For many of us, a windfall in the form of a tax refund is coming our way. According to the IRS, the average refund in 2017 was $2,895–that’s enough money to really make a difference in your financial outlook.
If you’re expecting a tax refund this year, don’t splurge on an impulse buy! Use the money to work towards some of your financial goals. Here are a few ideas on how you can use your tax refund in productive, proactive ways.
Build a rainy day fund: Bankrate.com suggests establishing an emergency fund between $1000-5000 to cover unforeseen events like home or car repairs. Having an emergency fund means you won’t have to rely on credit cards when unexpected expenses inevitably arise. Open up a savings account and earmark part or all of your refund as an initial deposit. You can then set up direct deposits and watch the balance grow over time. Setting aside just $20 a week for a year will add over $1000 to your rainy day fund.
Pay off debt: One of the most productive things you can do is use your refund to tackle some of your outstanding debt. If you have multiple debts you would like to finally pay off, consider applying all or some of your refund to those with the highest interest rates. For example, your credit card probably has a higher interest rate than your car loan. By paying down credit card debt, you could also improve your credit score, which has benefits that ripple out across your finances.
Jumpstart your personal growth: One of the best things you can do is invest in yourself! Your tax refund is a convenient way to do just that. Maybe you’ve been wanting to work with a personal trainer or give cross fit a try–use your refund to build a healthier, happier you. Are there professional skills you need to expand or brush up on? Take a class or attend a conference that will help build your skill set to land the job you’ve always wanted.
Replace something you really need: Have your kids been treating your couch like a trampoline? Are your brakes squealing? We all have things in our life that need to be replaced. Unfortunately, we either can’t afford to buy them out right or make them the priority they need to be. A tax refund can be a great way to purchase something when you have cash on hand, rather than have to make an unplanned purchase later when you are forced to charge it.
The bottom line: Everyone likes to receive a tax refund–and it’s very tempting to indulge yourself or your loved ones on something frivolous and unexpected. But consider using the money as an investment in yourself and your financial future.