What Will You Do With Your Tax Refund?

When opportunity knocks dressed like a stack of bills, answer the door!

Hopefully, by now, you’ve filed your tax return. Well, did you? There’s less than a month left until they’re due! But, even more hopefully, you’ll get a little something back from Uncle Sam (although, not too much—if your refund is extra-large, check your withholdings for the next go-round).

Now, back to that refund. Rather than splurging on a purchase that you’ll forget all about in a few months, why not give your tax refund dollars a job that will keep paying you back, even after the money is gone? Let’s take a look …

Four Ways to Make Your
Tax Refund Work Harder for You

1. Pay Down Debt

Depending on where you’re at in your budgeting journey, your reaction to paying off debt could range from complete aversion (like, can we talk about, literally, anything else, please?) to glee. Now, maybe it’s the circles I run in, but I’ve noticed that the more organized your finances (ahem, budget!), the more exciting it is to throw chunks of money at a debt.

And, if you’ve not, yet, reached that stage, this is your chance!

With the average credit card’s annual percentage rate of 16.15 percent, paying down your balance with a tax refund won’t just dig you out of the hole, it’ll save you a ton on interest: On a $500 balance, that’s $80!

If you have more than one card, maybe pick the one with the highest interest rate and throw your refund at it. When your debt goes down, your spirits’ll go up. Keep looking for ways to toss a few extra dollars towards those debts and, in time, you’ll regain full control over your income—I’d say that’s money well spent.

2. Save for a Rainy Day/Disaster

Perhaps you’re among the 39 percent of Americans with at least $1,000 socked away in case of emergency, but statistics tell me you’re likely not. And speaking of $1,000, if a true emergency struck, is that even (nearly) enough? It’s easier than you’d think to come up short a couple grand. Well, this is your chance to cut off Murphy’s Law at the pass!

Use that tax refund to pad your wallet. That could mean adding a category called ‘Emergency Fund,’ if you don’t already have one. Or maybe budget those dollars to your true expenses—the expected, infrequent expenses that can feel like emergencies when we don’t plan for them (like car repairs or holidays).

One thing’s for sure, sleep is sweeter when you’ve got cash in the bank in case you need it.

3. Get Ahead of Your Paycheck

Some folks call it a cushion, others call it a buffer and, still others (OK, YNAB), call it Age Your Money. The point is that you have more money in the bank than you need, and it’s a very low-stress way to live—two thumbs up, highly recommended by anyone, ever.

It plays out like this: get a bill, pay it with money you earned last month (or the months before that). Get a paycheck, and put it in the bank for safekeeping until at least next month. The theme is that you don’t need the money that comes in today. If that sounds like an impossible dream, remember that you just got a tax refund, and then read this.

4. Invest in Your Future

Finally, if you’re debt-free and cash is no concern, perhaps it’s a good time to start investing! The more you give your dollars the job to go recruit more dollars, the faster you’ll ramp up your wealth over time, giving you the freedom of choice—whether it’s quitting your job, paying for your child’s college tuition or upgrading, one day, to the house you’ve always wanted. Why not start with your tax refund?

If you’re new to investing, check out Invest Like a Pro for Jesse’s advice on how to get started.

The Decision Is Yours

While it might be tempting to buy the fancy area rug that you’ve had your eye on (it would really tie the room together, right?) or take off for an impromptu weekend trip, consider the power of your choice … and use that tax refund money to support the things that will generate the most (true) happiness for you!