5 Smart Ways To Spend Your Tax Refund
Each year, approximately 80 percent of Americans who file a tax return receive a refund, with the average refund being around $3,100. If you’re like most people, you’ve already spent that money in your head 10 times over before the funds ever hit your bank account, but it’s important to take some time to consider the wisest course of action for your money. Here are five smart ideas for that spring windfall.
1. Pay Off Your Debt
It’s not the most exciting way to spend your tax refund, but if you’re carrying high interest debt, paying it off (or at least making a big dent in it) will give you peace of mind and improve your cash flow for the rest of the year. If your refund is sufficient to pay off a single item, pay it off rather than spreading the payment across numerous creditors. Once you’ve paid off one thing, you can use the money you were sending to that creditor to pay down the next item. If you can’t pay off any one single item with your refund, either pay down the smallest debt so it’ll be easy to eradicate over the coming months, or sink it into the debt with the highest interest rate so you stop lining the pockets of your creditors with interest payments.
2. Invest In Your Future
If you have a retirement fund, adding this chunk of cash to it will benefit you far more than the amount of the refund because it’ll grow over the coming years. If you don’t have a retirement account, now is a good time to start one. Again, not a super sexy way to spend your refund, but your future self will thank you for your foresight.
3. Invest In Yourself
Why not consider using your refund to take a class at the local community college or university? Spending this money to acquire new skills that could help advance your career can lead to more job satisfaction and increased visibility at work. But it doesn’t have to be something stuffy and serious and work-related. You can invest in your work-life balance by taking a class that would teach you a new hobby. Have you always wanted to learn to play the piano but lessons are so expensive that you’ve never done it? Boom. You’ve just crossed something off your bucket list.
4. Invest In Your Home
For most Americans, their house is their most significant asset and it is an asset that appreciates over time. Updating a kitchen or bathroom, or just freshening up carpet, flooring, or paint can add value to your home. It’s also a great morale boost. The process of choosing a project and shopping for the new items is much more enjoyable when you know that you’ve already got the money to pay for it. When that project is done, you get to enjoy the results every day. That’s a daily happiness dividend that will last all year and beyond.
5. Pad Your Emergency Fund
The rule of thumb that has historically been touted by the financial experts is that you should have an emergency fund sufficient to cover three to six months of your living expenses. Do you have an emergency fund? Could you live on it for six months? If not, now is a good time to fix that. Peace of mind is a wonderful thing.
When you receive a tax fund, make sure you have a proper plan for it so it doesn’t go to waste. The above ideas are great ways to increase the value of your return and keep it working for you!