Wondering what you should do with your tax refund? If used wisely, you can make this extra cash go a long way.
However, you may be at a loss for how you should use your refund. Keep reading to learn about 10 ways you can get the most out of your tax refund to ensure a greater financial position for your future.
Please note that MoneyLion does not provide tax advice. Please consult a tax and/or legal advisor for guidance regarding your individual situation.
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What should I do with my tax refund?
What you should do with your tax refund is ultimately up to you. However, using it to start or support the foundation of your financial future could be one way to go.
Although spending your refund now on nice things for yourself could bring short-term gratification, putting the money aside for future projects can help you stay on track for your long-term goals. The value of your refund could even help you get out of debt or set you up for retirement.
10 Ways to get the most out of your tax refund
Many Americans receive a refund when they finalize their tax returns with the IRS, and an average tax refund comes to about $2,800. Read more to find out 10 smart ways to get the most out of your tax refund.
1. Build your emergency fund
An emergency fund is a financial security net that is set up in case an unexpected life event happens and requires a fair amount of money to cover the situation. Potential unexpected life events can include losing your job, experiencing medical issues, or needing major car repairs.
By establishing an emergency fund, you’ll be protecting your financial future and ensuring that if these unanticipated expenses happen, you will be thoroughly prepared. Some banks that offer these accounts for emergency funds might include a high-yield interest rate up to 2%, which is higher than that of a typical savings account.
2. Pay off debt
Being debt-free grants you both financial freedom and security. Having a large amount of debt can prevent you from qualifying for specific loans due to the impact this debt may have on your credit score.
Eliminating this debt, or even a little bit of it, will put you in a better financial position in the future and provide you with peace of mind. In the long run, by lessening your total debt, you’ll allow your future cash flow to be spent on other things that may be more beneficial to you.
3. Invest in your retirement
Putting money toward your future is always a good idea. Investing in your own retirement may seem unnecessary if that period of your life seems like it’s far away, but the more you contribute now, the more your investment will grow by the time your retirement comes along.
Putting this extra money towards your retirement fund, whether that’s an IRA or a 401(k), would be a great way to slowly contribute to your future retirement.
4. Kickstart your career
This cash could also be used to improve your current skill set to enhance your career. Invest in yourself by putting your tax refund toward courses in your field of study in order to land that next promotion.
Or maybe you have an idea that you think could become a profitable business. Your refund might contribute to starting your own business and allow you to become your own boss.
5. Save for big purchases
Saving up for a big purchase could seem overwhelming, but any amount of refund could help you reach that goal. If you are looking to purchase a home in the future, this may be a good way to start putting aside some money for a down payment now.
As an alternative, you could use this amount to save up for holiday gifts, a car, or home renovations. In the long run, this tax refund could drastically help you in the future when it comes to making a big purchase.
6. Fund your next vacation
Need a break and want to go on vacation? Set aside a chunk of change for your next vacation and start planning the trip.
By saving these extra funds for a vacation you might be able to worry less about charging up your credit card or taking out loans. Plus, you will thank yourself in the future when you will be enjoying your free time on a nice change of location.
7. Pay extra on your mortgage
If you have a mortgage, it may be a smart financial move to put your money toward it. Once your mortgage is paid off, you will have a greater amount of financial freedom and security. If you pay extra on your monthly payments this will not only help you save on interest but also may shorten the life of your loan.
8. Save for your kids and their future
Saving for your child’s future is always a good idea. Education, medical care, clothing, and after-school activities can pile up over time. Starting a bank account or a college fund can drastically improve your child’s future.
It can also allow you to create a better sense of security when these expenses do come up. Additionally, proactively saving for your child’s education can reduce the possibility of having to take large loans to pay for their college career.
9. Invest in your education
Ever had an interest you wished to learn more about? Utilize this extra amount of cash to expand your knowledge through additional education. By enrolling in self-led courses, it can allow you to experiment in what you are interested in and improve on your expertise. When you invest in your education, it may allow you to access more jobs and, in turn, control of your own destiny.
10. Look into a home improvement project
Investing in your home is a great way for you to maintain its value. Home improvement projects can range from redesigning space to upgrading your kitchen appliances. Setting this money aside to help pay for large renovations can ensure that your property will preserve or increase in value. Additionally, upgrading your home will enhance your comfort and enjoyment throughout the space.
Put your tax refund toward your future
What you do with your tax refund is your decision. However, investing in yourself and your future might be the best financial decision.
Whatever the size of your refund, this extra cash could go a long way if used properly. These 10 ideas on where to put your refund could help you move toward financial security and start building the foundation for financial freedom.
Q: Can you use your tax refund?
A: Yes, how you choose to use your tax refund is your decision. You can automatically deposit this amount into your checking or savings account if desired.
Q: How long does it take to get a tax refund?
A: When you will exactly get your refund depends. However, they should go out to federal taxpayers within 21 days of filling them.