Tax season is here, and many Americans are excited to receive their tax refunds. For those that do receive a refund, it can feel like an unexpected bonus rather than simply the IRS returning what you overpaid in taxes that year. But nevertheless. If you received a refund, we encourage you to take some time to plan out how you might use that. While it may be tempting to splurge on something fun, there are other ways you can use your refund wisely. Here are five ideas for how to make the most of your tax refund.
- Invest in Yourself - Whether you want to learn a new skill or take a class, investing in yourself is always a great idea. With your refund money, consider investing in an online course or pursuing a certification program to help you advance your career and improve your job prospects.
- Pay Off Debt – You can never go wrong with paying down debt as it is a crucial part of the wealth-building journey. Using some or all your refund money to pay off debt is a smart financial move and could save you thousands of dollars in interest charges over time. Consider using the extra funds to pay down high-interest consumer debt first. The higher the interest, the more expensive it is to own that debt. List out your debts and consider paying down the ones with the highest interest rates. Credit cards and unsecured personal loans a good place to start.
- Start an Emergency Fund - An emergency fund is like an insurance for life’s unexpected expenses, such as car repairs or medical bills. Putting some of your tax refund into an emergency fund will give you peace of mind knowing that you have money set aside should something happen down the line. We recommend having this emergency fund be separate from your checking account. Store it in a savings account or a separate bank account you don’t check on daily. That way, you are tempted to spend it. Out of sight, out of mind.
- Save for Retirement - It’s never too early (or too late) to start planning for retirement! Use part of your tax refund to open an IRA account or contribute more money toward an existing retirement plan – either way; it’s an excellent way to invest in the future and save for later years!
- Treat Yourself - Even though we recommend making wise decisions with your tax refund, it doesn’t mean you can’t treat yourself too! Consider using some of the extra cash on something that brings joy such as a new TV, laptop, vacation package or concert tickets – just remember to not go overboard!
Conclusion: Your tax return feels like free money – but don’t be mistaken. This is YOUR hard-earned money be returned to you. Just as when you receive a paycheck and carefully consider how each dollar will be spent, the same should be done with your tax refund.
Instead, think carefully about how best to use this windfall so that it benefits not only today but also tomorrow. From paying off debts and saving for emergencies to furthering one's education and preparing for retirement – there are plenty of sensible ways to spend your refund this year! Just remember that when deciding what to do with this extra cash flow: moderation is key!