If you’re like most people, then you probably received a nice chunk of change in your tax refund this year. Now that the financial surprise has passed, it’s time to look at how you can put that extra money to good use. We’ve put together some recommendations on what you can do with your tax refund ga, whether it’s to finance the purchase of something you need or want, or to take advantage of some great opportunities to increase your income long-term.
Check out our list of five things to do with your tax refund below!
1: Pay Off Any Debts
Not only is it important to be responsible and pay all of your bills, but paying off any debts you might have makes you feel empowered and free. Check out your finances and see if there’s anything you can pay off. You can even set up an automatic payment plan that takes a bit of cash out of each paycheck every month for debt repayment. Once it’s paid off, congratulate yourself on being more organized! Now that extra money will go straight into savings instead. That should make you feel great.
For students taking full advantage of financial aid: Financial aid pays for a lot of things—tuition, housing, textbooks—but did you know it also helps cover expenses like food? During school breaks or vacations during winter and summer breaks from school, use those extra weeks to save as much as possible by putting aside 10-20% of what remains after tuition/housing/books are paid.
2: Contribute to Retirement Fund
Be it a 401(k) or an IRA, taking advantage of tax-deductible retirement savings vehicles now can pay off handsomely over time. Consider that if you put $100 into a traditional 401(k) and earn 5% annually for 50 years, you’ll have nearly $70,000 by retirement. But many employers offer a matching contribution—say, 50 cents on every dollar you save—which essentially doubles your investment. And if they offer a Roth option—not all employers do—those contributions are made with after-tax dollars (but withdrawals come out tax-free once retired). If that sounds like more money than you need at 35 or 40 years old, consider holding off on contributing until year 10 of your career.
3: Start an Emergency Fund
It’s a good idea to have an emergency fund in place for when you have random, unexpected expenses that crop up. At a minimum, your emergency fund should be enough to cover six months of living expenses if you lost your job tomorrow. More optimally, it should be even more than that—but at least have six months covered. There are many options for where and how you can hold an emergency fund: a regular savings account, a high-yield savings account, in cash in various envelopes in various places around your house/apartment/office…you gets the idea. It’s up to you on what works best for you and how much risk or convenience you’re willing to take on. Just make sure you’ve got something set aside (and remember to keep saving!). This is one of those things that, unfortunately, doesn’t seem like something worth preparing for—it only seems worthwhile once something has already happened! No matter what, though; if it does happen, you’ll know where all your money went (hint: not Vegas).
4: Treat Yourself To Something Nice
Instead of blowing your tax refund ga on something you don’t need (like more video games or concert tickets), use it to treat yourself. If you haven’t splurged on yourself in a while, why not indulge? Perhaps take a trip somewhere exciting, go out for dinner at a high-end restaurant, or splurge on clothes you’ve been craving. Regardless of what you choose, just remember that there are more important things than money—and if being frugal has gotten in the way of treating yourself well, then it’s time to reassess. Money is simply a tool that helps us enjoy life—it isn’t an end in itself.
5: Donate Some Money To Charity
Giving money away might not be at top of your list of ways to spend a refund, but it should be. If you’re lucky enough to get some extra cash back, donating is smart because it not only feels good—it’s tax-deductible. The IRS says you can deduct donations for any given tax year up until April 15th. Just make sure that whatever charity you choose has 501(c) (3) non-profit status so they can qualify for deductions.
Look for charities on GuideStar or Charity Navigator if you want more info about where your dollars will go. Some noteworthy organizations are UNICEF, Save The Children and Doctors Without Borders. For ideas of other groups worth supporting check out NonProfit Advice’s The World’s 100 Most Influential Charities . Plus, remember that no matter how much you give, every little bit helps!
You might even consider donating half to charity and saving half. It makes sense to plan ahead for savings toward an important goal instead of blowing everything on tchotchkes. We all know what happened last time there was free dough floating around… Whoopsie! Nothing wrong with reminding yourself why you’re working hard in the first place.