If you’re waiting for your tax refund to come, it might already be burning a hole in your pocket. That’s human nature. We get money, we want to spend it on something nice. Maybe you wanted to buy that big screen TV a down payment on a car. Really, it’s your money, but there are smarter ways to spend your tax refund.
It may not seem like you get too many opportunities to have the extra spending money. You do your best to fight off debt and the rising tide of bills all year long. There’s nothing wrong with splurging if that’s what you had in mind. We’re simply saying there are better options out there that will leave you in a better spot.
Only 27% of Americans plan on using their tax refund to pay off their debt. That number is down from 36% last year. That drop doesn’t mean people have less debt. It just means they’re making more money and don’t mind using their refund to splurge. Let’s look at 4 smart ways to spend your tax refund:
1) Use Your Tax Refund to Pay Off Debt
You knew we were going to go here first! Debt is one of the biggest problems in a person’s life. It’s a budget-sucker that can cripple a person financially for years until it’s paid off. Instead of wasting your refund on a short-term pleasure, consider the long-term impact of paying down debt. Companies allow you to take on debt because they make a ton of extra money off you later in the form of interest.
By using your tax refund to significantly put a dent in your debt, it will save you later on. In fact, it can pay down the principal and cut your interest in a big way. Therefore, using at least some of your tax refund on debt is the smartest decision you can make.
2) Improve Your Savings
Having some money in the bank for a rainy day is super important. In fact, it can save your family a lot of headaches if something happened. Maybe you get injured and lose out on work. Or there’s a natural disaster and you have to wait for an insurance check to cover the damages. Are you prepared for all that can happen?
Most Americans don’t even have $400 in the bank for emergencies. If something happens, they’re not in a good spot. The best advice is to have at least six months’ worth of bills and expenses saved in your account. That would provide you with at least six months of security if something happened.
3) Cover Your Healthcare Costs
A 2018 survey from Chase and JP Morgan found that healthcare spending jumps 60% after refunds go out. That’s because so many people take advantage of the extra cash to cover expenses. Many Americans still do not have health insurance. If that’s the case for you, use the extra money here to get your check-ups.
4) Necessities Are Key
If everything is great with your debt and savings, then necessities are a great way to spend your tax refund. Blindly splurging may sound fun, but it’s important to make smart spending decisions. If you know you need a car, the extra cash can come in hand for a down payment. Putting the money towards a home purchase is great as well.
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The idea is to be as smart as possible with your finances. Saving your money for a rainy day or paying down debt is always the wiser choice. It will set you up for greater success in the long run.
