Last year the average tax refund surpassed $3,000, according to the IRS. After you’ve used the best tax software options to file your taxes, you may wonder what to do with a tax refund. You don’t want to feel that your money is wasted. Use this extra cash to buy or do something with purpose. If you are sensible and prioritize, you can come up with a plan that will benefit you and your wallet. Think about your current financial situation and what you need to improve it. If you are stuck for ideas on how to spend your tax refund, use these five smart ideas on the best way to spend tax refund money.
5.) Give Yourself Some Financial Freedom
Wondering what to do with tax refund money? Improve your credit score. By repaying any high-interest debt or any other debt that carries an interest rate of 10% or more, you will get more financial freedom and peace of mind. Once you become debt free, you can start working toward becoming more financially secure and improving your credit score.
Pay Off Credit Cards
The best way to spend tax refund money is to work on getting out of debt. If you have a credit card, pay it off. It makes financial sense and is the best investment you can make with your tax refund.
You can then use the money that would have spent on monthly repayments on other things you usually have to do without. For instance, you could go out for a nice meal or have a trip to the cinema.
Pay Off Your Store Credit
Store credit may seem a good idea at the time as it allows you to get that dress or jacket you’ve always wanted and you don’t have to think about paying for it until later. However, debt does stop you from making the most of your money.
The best way to spend tax refund money is to get in a better financial position by paying off any existing store credit. This will reduce any extra stress and worry the debt would cause if you had to worry about how you’d cover payments.
Reduce or Pay Off Loans
Taking out a loan or any debt is essentially borrowing money from your future income. Money that you haven’t even earned yet. Why pay monthly repayments to a loan when you can use your tax refund to pay it off? If you’re wondering what to do with a tax refund, paying off loans is one of the best options.
If the refund doesn’t cover the full amount of your personal loans, come up with a responsible debt repayment plan. It will save you money in the long run and give you some extra disposable income each month.
Realign Your Mortgage
Wondering what do do with a tax refund that will invest in your future? Use your tax refund to make a dent in your mortgage. The refund may not cover the full cost of repaying your mortgage, but it could be used towards repaying fees or reducing your mortgage debt.
Thousands of dollars can be saved per year on mortgage interest if you pay your mortgage closing costs and fees.
4.) Top Up Your Savings
Saving is a great way to help you become more financially secure and will provide you with a safety net in case of any unforeseen emergencies. Saving money is one of the best ways to spend tax refund money. Saving is always worth the effort, even if it’s just a few dollars here and there. These additional funds will grow over time, improving your financial situation. Your tax refund can help boost your savings dramatically.
Increase Your Savings account
Increasing your savings account is the best ways to spend tax refund money on the future. If you don’t currently have a savings account, open one with your money from the tax refund. Savings accounts earn a higher percentage of interest than a regular checking account so the more you add the more interest will be accumulated.
Give yourself a financial goal, so you have something to work toward. Open an account and start saving towards a down payment for a house or a new car. This will make you more determined to reach that final target.
Add to an Emergency fund
You can’t predict the future. You never know what ’s going to happen, so it’s best to be prepared. Many of us live from paycheck to paycheck, and it’s hard to put aside extra cash to make a significant deposit to an emergency fund. Experts say that almost two-thirds of Americans couldn’t even cover six months worth of living expenses with their savings.
It’s best to be prepared. Use your tax refund money to set up an emergency fund that you can dip into in case the unexpected happens.
3.) Invest in Your Future
The best way to spend tax refund money is to invest in your future. The more money you save and invest, the more control you have of your future. Create your own destiny.
Money doesn’t solve all problems, but having some extra cash in the bank will give you peace of mind and open you up to options that may have not been available otherwise. What do you want out of life? Do you want to explore a new career path? Or retire early? Use your tax refund to invest in you and your future goals.
Start a Business
Have you got a great idea for a business but haven’t had the start-up funds available? Then grab this opportunity by the horns and make that venture happen.
Use your tax refund to invest in your business idea. Many businesses don’t take a massive influx of cash to set up. Why not start a blog, your own direct sales company or a marketing business? Invest in your future, nurture it and watch it grow into your main household income. Make your dreams come true!
Fund a Retirement Account
The best way to spend tax refund money may be to start a retirement account. It’s important to save for retirement. Experts say that the average millennial is going to need approximately 1.8 -2.5 million dollars for retirement. So, you better get saving!
