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Tax season is here again, bringing along the exciting possibility of tax refunds.
Although there is a temptation to indulge in a shopping spree or splurge on something luxurious with your refund, it’s smart to think about more practical and wiser ways to use this extra cash.
Whether you choose to invest your tax refund in stocks or real estate to grow your long-term wealth or use it to pay off some of your high-interest debts to ease some of your stress, many smart moves will make the most of your tax refund and set you up for a more secure financial future.
We have carefully chosen these 23 things to do with your tax refund because they will help you improve your finances the most.
These tips are designed to help boost your finances now and in the future.
So, before you rush into spending your tax refund on items that may leave you with regrets later, take a moment to check out our list of 23 practical steps toward long-term financial success.
1. Pay Down Credit Card Debt
If you have high-interest credit card debt, now is your chance to start paying it off with your tax refund.
Getting out of debt can save you tons of money now and in the long run, so don’t hesitate to use this opportunity to reduce your credit card balance.
Even paying an extra $1,000 on your debt could save you a few hundred dollars in interest charges.
2. Start an Emergency Fund
If you don’t have an emergency fund, here’s your chance to start one.
Experts recommend having at least 3-6 months’ worth of living expenses saved in an emergency fund, but sadly, most people struggle to come up with the cash to pay for a $500 emergency.
Make it a point to put money aside for a rainy day. It isn’t exciting, but you’ll be glad it’s there when something happens and you need it.
3. Add to Retirement Savings
By setting aside a portion of your income for retirement, you’ll be able to enjoy a comfortable lifestyle once you stop working.
One of the best options for retirement savings is a Roth IRA because when you withdraw the money during retirement, you don’t pay any taxes on it. You can withdraw your five-year or older contributions without penalty if you need the money before retirement.
4. Put Money Into a 529 For College Savings
If you have children, you can put your tax return into a 529 Plan for their future college expenses.
Even if they are young, it is a good idea to start saving now because you never know what the future holds, and it will always help ease the burden of college costs down the road.
As a bonus, some states allow you to deduct the amount you contribute on your state taxes, lowering your tax bill for the following year.
5. Remodel Your Home
Remodeling your home might seem like a luxury, but raising your home’s equity is a great investment.
Whether you do more minor updates or a more extensive remodel, you can reap the benefits of a nicer home now and a higher selling price if you sell in the future.
6. Start Your Dream Business
Have you always wanted to be your own boss but never had the funds to start your own business?
You can use your tax refund as the initial investment and turn your dreams into a reality now.
7. Invest
Whether you choose to invest in a stock you have had your eye on or buy shares in a mutual fund, investing money from your tax refund is a great way to build your wealth without using your regular income.
By investing, you can make your money work for you and possibly generate even more income, especially if you stick with dividend-paying stocks.
8. Pay Extra on Your Mortgage
Another smart move is to use your tax refund to make an extra payment towards your mortgage principal. This will help you repay your loan faster and save you thousands of dollars in interest in the long term.
For example, an extra $2,000 towards your $200,000 mortgage could save you over $11,000 in interest.
9. Buy Life Insurance
We put off buying life insurance because it can be expensive or because we don’t want to think about our eventual passing.
However, if you use your tax refund to purchase a policy, you can have the peace of mind that your family is taken care of if you pass unexpectedly.
10. Down Payment Account
If you want to buy a home and stop paying rent, your tax refund allows you to start saving toward that goal.
Start this year by opening a savings account and using your refund to make the first deposit.
Then, continue adding to it each year with your tax refund or other extra money, and before you know it, you will have enough for that down payment.
11. Take a Vacation
You may think taking a vacation isn’t a smart move regarding your tax refund, but think again.
Your happiness is important for your overall well-being, and in today’s stressed-out world, we all deserve a much-needed vacation to help us be more productive in everyday life.
Of course, you should only spend the amount you can afford and not go into debt, which would add stress to your life.
12. Take a Class
Use your tax refund to invest in yourself by taking a class or enrolling in a course to advance your career or to learn a new skill.
Not only will advancing your career boost your resume and possibly lead to better job opportunities, but it will also give you more money to save in the future.
If you are learning a new skill for pleasure, this, too, has benefits, as it will increase your happiness and potentially help you meet new friends.
13. Donate It
If you have a favorite charity and don’t need the money for anything, you can make a charitable donation.
Also, your donation might be tax deductible for the next year, so it’s a win-win situation.
14. Upgrade Electronics
If you’ve been putting off upgrading your computer or phone, use your tax refund to buy new electronics.
You will be able to work more efficiently and stay connected with the latest technology, and you may be able to write off some of your electronic purchases on your taxes next year.
To stretch your refund as far as possible, look for open-box items or last year’s models, both of which will be heavily discounted.
15. Save For Big Items
Do you have a big purchase coming up, like a medical procedure or a newer car?
Using your tax refund can ease the burden of having to come up with a large sum of money all at once, and you won’t miss the money as you would if you had to save it from your regular paycheck.
16. Add to a Health Savings Account
If you have a high-deductible health plan, you can use your tax refund to open a health savings account (HSA).
Contributing your tax refund to an HSA can lower your taxable income and offer extra funds for future healthcare costs.
17. Gift a Down Payment
Do you have children or family members struggling to save for a down payment on a house?
Have you considered giving them some or all of your tax refund to make their dream of owning a home come true?
It’s a great way to help your loved ones without dipping into your savings.
18. Open Multiple Savings Accounts
The reason it is a smart move to open multiple savings accounts with your tax refund is to have the ability to separate your various savings goals.
You can have one account for emergency savings, a vacation fund, and another for a down payment on a house.
Having multiple savings accounts helps you stay organized and keep track of your goals as you save.
19. Make Your Life Easier
Instead of spending hours doing chores like cleaning or running errands, consider using your tax refund to schedule services that can give you back some valuable time throughout the year.
Whether you hire a house cleaner or someone to mow your yard, hiring someone can make your life easier and allow you more time to enjoy life.
20. Get Healthy
Investing in your health can also be a smart way to use your tax refund because staying healthy will save money on doctor bills and medications in the long run.
Consider using the extra cash to join a gym, buy a treadmill, take a healthy cooking class, or even join a wellness program.
21. Invest in Real Estate
If you want to retire early, investing in passive income is your best bet.
You can start by using your tax refund to invest in real estate investment trusts (REITs) or crowdfunded real estate.
These are a couple of types of investments that can provide a steady stream of income without requiring much effort or money.
22. Pay Extra on Your Car Loan
Using your tax refund to pay off part of your car loan can reduce the total interest you will pay.
You can make extra payments or pay a lump sum towards your principal balance to help you repay your loan faster and save money in the long run.
23. Make a Will
This may seem like an odd way to spend your tax refund, but many people put off hiring an attorney to draft a will or do estate planning.
It doesn’t matter if you are rich or if you don’t have a lot of money; a will is a good idea to make sure your loved ones are taken care of.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.