Receiving a refund from the IRS is a welcomed surprise. You have an endless amount of opportunities to use the funds however you wish. So how can you make the most of your tax refund? It’s important to do something meaningful with the money, but you want to have fun in the process.
Here are seven ways to make the get the most out of your tax refund this year that are financially smart, while reaping the rewards in the short-term.
There’s no better way to find peace of mind than knowing if an emergency expense pops up, you’ve got it covered. Having a rainy day fund of at least $1,000 will help ease your stress and allow you to sleep better at night.
If you have a small emergency fund already saved up, aim for the next level of at least 3 months’ worth of expenses in the bank. In the event you lose your job or get sick for an extended period of time, you’ll have the peace of mind knowing all your household expenses will be taken care of.
Nothing keeps you a slave to the grind like having high-interest debt balances. If you have credit card debt, specifically, the best thing you can do is use a good portion of your tax refund to pay down the balance.
Doing so will immediately increase your net worth and reduce the monthly credit card payments. Not only that, but you’ll be able to save a lot of money on interest charges and any additional fees, every month.
Becoming a millionaire starts with savings small amounts of money over a long period of time. Socking away your tax refunds into a retirement account year after year, will allow you to take advantage of compound interest and start amassing a large balance by the time you retire.
You won’t have to rely on the government or other financial aid as you’ll be self-sufficient and can enjoy your golden years. Use your tax refund as seed money to invest in your future retirement.
Another great way to invest your tax refund is by putting it back into yourself. In other words, investing in you! The largest income-producing asset that we possess is ourselves, so investing time and money into furthering our skills and knowledge will always pay off.
Use your tax refund to pay for college classes, online courses, work-related conferences or memberships, then watch your investment pay off with a bigger paycheck and more job stability.
Set yourself up for some good karma by donating some of your tax refund money to your favorite charity. There’s a tax benefit in it for you, but you also help improve the lives of those around you. Charitable giving is measured in a lot of ways, but money is the driving force that can help do a lot of good.
Instead of financing big-ticket items, like a new computer or your child’s braces, use the windfall from your tax refund to pay for them outright. You’ll save money by not going into debt and paying high interest charges, while being able to purchase much-needed big-ticket items for yourself and your family anytime they need them.
Once you’ve set aside some money to buy peace of mind, invested in yourself or purchased some much-needed big-ticket items, be sure to use any remaining funds to enjoy yourself with a bit of fun. Everyone needs to indulge once-in-awhile, so don’t be afraid to splurge on something you want.
As your tax refund arrives, devise a smart strategy before spending the money. This way it will be well-spent but you’ll have some money left over for fun stuff. Your future (and current) self will thank you.
If you haven't filed yet, tax deadline is April 18th this year, better start soon! How are you planning to use your tax refund this year?