refund:
1. Pay-off High Interest Credit Card Debt
If you have high-interest credit card debt, paying it off is one of the best investments you can make with your tax refund. It’s a major step towards financial freedom.
Making only the minimum monthly payment on your credit cards can cost you hundreds to thousands of dollars over time, and you may feel like you’re spinning your wheels but not getting anywhere. To really dig yourself out of credit card debt you have to make more than the minimum monthly payment. A lump sum from your tax refund can help you pay down the principal and make significant headway towards being debt-free.
If your refund doesn’t cover the entire outstanding balance, pay down as much of the balance as you can and look into other options to take care of the rest. A personal loan with a fixed rate can be a great option and checking your rate only takes a minute and can be done online from the comfort of your living room.
2. Create or Contribute to Your Emergency Fund
Creating or contributing to your emergency fund is one of the best things you can do to protect your financial health. One of the main reasons people rack up high-interest credit card debt is because they don’t have enough funds to cover an emergency or an unexpected expense. Using your tax refund to jumpstart your emergency fund can save you from turning to expensive credit card debt as a last resort in the future. Most experts recommend having enough money in your emergency fund to cover at least 3 to 6 months' worth of living expenses.
3. Put the Money Away in a Savings Account
If you’re debt free and have enough saved up in case an unexpected expense occurs, consider putting your extra money into a savings account and start saving for a specific goal or purchase. National interest rates average .06% for savings accounts these days, but you can also find savings accounts and CDs that are above the national interest rate average.
4. Put the Money Toward Your Retirement
Saving for retirement may feel easy to postpone – it’ll sort itself out, right? The truth is too many people approach retirement age and realize that they’re not financially ready—they regret starting too late (or not at all) on their nest egg.
Add money to your retirement account you have through your employer, or if you don't have one already, set up a tax-advantaged investment account like an IRA. It may be hard to prioritize something that seems so far away, but when you see that investment grow over time you won’t regret the choice you made.
5. Spend it on Something You’ve Been Putting Off
Have you been putting off car repairs? Need to fix a leaky pipe? There’s always something that needs to be repaired or replaced.
Spending your tax refund money on something high on your priority list – something you need or use all the time – is a good investment. Oftentimes, money spent now can save you more in the long run. If you don’t fix that one thing that keeps acting up in your car or that minor leak in the roof, the problem can get worse and end up costing a lot more to fix than it would now.
6. Pay it Forward
When you’re living on a tight budget, donating to a charitable cause doesn’t always make it on the list. Getting a tax refund can give you the flexibility to give back to a cause that matters to you. Plus, charitable donations may offer some tax benefits that could provide a nice little bonus when you file your taxes next year.
7. Invest in Yourself
If you’ve covered all of the above, invest in your well-being or your future. Maybe you’ve always wanted to learn to cook, or you’ve been putting off that Photoshop class. The extra funds from a tax return can help you make those hopes a reality.
Using your tax refund responsibly is an investment that can help you build a better financial future or fund opportunities that matter to you. Don’t blow your money on something that will quickly fade away.
If you haven’t filed your taxes yet and you’re looking for a simple way to get your biggest possible tax refund without leaving your living room, check out TurboTax. We’ve teamed up with TurboTax to offer you a special discount that can save you up to $15 off TurboTax federal products.
Upgrade does not provide investment, tax, or legal advice. This material has been prepared for educational purposes only. You should consult your tax or investment adviser prior to investing or preparing and filing your tax return.