5 Smart Ways To Spend Your Tax Refund
Whether you have already filed your income taxes or are about to, you may be looking forward to a nice refund check coming your way.
According to the IRS, 70% of taxpayers will receive a refund in 2017. Of the 153 million tax refunds they expect to be filed, an average tax refund of $2,840 will be issued.
If you’re like me, you are probably wondering - how do most people spend their tax refunds?
I'll be honest and say the first thing that comes to mind for me is: V A C A T I O N !
My husband and I love to travel, so for us, there's literally no better way to use that extra money than booking a nice getaway.
I know that not everyone likes to spend money in the same way though of course - some play it smart by using the extra money to invest in their future, pay down debt, throw money into retirement, and so on.
Don't get me wrong - those are really commendable ways to use a tax refund - but if you are looking for ways to spend your refund, here are some options you not have thought about before. Not all of them are new ideas, but I find that it helps to have a plan in mind before your refund hits your bank account.
1. Pay Off Credit Card Debt
38% of Americans have credit card debt, and if that's you, then using your refund to pay down existing debt is probably the best use of your tax refund.
I know this sounds like the most boring and uninspiring option, but you really can't put a monetary value on the peace of mind you will have once you finally achieve financial freedom.
2. Spend It On Something You Need
Another seemingly obvious choice, but give this one some real thought.
What is it that you need? Often, we prioritize the things we want rather than things we need. Why? I have no clue, but it does seem to be rather universal.
Some things that might fall into the "need" category:
- Your car - does it need something replaced or checked out?
- Your home - is there some type of home improvement you keep putting off?
- Your health - is there something health-related that could improve your quality of life?
Choosing to put your refund towards these essentials can certainly give you some peace of mind. Plus, you will finally be able to check if off your list of to-dos which will feel awesome!
3. Save It For a Rainy Day
If the other options I have covered so far are a no-go for you, consider setting aside your refund as an emergency fund.
Experts typically recommend setting aside at least six months worth of living expenses just in case you find yourself in a bind sometime down the road. Six months can be a huge amount to tackle with just your tax refund, but it will certainly help you get a solid start on building your financial cushion.
Plus, having some money is better than no money when emergencies arise - say, when you need some pricey car repairs or unexpectedly lose a job.
Already have a rainy day fund? Then you might consider this next one...
4. Only Be Half Responsible...
I would imagine most people find themselves wanting to be just half responsible when it comes to deciding what they should do with their annual tax refunds.
You might be half responsible if any of these examples describes you:
- I want to buy some new clothes and then use the rest of my refund to pay down credit card debt
- I hope to pre-order the latest tech gadget and still have enough left over to start an emergency fund
- I want to book a quick weekend getaway and throw the rest of my refund into investments
I, for one, am a fan of using a tax refund to be half responsible. This way, I get to have a little fun doing something I enjoy while still reaping the benefits of using a portion of my refund wisely.
5. Spend It All and Try Something New!
If your finances are under control, and you are ready to go all-in with spending your tax refund, consider spending it on a new experience!
A few ideas in no particular order:
- Book yourself a weekend getaway and splurge on the hotel or AirBnB
- Sign up for a cooking class or music lesson
- Take a class in a subject that interests you, like photography, dance, painting, swimming, or 3D printing
Time and time again, studies reveal that experiential purchases make us happier than buying material things - which often collect dust or lose their appeal over time.
So, don’t feel guilty about spending your tax refund on a vacation or a fancy dinner if your financial life is balanced. You've been consistently responsible and deserve to have a little fun every once in a while!
Are you expecting a tax refund this year? Let us know in the comments below!