The more money you add, the more interest you will earn. Kick start your retirement fund with this extra influx of cash.
Put Aside Money for College Expenses
It’s no secret that colleges are expensive. That’s why many parents start saving for their kid’s college education at an early age. If you’ve got kids, the best way to spend tax refund money might be to put some or all it into a saving plan toward college expenses.
Having money available to finance your children’s college education is important. This will allow them to graduate without the substantial financial burden of student loans.
Sign Up for a Course
Your tax refund won’t pay for your entire college education, but you could sign up to a course or take a class or two. Use your tax refund to change your life and bring you happiness. Invest in new skills. Learn something, meet new people and come out with a skill that will last a lifetime.
You might end up loving the course so much that your new skill may lead to a full-time career.
2.) Pay for Big Ticket Items
Are you having car trouble? Do you need to get the roof fixed but haven’t had the spare funds to make it happen? Now is the time to do it. Use your tax refund to cover the cost of any maintenance or repairs needed in the home.
Pay for Car Maintenance
We all know that cars are expensive, so having extra cash available to cover things like replacement tires or upgrades would be pretty amazing. Maintaining a vehicle you own is cheaper than buying or leasing a new one, so look after it.
Your tax refund could also be used to put a payment down on any existing auto loans or new car lease.
Pay for Home Repairs
Let’s face it — you’ve been putting off those home repairs. It’s probably the last thing you want to spend your hard earned cash on. However, that leak needs fixing, and that hole in the wall won’t fix itself.
Fixing repairs may be the best way to spend tax refund money. It’ll be a weight off your mind, and even the smallest home improvements could increase the value of your home.
Purchase Car Insurance
Car insurance is mandatory. It’s one of those things that you need but might begrudge spending your cash on. That’s where your tax refund money comes in. It almost feels like free money, so the pain of handing over your previous dollars doesn’t seem as difficult.
All motorists must be insured to cover expenses if your car is damaged or any injuries occur to other drivers, passengers or pedestrians.
Renew Your Home Insurance
Home insurance is often required by your mortgage lender but is something you probably don’t enjoy paying for.
Home insurance covers against loss or damage on the property in case of things like fire or vandalism. It is always a good idea to make sure your home is insured if one of these things happen. Use your refund money to take out a policy so you know you’re covered.
1.) Invest in Yourself
You’ve been working hard all year and saving where you can. You’ve earned the right to splurge on something that’s just for you. Buy that new smartphone or TV you’ve had your eye on without the guilt. The best way to spend tax refund money? Use that extra cash to treat yourself.
Buy a Flat Screen TV
If you need a new TV or have been thinking about purchasing one, use your refund to buy one. Many people go into debt by taking out loans or using a credit card to pay for such luxuries.
Use your tax refund wisely to buy the things you want in life without adding unnecessary debt.
Take a Trip
If there’s a vacation you’ve been putting off for years, use the refund to send you to your dream location.
Depending on the amount of your tax refund, you could relax by the pool in a super luxurious hotel. If your refund isn’t as big, figure out how to travel cheap. Either way, the tax refund will make a trip possible.
You might want to save most of your tax refund, but it’s ok to keep a little aside to treat yourself. Yes, saving for significant expenses is important, but sometimes it’s hard to resist the urge of the shopping mall.
Why not use your refund cash for something a little more fun? Buy yourself a new outfit, get your hair done and even go for a nice meal. You can make a day of it and not feel guilty for overspending.
Have an Experience
Spend your tax refund on making memories and purchase yourself a once-in-a-lifetime experience. Try skydiving, abseiling or bungee jumping if you are a bit of an adrenaline junkie. If you want to play it safer but want an experience that won’t be forgotten, splurge on VIP concert tickets with a meet and greet with your favorite singer.
Are you getting a tax refund this year? If so what do you plan to do with it? If you are smart about how you spend your tax refund, you can improve your financial situation and have some spare for a special treat for yourself.
Does the tax season fill you with dread? Do you want to make filing your tax return easier? Read our review on the five best tax software options for 2019 which will help make tax season a relatively painless experience.
If you are worried about messing up when filing your tax return, read the next article to help you avoid the five most common tax filing mistakes.