Wise Ways to Use Your Tax Refund

Make the most out of your tax refund

With lower refunds, mindful money management is even more important this year. If you have received a refund (or are expecting one) and want to invest it wisely, here are a few suggestions.

1. Pay Down Your Credit Card Debt

While this may be a less exciting alternative to booking a weekend vacation or upgrading your wardrobe, paying down your credit card debt is a crucial step towards creating a healthy financial picture. Put your refund towards the credit card balance with the highest interest rate—this is the card costing you the most in the long run. The benefits of paying down debt are twofold: freeing up funds that would normally go towards high interest and giving your credit score a boost.

2. Create an Emergency Savings Account

How prepared would you be in an emergency? If the mere thought is stress-inducing, you are not alone. According to a recent report, only 43% of adults would pay for an emergency expense from their savings account, and 1 in 3 Americans have more credit card debt than savings.

When creating an emergency fund (or even just saving money for a rainy day), you can deposit a percentage of your tax refund into a designated savings account and then set up automated weekly or monthly deposits. Even regular contributions between $10 and $20 add up over time, and when the unexpected happens, you will be less likely to rely on credit cards.

3. Fund Your Future

What are your long-term financial goals? Do you want to build your retirement fund or save up for your children’s future education? It is never too late to start saving, and your tax refund deposit can be a great building block to get your started or lump sum contribution if you have already laid the groundwork with an IRA or 529 plan. 

4. Upgrade Your Home

A little investment into your living space can go a long way. Are there any home upgrades that might decrease your monthly energy bills (for example switching to a smart thermostat or installing solar panels)? Might this be the time to replace an outdated appliance or upgrade fixtures in the bathroom?

The benefits here are twofold: in addition to improving the functionality and aesthetic of your home, you will increase the resale value if you eventually want to sell your home.

5. Start a Side Business

If you are someone who is regularly trading business ideas with friends or daydreaming about creative side ventures, your tax refund can be the seed money that brings your ideas to fruition.

Whether it’s purchasing a web domain, startup materials, or inventory, you can finally take those first steps towards making a profit (without sacrificing the stability of your current job.)

Plan ahead

Accomplishing goals begins with mindful planning. Consider the aforementioned advice when planning how your income tax refund can take you closer toward accomplishing your financial goals this year.