Tax season is quickly upon us. The average American gets about $3,000 back on their tax return. The big question a lot of people have is: what do I spend it on? Sure, there are a variety of things we could do with that extra money, but if we make smart decisions, we can set ourselves up for a more financially secure 2018 and beyond. You might have in mind something you want to purchase, like that new TV. But that’s not always the best investment.
If you’re already debt-free and doing well financially, there’s nothing wrong with a bit of splurging. For the rest of us, there are some major benefits to not squandering your tax return money.
Let’s look at 5 great uses for your tax return:
1) Set Up Your Emergency Fund
You’ve been saying you want to do it for a long time now. We all WANT an emergency nest egg but often fail in creating one. It can be hard to receive a $3,000 check and decide to save it versus using it on a family vacation or buying something expensive. Despite that, the smartest decision you could make is to put that money into your savings and hold onto it.
This can serve as a great starting base. Start with your tax return and add a certain amount from each check every payday. That way, if something bad happens, you have some buffer there to protect you.
2) Improve the Value of Your Home
If there’s a part of your home that you know needs to be fixed and/or updated, this is the right time to get it done. Tax season often falls right in line with building season, so you can often get great deals on home improvement necessities. Your tax return might not cover the whole bill, but it can really help to get you started.
Even just adding a new layer or paint or replacing a few appliances can do the trick. If you don’t need an appliance upgrade, there are new advances in home technology that will make life easier and safer for your family. Your home is the largest investment most Americans have, so keeping up with improvements often pay off in the end.
3) Pay Off Some of Your Debt
If you have credit card debt or have a lot of bills due you couldn’t afford before, now is the time to take care of it. Your goal should always be to achieve financial freedom, not adding to your debt by buying more and more things. If you have a balance with a 20% interest rate, paying off that balance saves you the extra 20% you would’ve spent later.
Getting out of debt should always be among the top choices, next to building an emergency fund. A lot of people get caught up in the debt snowball that keeps rolling down the hill and getting bigger and bigger. It might suck choosing to pay some things off rather than buying that new toy, but you’ll thank yourself for the decision later. Using your tax return to pay off debt will get you to the promised land of financial freedom if you stick to it.
4) Vacation with Your Tax Return Money
This might seem counterintuitive to the points mentioned above, but if you’re in good shape and you plan on taking that vacation anyway, it’s better to pre-pay for that vacation and get it squared away. Rather than swiping the card and paying interest on your vacation later, you can pay it up front with your tax return. This method can save you a bit of money at the end of the year.
5) Make a Charitable Contribution
Charity is a wonderful way to spend your refund check. For a lot of people who are financially secure, they’re always looking for new ways give. You can make it a yearly tradition to give the money away and help those in desperate need. You can also write-off your charitable contributions the next tax season, get even more back, and do it all again.
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Whatever you do with your tax refund, enjoy the process. The extra money is the fruit of your hard-earned labor, so it’s fine even if you want to blow it on baseball cards and chewing gum. But, if you struggled in the last year financially or made a resolution to improve your situation this next year, you can use your tax return in a smart way to give yourself a boost.
