Tax season is here, and many of us are anxiously waiting for our tax refund. If you’re getting a refund, do you have a plan for how you will spend the money?
While it can be tempting to spend a tax refund on fun things, like vacations, new furniture or clothing, or hobbies.
Tax refunds aren’t always expected, so it’s easy to think of this money as a bonus to be used for fun expenses.
But what if you used your refund to improve your financial situation instead of spending it on more stuff?
Tax refunds are often a large lump sum of money and can majorly improve your finances if used in the correct way.
So though it isn’t as fun as buying something new, spending your tax refund wisely can turn your financial situation around.
Here are 14 smart ways to spend your tax refund this year.
1) Build Your Emergency Fund
Emergency funds are imperative to financial wellness, and you’ll find it difficult to reach your financial goals without one. Being prepared for a financial emergency will prevent you from ruining your budget, or even from potential financial disaster.
Typically, experts suggest you have 6 months of expenses in an emergency fund. While that can seem daunting, even saving as little as $1,000 can protect you during an emergency. Without an emergency fund, many people turn to credit cards and irresponsibly dig themselves in a financial hole, so prioritize saving for a rainy day.
2) Invest In Yourself
Are there ways you can invest in yourself to further your personal life or career? When you’re on a budget, it can be easy to forgo investing in yourself, but in all truth, taking the time and effort to invest in yourself now often pays off big time in the future.
Maybe you’ve been considering going to graduate school or taking a certification exam for your job. Whatever self-investment looks like for you, spending your tax refund on yourself can be the perfect use.
3) Pay Off Debt
It may be an obvious use of your tax refund, but paying a large sum of money towards debt will not only lower the amount owed, but it will save you money on interest. It can be difficult to progress in paying off your debt when you are paying it month after month, so throwing a one-time large chunk of money towards your debt will really bolster your progress.
Using your tax refund to pay off debt today will make it easier to become debt free, and from there, you will be able to save more money for things you actually want to do. Though it isn’t fun to throw any extra money towards debt, it can improve your entire financial future.
4) Save It as a House Down-Payment
If you’ve been considering buying a house, you unfortunately will be in for a large down-payment. Though the amount of a down-payment can vary greatly, a general rule is to expect to pay 20% of the home cost as a down-payment.
While the cost of a mortgage and a down-payment can seem daunting, this is the perfect use for your tax refund. Throwing a few extra thousand dollars towards saving for a down-payment will allow you to meet your goal of purchasing a home months faster.
5) Buy Something You Truly Need
There could be many worthwhile ways to use your tax refund that aren’t on this list. And that’s okay! We all have different priorities and needs, so using your tax refund in another way could profit you the most.
Maybe you need to buy new winter clothes for your family, restock your pantry, or buy school supplies for the kids. It’s okay to spend your tax refund if it’s on something you really need and will get plenty of use out of.
6) Pay for Home Repairs
Home repairs can be expensive, and they often come up when you least expect it. But while they may not feel like it, improving and repairing your home can add more money to your pocket if you should ever decide to sell.
Maybe you’ve been wanting to renovate your home, replace an outdated appliance, or fix something broken, your tax refund gives you the means to do these repairs.
7) Start a Business
If you’ve been thinking about starting any sort of business, put any tax refund in savings with intent to start your own business.
The money from a tax refund can really launch your business. Whether you’re looking to create and sell a product, or something more inexpensive, like starting a blog, with any business, you’ll need a little money to start.
8) Invest in Better Insurance
Are you fully prepared and covered for any car accident, natural disaster, or death? Insurance can be a scary, but necessary topic to discuss. Many people choose to skimp on their insurance due to the cost, but then find themselves in a sticky situation when an accident happens.
Consider using your tax refund to increase your insurance coverage. Even if you never have to use the insurance, the peace of mind is worth every penny.
9) Buy Gifts for the Whole Year
For me, no matter what I do, birthdays and holidays always seem to surprise me. Using my tax refund to purchase gifts all at once is one of my favorite uses.
It might not be the most obvious use, but I love to do this because I never forget to buy anyone a gift, and it gives me the time to search for deals versus scrambling for a gift last minute and potentially ruining my monthly budget.
10) Invest It
What better way could you spend a tax refund than using it to make even more money? The power of investing is incredibly worthwhile, no matter your age.
You might choose to invest in your retirement account, a health savings account, mutual funds, or the stock market, to name a few. Wise investors are able to turn a few thousand dollars into a large lump sum of money over its lifetime. Investing is the number one way to build wealth, making it a great use of your tax refund.
11) Start Saving for a Car
Many people consider car loans to be a way of life, but I have to disagree. It is possible to never have to take out a car loan again. Just like how you pay off a car loan every month, you can save money for a car in the same way before you buy.
Using a tax refund to save for a car before you go to purchase is an excellent use. By saving for a car in advance, you can save money on interest by not taking out a loan and owning your car outright.
12) Buy School Supplies
It seems like every year, back to school time sneaks up on us all, resulting in a large and unexpected bill. Use your tax refund to make sure that everyone is ready for a new year by purchasing supplies, clothing, and setting money aside for fees.
13) Give It Away
If you’re in a stable place financially, you have more options of what to do with your money. If you so choose, you could even give your tax refund away to a cause you are passionate about.
No matter your financial situation, there is someone who has it worse than you. If you don’t regularly give some money away, now is the perfect time to start. Donating money gives other people, groups, and causes the chance to change lives. And using your tax refund for good is the perfect way to spend it.
14) Spend a Little on Yourself
While it’s important to have a true purpose for any tax refund that comes your way, it is okay to spend a little on yourself!
Set aside a few dollars for yourself and spend as you like. Maybe it’s a spa date, a new outfit, or to put in your vacation fund. By spending a few dollars on yourself, you will be more motivated with your finances and you’ll feel less deprived. Spending a little on yourself is the key to sustaining long-term financial goals.
How do you spend your tax refund? Will you be spending it differently this year?