5 Savvy Ways to Use Your Tax Refund
Doing your taxes can be stressful. Receiving a nice refund, however, can feel great. While it might be tempting to run out and buy that new TV or pair of sneakers you’ve been eyeing, there are a number of meaningful ways to use your tax refund that can set you up for financial success throughout the year. Don’t worry, if you’re still itching to treat yourself, we’ll share tips for doing so responsibly.
If you’re anticipating some money back from the government this year, here are five ways to use it wisely.
Pay off any outstanding debt
While using your tax refund to pay off your debt might not sound very exciting, making a large lump sum payment on a high interest credit card will feel great and can even help to boost your credit score. Putting the money towards a car or student loan is also smart. The money you’ll save on interest means more funds for future purchases.
Put money towards a goal
Have you been wanting to start saving for something specific? Now is your chance! Whether it’s towards a dream vacation or a down payment on a house, open an account just for these expenses and use your tax refund to get started. Keeping the money separate will help kickstart savings towards bigger purchases and ensures you won’t dip into it too often.
Add to your retirement
You’ll thank yourself later. Even if you have a 401K through work, you can open your own individual retirement account (IRA), which, depending on your age and income, can allow for contributions up to $5000-$7000. The earlier you start investing in your retirement, the more time that money has to grow.
Start an emergency fund
We can’t stress the importance of an emergency fund enough. We do, however, understand that it can be really difficult to set aside money for unforeseeable circumstances. That’s why using your tax refund can be a great time to start your emergency fund. If you’re not relying on your tax refund for anything specific, take this opportunity to start a rainy day fund, which is typically 3-6 months worth of income.
We get it. You’re been waiting all year to splurge a little. The good news is that it’s possible to spend your tax refund responsibly. Here are some of our favorite ways to spoil yourself without going overboard:
Use only 10-20% of your refund and save the rest
Invest in yourself by taking a class and building skills that can help with your career or save you money down the road.
Replace an old appliance with one that is more energy efficient.
Make a home improvement that will improve your quality of life.
Make a large purchase with Perpay. Spreading out the payments will help to ensure you stay on track with your additional expenses, while still treating yourself to something nice.