Tax season is here, and for some it’s quickly followed by tax refund season. If you’re expecting a considerable refund, don’t go spending it all in one place. Instead, read through these ideas and stretch your tax refund as far it can go.
[See: Answers to 7 Burning Tax Questions.]
Pay off debt. This may seem obvious, but it can be so tempting to spend your refund on something new or exciting, so it’s important to stress that paying off debts should be a high priority. If you have multiple credit cards or loans to pay off, consider your balances and interest rates and pay down the highest interest rate debts first. Think about this as an investment for your future, potentially saving yourself hundreds or even thousands of dollars of interest over time.
Check on your emergency fund. With some extra money headed your way, now is the perfect time to check on your emergency fund. Don’t have one? Then it’s definitely time to start building one. An easy rule of thumb is to have at least $1,000 put away in case of emergencies. You can take it a step further and aim to save about six months’ worth of expenses. You might not have that much right now, but you can get a great start by contributing your tax refund. Saving for an emergency always seems like an inconvenience until you find yourself in need of a lot of money — fast. You can avoid getting into a real jam or a lot of debt by putting it away now.
[See: 7 Most-Missed Tax Deductions and Credits.]
Invest it. Your tax refund might have a couple of zeros at the end of it, which feels like a nice bonus right about now. However, consider this — if you invest your refund in an individual retirement account, or IRA, you might be able to add another zero to the end of that number later on, especially if you commit to investing your refund every year. Just make sure that you haven’t yet reached your limit on IRA contributions this year. Another option is opening or contributing to a 529 college savings plan for your children or grandchildren.
Spend it on essentials. Chances are that if you’re a homeowner or car owner, there are countless things that need to get done. This doesn’t include “update the kitchen cabinet hardware” or “add a fire pit to the backyard.” Instead, it means “repair the washing machine” or “bring the car to the shop because the check engine light came on three days ago.” If you’re in need of a few essential repairs or purchases, your tax refund can help avoid a dip into the emergency fund. Of course, if you’re hoping to sell your home sooner rather than later, some of those cosmetic improvements might be essential expenses — it’s all about your priorities.
Book an experience. If you’re financially healthy but could use a mental health break, consider booking an experience for yourself, family or friends. This doesn’t necessarily mean an expensive vacation. If you got $1,000 in a tax refund but want to go on a $6,000 trip, continue saving up. A fun experience could mean a daytrip, cooking class, spa day or even a quick weekend at a bed-and-breakfast. By searching for travel deals or seeing what Groupon has available, you might find the perfect way to make the most of your refund and book some well-earned rest and relaxation.
[See: 10 Smart Ways to Spend Your Tax Refund.]
Share your wealth. One more way to spend your tax refund is to take the focus off yourself and consider others. If you would like to contribute more to a favorite charitable cause or nonprofit, but it’s just not in your budget, this is a great excuse to give back. Not only will you make a difference for those who benefit from that charity, you can also claim the tax deduction.
Hopefully you’re now feeling more prepared to make a smart financial decision with your tax refund. No matter which direction you take, it’s important to treat your refund as any other income and prioritize your financial needs. If after careful consideration and planning, you decide the best move for your refund is to treat yourself, then enjoy it.
More from U.S. News
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6 Strategies to Make the Most of Your Tax Refund originally appeared on usnews.com
