Are you expecting a big refund from this year’s tax return?
A tax refund can be a great way to get ahead financially. However, many people think of their refund as “free” money and spend it without giving it much thought.
If you want to use your tax refund in a way that helps you reach your financial goals, here are some ideas to get you started.
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How should you spend your tax refund?
1. Pay down debt.
If you have high-interest debt, such as credit card debt, using your tax refund to pay it down can save you money in the long run.
By reducing the amount of interest you pay each month, you can free up more of your money to use for other purposes.
Additionally, paying down debt will also reduce the amount of money you owe in the future, which can save you thousands of dollars in interest payments.
2. Invest in yourself.
Investing in yourself can be a great way to use your tax refund check.
Using your refund on personal development can help you increase your income in the future.
Here are some ways to spend your refund if you want to invest in yourself:
- Education: If you’ve been wanting to take a class or get a certification, your refund can be a great way to pay for it.
- Career coaching: Working with a career coach can help you find a new job or make a change in your current career.
- Personal development books and courses: There are many great books and courses available on personal development. These can help you learn new skills or improve existing ones.
- Start a business: If you’ve been wanting to start your own business, your refund can be a great way to get it off the ground.
Regardless of how you choose to spend your tax refund, investing in yourself can pay off in the long run.
3. Save for retirement.
If you’re not already saving for retirement, now is a great time to start.
You can use your tax refund to open a retirement account, like an IRA or a Roth IRA.
Saving extra for retirement now can help you secure your financial future and enjoy a comfortable retirement.
4. Save for a rainy day.
Unexpected and inevitable expenses can take a real toll on your finances.
Set aside some savings now to help you cover those costs in the future and avoid going into debt.
5. Create an emergency fund.
An emergency fund is a savings account that can cover your monthly expenses in case of income or job loss.
If you don’t have an emergency fund, now is a great time to start one.
Your tax refund can help you jump-start your savings and give you peace of mind knowing you have a safety net in case of financial hardship.
6. Invest in home improvements.
If you’re looking to make some home improvements, your tax refund can be a great way to finance them.
Making improvements to your home can increase its value and make it more comfortable to live in.
Some home improvement projects that you may want to consider include:
- Painting: A fresh coat of paint can brighten up any room.
- Flooring: Replacing old, worn-out flooring can give your home a new look.
- Windows: Replacing old windows can improve your home’s energy efficiency.
- Doors: Installing new doors can add security and value to your home.
Home improvement is a smart way to invest your tax refund if you’re looking to increase your home’s value in the long term.
7. Invest in the stock market.
Investing in stocks can be a great way to grow your money over time.
You can use your tax refund to open a brokerage account and begin investing in stocks, mutual funds, and other securities.
Remember, though, that investing in the market comes with risk.
Before investing, be sure to do your research and consult with a financial advisor to understand the risks involved.
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8. Save for college.
If you have kids, you may want to consider using your tax refund to fund their 529 college savings plan.
A 529 plan is a tax-advantaged investment account that can be used to save for college.
Any contributions will grow tax-free, and any funds used for qualified educational expenses are also tax-free.
Funding a 529 plan now can help you reduce the cost of college for your children in the future.
9. Save for a new house or car.
If you’re looking to buy a new house or car, your tax refund can help you save for the down payment.
Putting down a larger down payment can lower your monthly payments and save you money in the long run.
Saving up for a down payment is a smart way to use your tax refund if you’re planning on making a major purchase in the near future.
10. Pay down your student loans.
If you’re still paying off student loans, you may want to spend your tax refund on making an extra payment.
Paying down your loans can save you money on interest and help you become debt-free sooner.
Use this Student Loan Repayment Calculator to see how making an extra payment on your loans could affect your repayment timeline and total interest paid.
11. Buy life insurance.
If you don’t have life insurance, your tax refund could be a good opportunity to get it.
Life insurance can help your family financially if something happens to you.
It can provide them with money to cover final expenses, pay off debts and mortgages, and support themselves if they lose your income.
Be sure to shop around and compare policies before buying to make sure you’re getting the best coverage for your needs.
12. Give to charity.
If you’re looking for a way to give back, consider donating your tax refund to charity.
Donating your tax refund can make a difference in the lives of others and is a great way to give back to the community.
There are many worthy causes to choose from, so be sure to pick one that’s close to your heart.
Things you probably shouldn’t do with your tax refund
It can be tempting to go a little crazy when you get a sudden influx of cash, but just remember to be deliberate and intentional with whatever spending or savings choices you make.
Here are a few things you may want to avoid doing with your tax refund.
Make impulsive purchases
While the thought of an upgraded TV or a shopping spree may be enticing, it’s important to resist the urge to make impulsive purchases.
Remember, a tax refund is not “free money.”
It’s simply money that you overpaid in taxes throughout the year and are getting back.
Spending it on unnecessary items is like giving Uncle Sam an interest-free loan.
Splurging on a trip or nice restaurant
While it’s okay to spend your tax refund on a fun activity or treat yourself to a nice meal, you don’t want to go overboard.
Remember, a tax refund is not an excuse to go on an expensive vacation or go out to eat every night.
If you do decide to spend your refund on a trip or luxury item, be sure to plan and budget for it, so you don’t end up in debt.
Not saving any of it
One of the worst things you can do with your tax refund is to spend it all without saving any of it.
If you’re not diligent about saving, you could find yourself in a difficult financial situation down the road.
Be sure to set aside at least some of your refund into savings so you have at least some money in the bank for emergencies or future goals.
If you’re wondering what to do with a tax refund, just remember that although there are a lot of options, it’s important to use your refund wisely.
Think about what will benefit you and your family in the long term and make smart financial decisions.
With a little planning, your tax refund can help you reach your financial goals.
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