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Three Smart Things To Do With Your Tax Refund

May 18, 2020 It’s not every day that someone gives you hundreds, or maybe even thousands, of dollars for (seemingly) no reason. That’s what makes getting a tax return so exciting. However, it’s easy to get swept up in the excitement of the moment and spend it all right away without much thought. So before that much-anticipated check arrives, stop and consider what you should do with your tax refund, as well as what you want to do. For a sensible compromise, you could try dividing your tax refund into three buckets: spending, savings and future goals. Here’s how:

1. Use your tax return to jump-start an emergency fund.

You’ve been saying for months that you should start an emergency fund, so why not take your tax return and do it? It doesn’t need to be a lot (actually though, it only takes $1 to  ). But even a couple hundred dollars can go a long way toward covering unexpected expenses, like car repairs or health care costs. According to the   report, 40% of Americans wouldn’t be able to cover a $400 expense; don’t be that 40%! Over time, a good goal is to save enough so that you could cover three months’ worth of living expenses. But Rome wasn’t built in a day, and neither is an emergency fund. Just save as much as you can.

2. It’s called a tax reFUNd for a reason, right? Set a spending limit, but don’t exceed it!

As they say, treat yo’ self! You deserve it. Plus, the occasional well-deserved splurge can help you stay positive in your pursuit of long-term goals, like saving for a home or paying down debt. The key is to know how much you have to spend (about a third of your total tax return) and not go over your limit. One idea is to put it toward a special experience, like going to a concert or eating at a fancy restaurant. You could also put the money toward an upcoming purchase, such as plane tickets for a future trip. Spend it on anything you want, as long as it’s something that makes you truly happy.

3. Use your tax return to set yourself up for success for your long-term financial goals.

We’d suggest putting the final piece of your tax refund toward your long-term goals. Whether it’s buying a home, saving for retirement or paying down debt, take this opportunity to shore up your financial future (your future self will thank you!). One thing you could do with your tax return is make a larger lump-sum payment on an outstanding loan or debt. When you  , you are receiving a guaranteed return on your money – the amount of interest you would otherwise be paying. Figure out how much you could save in the long run by using our  . To possibly earn a higher rate of return on your money, consider opening an investment account with your refund. This way you can make more money, faster. Who doesn’t want that? According to , a $1,000 investment in Amazon 10 years ago would be worth more than $19,000 today. If only we had a time machine, right? The next best thing is to get started now so when you look back 10 years from now, you’ll be glad you did. Some investment accounts don’t even require a minimum to get started. Check out more information with * There’s no one right answer for how to spend your tax return. The most important thing to remember is to approach all financial decisions with a level head, always balancing wants and needs. The rest is up to you, and we know you’re more than capable. But hey, if you ever need some extra guidance, you know  .
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