Another New Year has come and gone, but that means extra money in the form of a tax refund! If you’ve been a good civil servant all year – paid your taxes, donated to charity, and fronted the bill for job-related costs – you could be looking forward to a nice refund! There are a few ways to use your tax refund that can help you get ahead.
While the best route is to pay just enough taxes each pay period so that you don’t get a refund – this sounds twisted, I know – but hear me out. When you over pay in taxes, you get money back from the IRS. This is all fine and dandy, but where’s the interest? You let the IRS hold your money throughout the year, shouldn’t you be compensated for that? I can guarantee you that if you were holding money from the IRS, there would certainly be a fee for that. That money you are letting the IRS hold could be earning interest in a savings account, or helping you save on interest by going to your debt payments. Just think about that thought.
In the meantime, assuming you have a nice refund coming your way, let’s talk about ways to use your tax refund to put you in a better financial position. You should already be focused on making positive changes to your finances this year, so your tax refund should serve as assistance. Here are 12 ways to use your tax refund to get ahead financially.
Smart ways to use your tax refund include:
#1 Pay off High Interest Debt
Okay, this is a given. Any extra money you come into would be best spent on your high-interest debt. Knocking out the debt that’s costing you way too much will help you save money in the long run. It may not be the most ideal way to use your tax refund, but it will certainly be one of the most impactful ways.
#2 Start (or Add to) Your Emergency Fund
At any given time, you should (at minimum) have $1000 put aside for small emergencies. If you don’t have any debt, your emergency fund should be 3-6 months’ worth of expenses. If you don’t have either option saved for emergencies, let your tax refund help.
#3 Fund a New High Yield Savings Account
I’m a broken record, I know, but you just CAN’T beat the interest on a high yield savings account. As of late, American Express Bank leads the pack with 1.35% APY. Compare that with Wells Fargo, Bank of America or Chase’s standard .10% APY and it’s a no brainer.
Just a little tidbit: I’ve had an account with American Express Bank for years and I’ve never been disappointed.
#4 Get Something You Need
Again, probably not the most ideal way you want to spend your tax refund, but it can be very helpful. If you’ve been meaning to get new tires, get your oil changed, remodel your bathroom, re-paint your space, or get a new desk, now is the time. You will feel better using your tax refund than having it come from your own bank account.
#5 Start Your Blog/Side Hustle/New Business
Why not put your tax refund towards something that can yield more money in the future? Don’t procrastinate your new blog/side hustle/business any longer. Use your tax refund as your start-up seed and actually start! Read How to Start a Money-Making Blog for my super simple steps for creating your new blog or website.
#6 Invest in Your Success
- Take a class
- Get a new computer
- Subscribe to Lynda.com
- Buy new work clothes
- Sign up for professional publications (Wall Street Journal, New York Times, Harvard Business Review)
- Sign up for a workshop
- Take the 28 Days to Becoming a Super Saver online course (taught by yours truly, me!)
Moral of the story? Use your tax refund to invest in your future success. Purchase a new computer to start your online business. Take a class that will help you learn how to network. Buy new clothes for work that will make you look and feel like a million bucks. Do things that will get you further in your life and career.
#7 Open a Betterment Account and Invest It
I just love Betterment. I have accounts with different brokerage firms, and Betterment is my favorite by far. Not only is it incredibly easy to sign-up and start investing, it requires minimal effort to maintain. Thanks to low-cost fees and an easy-to-use app, you can start investing (and start seeing a return) immediately.
#8 Save for your next big goal
Do you have a dream vacation coming up? Are you wanting to a move to a new home or better apartment? Instead of wishing for your next big goal, start saving for it with the help of your tax refund! Create a new account just for the goal, and now the work begins!
#9 Donate a Portion to Charity
What is life without helping others? Donating a portion of your tax refund to a charity that hits home will make you feel amazing. It can also be deducted on next year’s taxes. If you don’t already have a charity in mind, do a little research on charities in your area. Local giving is also a wonderful feeling.
#10 Hire a Coach (Career, Finance, Life, Health)
Similar to the suggestions for investing in your success above, hiring a coach for your career, finances, life, and health can yield long term results. If you’ve tried to improve certain areas of your life with no luck, a coach can get you out of that rut. If you’re looking for a finance coach, look no further than right here! I work with women 1-on-1 to help them master budgeting their money. Schedule a free consultation with me to learn more.
#11 Use it as an Account Buffer
If you don’t know what an account buffer is, let me enlighten you! An account buffer is an extra “cushion” of cash to help offset any budget overages, unexpected costs, or higher-than-expected spending. I recommend an account buffer of $100, to always ensure you never overdraft.
#12 Treat Yourself (Only a Little)
Lastly, after you’ve invested in yourself, paid off some debt, and saved for emergencies, it’s time to treat yourself. Have you been eyeing a new bag? Dying to get your hair highlighted? Use a portion of your tax refund to treat yourself. Life is too short to be excessively rigid!
There you have it, my extraordinary list of smart ways to use your tax refund! I hope you take the suggestions above to heart. If you have any questions about any of my suggestions, post a comment below and I will answer as soon as I can. What are some ideas you have for spending your tax refund wisely? Share with me and other CGS readers below!