What To Do With Your Tax Refund?

Getting an income tax refund may feel like winning a lottery – suddenly, you get some additional funds to spend. As pleasant as it may sound, it can be a bit stressful too, because it poses a question: “What should I do with my tax refund?”. 

If you are confused about the additional money you got, and you want to spend it well, you have come to the right place. We have prepared a few suggestions that may help you to make the right decision. Read on to discover them all!

Backlogged Car Repairs and Maintenance

Some vehicle maintenance is on a schedule, but unless you’re very lucky, there will be a time when you’re simply left stranded in a parking lot, by the side of the road, or even in your own driveway.

If that car is your only means of transportation, there’s no way to just let the repair wait until it’s convenient. You need it to get to work, get the kids to and from school, buy food, and run errands. 

For this reason, if you do not know what to do with a tax return, taking care of your car’s regular maintenance or even some repairs which you were procrastinating before is certainly a great idea. 

Keep in mind that this is money spent on your and your family’s safety and comfort, so this is certainly an excellent investment!

Paying Down the Highest-Interest Debts

Living can be quite costly, and most of what we buy for ourselves and our families goes on a credit card nowadays. Therefore, it is certainly a good idea to make sure that you do not have any credit card debt, and if it turns out that you do, use your tax return funds to pay it off.

And what if you have multiple credit cards or other high-interest-rate bills? In such a situation, it is recommended to analyze what debt is the most urgent and which delay could cost you the most, and choose this one.

It can also happen that the credit card bill exceeds your tax return, and at the same time, you have other high-interest-rate bills to pay. Then, you can go for a “snowball method” and pay off the lowest-balance bill in the first place to achieve more easily noticeable progress.

Prescription Costs That Have Been Climbing

When the budget is tight, it can be tempting to skip medications and other medical treatments as “non–essential,” but they are absolutely crucial to being your best self and living your life to the fullest.

Little is more important than your health, so when you are thinking about how to spend a tax refund, one of the best ways would be to make up all the prescriptions and treatments you have been postponing for later. 

Even if you are feeling all right now, take into consideration that if a small health issue is ignored, it can become more serious and cause you much more pain, discomfort, and expenses.

Make a Down Payment or Deposit When the Price Is Right

Is there a fantastic deal available for a vacation package or an early-bird special on summer activities for the kids?

Don’t miss the chance to save money! Tax refunds are perfect for circumstances like these. Check if it’s a good time to pay for something in advance that you were planning to buy anyway but didn’t have any spare funds to do so. It’s all part of being a savvy shopper!

Add the Funds to Your Savings Account

You can’t predict everything, but you can be prepared for unexpected emergencies, at least to a certain extent, if you always remember to make some savings. 

One such sudden crisis was the recent COVID-19 pandemic, which led to numerous business limitations and workforce reductions. In such a situation, those people with significant savings in their accounts were in a much better position than those who suddenly lost their income and were left with almost nothing.

If you have a steady income now and don’t have any emergencies to cover, think about saving your tax refund for some unexpected expenses in the future. Even if it isn’t a huge sum, every help can turn out to be crucial in difficult circumstances.

Improve Your Home and Its Appliances

Another excellent suggestion for what to do with a tax refund is to take care of your home. In this way, you will not only improve the comfort of living for you and your family but also increase the value of your property if you are thinking about selling it one day. 

First, consider the maintenance work you have been postponing so far. Maybe there are some holes, scratches, or loose parts that need your attention, or some old appliances that are theoretically still working but on the verge of breaking down or not at the peak of their efficiency. 

Take into account that you may be paying overcharged utility bills because of your appliances not being effective enough, so spending your tax return on repairing or replacing them will provide you with additional savings in the future.

Invest in a Good Life Insurance Policy

Life insurance may seem easy to ignore when everything is fine, but keep in mind that sooner or later (hopefully later!), you will pass away, and you need to take care of the future of your spouse and children, who partially or entirely rely on your income.

Getting a money boost like a tax refund may be a good moment to think about such protection and make sure your family will not have any serious financial problems when you’re no longer with them.

Start or Support a College Fund

Higher education is not cheap, so it is best to think about it long in advance. As a result, many people start college funds for their children when they’re still little so that when this moment comes, and they are ready for college, the money is already there. 

Numerous Americans who don’t have enough money but want to get higher education take student loans that need to be paid off after they graduate, so it should be just a last resort resolution. 

To avoid that for your child, use your tax return for starting a college fund or supporting it if you already have one. It will pay off in the future!

Add the Funds to Your Retirement Account

When you’re still young, retirement seems such a far-away perspective that you usually don’t think about it much. However, the earlier you start taking care of your future, the better it will be for you in the long run. 

If you start saving long before you get old, you will be able to build up your retirement funds more effectively and take advantage of compound interest.

On top of that, it creates the possibility that you will get some of the contributions with the next year’s tax refund.

Invest in Self-Development

Investing in yourself may also be an excellent suggestion if you’re wondering what to do with your tax refund. It may be developing your qualifications with some courses teaching you new skills that can help you do your job more effectively or even look for a better-paid job. 

Moreover, you can spend your tax return on investing in your physical condition by spending it on a gym membership (that you’re actually going to use!). Thanks to regular exercise, you may lose weight, improve your well-being, and avoid numerous health problems, so it is certainly an excellent idea.

Quality Time With Your Family 

If you have covered all the emergencies and fulfilled all your backlogged duties and still don’t know what to do with your tax refund, you can think about funding some quality time with your loved ones. It can be a fun trip, trying out new entertaining activities and visiting interesting places together.

Such additional money can help you make sure that you and your partner and children get to create memories together that you will cherish forever and experiences that are worth more than any amount of money.

The Bottom Line

As you can see, there are many different investments you can make when you don’t know how to spend a tax refund. It is crucial not to get too excited about it and spend all the additional money immediately and on silly things. 

The best way is to use them to improve your and your family’s future or to invest in something that will pay off in the long run. Think about taking care of overdue car or home repairs, backlogged prescriptions, or, most importantly, debts you have to pay.

It is also a great idea to invest in your future retirement, a life insurance policy that will protect your loved ones, or a college fund for your child’s higher education.

However, it’s worth taking into consideration that not everyone has the comfort of wondering what to do with a tax refund – some people are faced with emergency expenses and need such additional money as soon as possible for an urgent purpose. If you are one of them, don’t worry – we can help you get the necessary funds faster in the form of an income tax refund loan. Contact us if you need help!

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