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Did you know that, in the US, the average tax refund is $2,895? That’s a huge wad of cash to get as a bonus.
What will you spend it on? Shoes? A luxurious vacay? Or that new iPhone you had your eye on?
But, wait for a second. Before you start splurging it all online take a step back. If you use your tax refund in a smart way, you may be able to drastically improve your financial situation.
Read on for 10 ways to spend your above average tax refund. But first, let’s find out how tax returns work. Don’t worry, it’s not too taxing!
How do Tax Refunds Work?
What is a tax refund? Simply, when you paid tax throughout the year, you paid too much. A tax refund is money that the government will give back to you through a check, or into your bank account.
Remember that the reason you got a tax refund is that you paid too much. The money should have been yours all along.
What to do with a Tax Refund
Instead of thinking of it as a “bonus check,” use your money as a smart financial move. Check out these 10 clever ways to use your above average tax return.
1. The Debt Collector
It’s number one for a reason! If you pay off some debts, you can end any high-interest payments. This will leave you better off in the long run.
Start by finishing debts which have high-interest payments. For example, credit cards which have an average 15 percent interest. Think about what you could do without the burden of a credit card balance.
2. In Case of Emergency
Do you have an emergency fund? When an unexpected expense occurs, you’ll be glad to have some funds on hand. Otherwise, a surprise expense could send you into debt and financial disaster.
When you receive an above average tax return it might be a good idea to start an emergency fund. You’ll thank yourself later.
3. Wall Street
If you’re in a good place financially, you may be able to use your above average tax return to make you some extra cash. You can do this by opening a brokerage account and investing.
Investments can offer a larger return than savings accounts. If you’re looking for short-term benefits, stocks can be risky. But the long-term benefits can be amazing.
4. Invest in You
When it’s tax return time, you might want to spend it on trivial things. But instead of wasting away your hard earned cash, why not invest in yourself. Take a college course or learn a new skill.
If you take a course that is relevant to your job, you could aid your career and get a promotion. If you learn something new, you could even start your own business. Or if you learn a home-based skill, like cooking, you could lower your cost of living.
5. Create Your Future
Save your money for retirement. Even if you have a 401K through work, you can open a personal retirement account. It’s a long-term plan, but you’ll thank yourself when you’re old and rolling in it!
When thinking about the future, it’s not only yourself you need to think about. You can start a savings account for your kids, or any future kids you plan to have.
6. Be a Smart Saver
If you’re wondering what to do with a tax refund, a great option is to save it. It might sound like a boring option, but opening a savings account is pretty smart.
If you plan to travel across oceans or to pay a house down payment, savings will help you to achieve your dream. Try opening an account that is inconvenient to take money from. This means you won’t keep dipping into it for impulse buys!
7. What If?
Another smart investment at tax return time is to get some insurance. Nobody wants to think morbidly. But it’s good to think about the future and ask the “what if” question.
For instance, life insurance. Many overlook it, especially for young people. But investing in life insurance can provide protection for your loved ones. You can have peace of mind in case the unthinkable happens.
8. