9 Smart Uses for Your Tax Refund
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Tax day is Monday. Are you ready for it? Whether you already have your tax return completed or not quite yet, if you are expecting a tax refund, you should probably think about how to best spend it. According to the IRS, the average tax refund is around $3,100. That means many people in the U.S. will have a nice chunk of change hitting their bank accounts any day now, and they might wonder what to do with it.
Like many people who are self-employed, this year I had to send over a hefty check to the lovely folks at the IRS. But last year, forgetting that I had two little deductions (my twins) I was able to get a refund that I wasn’t expecting. I ended up using it to max out my Roth IRA, which I thought was an example of #adulting at its finest.
Investing is definitely one of the ways you can use your tax refund, and I’ll list three ways you can do that below. However, you can also save it or spend, spend, spend it, baby! Here are some options for all three of these categories:
Invest Your Tax Refund
Investing your tax refund is definitely a responsible thing to do. After all, you could go out and buy one of those crazy huge TVs or you can make sure your money will last a lot longer in the market.
Renovate Your Home
Investing doesn’t always mean putting money into the market. You can also invest it in your home. For example, if you can use your tax refund to replace your appliances, that could help to increase the value of your home. The same goes for new tile in the bathroom or adding on a deck. If you want to go this route, make a list of home projects that fit into the same price point as your tax refund and decide which one will yield the most return on your investment.
Start Your Child’s College Fund
Another great investment to make is to invest in your children with their college fund. You can open up a 529 college savings plan and make your first deposit in it. In addition to funding your child’s future education, you may be able to enjoy some tax advantages as 529 contributions are tax deductible in many states. Since plans vary by state, do your research and if at the end of that process you feel like you need help deciding which 529 to invest in, reach out to a financial professional who can help you choose the best one for your family’s goals.
Create Your First Outside Investment
If you’re already contributing the max to your 401(k) but you want to save even more, you can use your tax return to create your first outside investment. Whether this is a Roth IRA or a separate mutual fund purchase, it’s great to give yourself an extra boost in your retirement fund. If you don’t already have an online broker and are in the market for a good one, check out our list of the best online brokerages.
Spend Your Tax Refund
Go on a Weekend Trip
A $3,100 tax refund is the perfect amount for a nice weekend trip. You get extra points if you decide to go on a weekend trip without your kids in tow. After all, sometimes you just need a little bit of room service and a full night of sleep to really recharge. Whether you take your family or go solo, make your tax refund go farther by checking sites like Expedia to get the most bang for your travel buck.
Spruce Up a Room in Your Home
Sometimes it’s nice to improve your home’s overall design and environment. Let’s face it; decks are nice but so is new furniture. If you don’t want to make an investment in your home and simply want to enjoy it more, you can always get a few new pieces of furniture, brighten up your bedding or hire someone to paint a room that you’ve been avoiding.
Buy An Experience
When it comes to your tax refund, you don’t always have to buy things. You can consider buying an experience for your whole family. Some examples might be a family zoo membership or taking your kids to see a movie with all the works – candy and popcorn included. Note: You don’t have to buy $3,100 worth of popcorn. 😉
Save Your Tax Refund
Start Your Emergency Fund
An emergency fund is a crucial part of being financially savvy. Even $500-$1,000 as a cushion in your bank account can save you if something goes wrong and can help to keep you out of debt.
Make a Holiday Savings Account
Christmas seems to sneak up on everyone each year. In order to avoid spending shock, I always put $50 a month into a holiday savings account every month throughout the year. If you haven’t done that yet, you can always put your tax refund in a holiday savings account and you’ll be ready to start shopping earlier than most. Online banks like Discover Bank make it easy to start saving AND reward you by paying a little a bit of interest on the money you put into your account – at least relative to most other banks.
Add it to a Car Replacement Fund
If I were getting a tax refund this year, this is the route I would go. If you have an old car or a high mileage car, it’s important to keep a car repair fund or a car replacement fund handy. I just had another $1,600 repair bill for my 250,000 mile SUV, so I’m actively adding to the replacement fund whenever I can.
Ultimately, there are many different ways you can use your tax refund. You can also combine many of the methods above and have a little fun spending and a little fun saving.
Are you getting a tax refund this year? If so, how will you be using it? Why do you think so many go out and foolishly spend their tax refund? Do you prefer a larger or smaller tax refund?
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