How to Spend Your Tax Refund (The Right Way)
Getting your tax refund might feel like a big windfall, but if you don't have a solid plan for that money, it can disappear in the blink of an eye.
I've seen (and experienced) this first hand--it's easy to fall into a pattern of irresponsible spending after your receive what feels like "bonus" money from the government, but thinking about your tax refund as extra cash is a bad practice. Your tax refund is made up of money that is rightfully yours, money that technically should be divided up and given to you in every paycheck you receive throughout the year. If your refund check is huge every year, you might want to consider updating your W4 to adjust the amount of money you're withholding, but for now, your tax refund should be a way to IMPROVE your financial problems, not add to them.
So what are some good ways to responsibly use the cash from your refund? The tax experts on the Brad's Deals team put their heads together, and came up with a few ideas to help you start off the fiscal year on the right financial foot.
1. Attack your debt
Unless you're really wealthy, really frugal or just really, really lucky, you've probably got some debt under your belt. Maybe it's from student loans, or maybe you maxed out your credit card during some tough times--it happens.
If paying your debts is taking a toll on your finances, you should consider using your refund check to pay off a big chunk of 'em. Doing this might be a shock to your system--it's a lot of money to give up all at once--but it will save you money in the long run. By making a large payment, you'll be reducing the principal balance, not just chipping away at the interest. Plus, you might even get a smaller minimum payment out of the deal.
2. Start saving
If you lost your job tomorrow, how long could you survive on your savings? If your answer is less than a month, you should seriously consider starting an emergency fund with your refund money. You never know what kinds of curve balls life might throw at you, so it's always smart to have a backup plan. Experts suggest building a three-to-six month financial cushion for yourself, so if you haven't started saving already, putting your entire tax refund into savings can jump-start this process.
If you've already got a good chunk of emergency money, you can put this year's refund towards your retirement savings, or contribute to your child's college savings fund.
3. Invest in your future
No matter what you do for a living, there's always room for improvement. If you're stuck in a job rut, building your skills and adding to your resume can help you reach the next step of your career path. Use your tax refund to pay for some business classes, learn how to code, upgrade some old software or do some networking at a cross-country conference.
4. Upgrade the world around you
You know that leak in your bathroom ceiling? Or that weird sound your car makes when you turn left? If you've been ignoring home and/or car improvements for lack of funds, now might be a good time to tackle those problems before they get even worse. These kinds of projects are good uses for your tax refund money, because if you own your home, fixing it up is an investment that will add to its value in the long run, and making sure your car runs smoothly could very well be a matter of life and death!
5. Jump-start your health
You know what else is a matter of life and death? Avoiding the doctor because you think you can't afford to go. If that sounds like you, use that refund check to get a full checkup, pay for a few months of your medication, or get a painful cavity filled once and for all. It's not the most glamorous way to spend a big chunk of change, but if it means nipping health problems in the bud and giving you peace of mind, I'd say it's totally worth it.
If you've been thoroughly checked out recently but still want to improve your health and quality of life, you should consider using your refund money to join a gym, start a healthy eating program or invest in some fitness gear like a FitBit or an Apple Watch.
6. Relax and enjoy yourself
OK, if you've made it this far without finding something better to spend your refund on, I'm going to assume you're a healthy, financially secure person with a big, fat retirement savings account and a brand new house and car that need no improvements. Good for you!
So what should you spend your tax refund on, then? Well, if you REALLY don't want to invest it in your future, I suppose you should spend it on something that makes you happy. After all, what's life without a little bit of fun? Buy that new pair of shoes, a KitchenAid mixer, or treat yourself to a massage and then a fancy dinner. Whatever you do, just make sure you're spending less than the total amount of your refund--you don't want to use your $1,500 tax refund as an excuse to charge a $3,000 vacation to your credit card!
How to spend your tax refund is up to you, but if you use that money responsibly, you'll be helping to secure a better financial future for yourself and your family. Let us know how YOU plan on spending your refund by leaving us a note on Facebook or commenting below!