It's that time of year: Tax season.
The one benefit to this stressful time is that, for most Americans, filing will end with you getting a decent-sized tax refund from Uncle Sam. Deciding what to do with that check, though, can be overwhelming.
8 Ways to Use Your Tax Refund
Here a few ways to put your tax refund to good use this year:
Create or Expand Your Emergency Fund
You never know when an emergency will strike. Whether it's a flood, a sudden medical procedure, or something else, you want to be prepared. And don't just think of medical or natural disasters. There are plenty of more common situations that you will need an emergency fund such as your car breaking down, needing to buy a new phone, being let go from your job, last-minute travel expenses to see a loved one, and immediate home repairs. However large or small your tax refund is this year, consider creating an emergency fund or putting it toward your existing one.
Put it Into Savings
On a similar note, how much do you currently have in your savings accounts?
While emergency funds are meant for the serious and unexpected expenses in life, savings accounts are for planned purchases, like a new car, home renovations, or that new laptop you've been pining for. Using a savings account to plan and prepare for these expenses is a much smarter strategy than just making impulse purchases with a credit card. A tax refund is an excellent opportunity to boost your savings and get one step closer to your goals.
Pay Off Debts
“When you learn you'll be getting a nice tax refund, you might want to treat yourself to a new dining room set or weekend getaway. But the best way to use your tax refund is to pay off debt,” says Chad Waddoups, vice president of wealth management and business services at Mountain America Credit Union.
“If you have high-interest debt, such as credit card debt with a high monthly interest rate, pay it off. And then if you have any money left over, put it in your emergency fund or retirement account. Never overlook the importance of having a rainy day fund. We all want the instant gratification of something new and fun but resist the urge to splurge on something you really don't need. The smartest way to use your tax refund is by using it to improve your financial standing. Your future self will thank you.”
Max Out Your Retirement
It can be hard to look too far into the future, especially when you have a shiny new check in your hand. But investing your cash into a 401(k), Roth IRA, or other retirement accounts will help you after you leave the workforce. The smart move is adding as much to these accounts as you can now so that it can multiply, and you can benefit from even more wealth in the future.
Invest in Yourself
Savings and retirement are significant, but you should also be looking for ways to invest in yourself — and a tax refund of any size can help with that.
If you're a business owner, you could use your refund to cover some of those expenses, like office supplies, professional development, or marketing.
You could also look at enrolling in a few classes and continuing your education. Statistically, those with more knowledge and training are more likely to be paid more. Look into ways you can become more credentialed and what new opportunities can come from it. Most of the time, the increased pay from more education will be more significant in the long run than the initial cost and can lead to a positive return on your investment.
Save for Their Future
If you have children, consider using your tax refund to start or boost their future college fund. Those years might seem far away, but high school graduation comes fast — and they'll thank you for any help they can get. Starting now also means that you can contribute smaller amounts over the years as opposed to the large lump sum of tuition when they begin college.
Buy or Improve a Home
Home is where the heart is, and a tax refund can either help you get into that dream house or start a renovation project that boosts your overall property value. Just like investing in yourself, investing in your home can lead to more home equity and give you a positive return on your investment in the long run.
Treat Yourself — within Reason
Truthfully, a refund is money that was yours along. And by that logic, there's no shame in spending it solely on yourself.
That being said, you probably shouldn't blow your entire refund on one night of bottle service or an extravagant UberEats order. Treat yourself to something you can enjoy with zero guilt, like a nice vacation or something that helps you pursue your hobbies, such as a new camera or pair of high-quality hiking boots.
Donate it to Charity
You could also donate your tax refund — or at least a portion of it — to a charity, you'd like to support. It will help improve someone else's life, and it'll help boost your mood. Plus, you can deduct it on next year's taxes.
Whatever you choose to do with your refund, make sure it's a deliberate choice. Put your newfound cash into something that will benefit you long-term, and you'll reap the benefits for years to come.
Final Thoughts on Wisley Using Your Tax Refund
The filing process is never fun. Once your return is safely deposited in your account, you need a plan for it. These eight tips are some of the most popular suggestions. It's best to apply your refund that makes the most sense for your personal money situation. If our return is a significant amount, you may consider adjusting your withholding to have more money throughout the year. Good luck!
Brian is a dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013 who, with his family, has successfully paid off over $100K worth of consumer debt. Now that Brian is debt-free, his mission is to help his three children prepare for their financial lives and educate others to achieved financial success. He blogs at Debt Discipline.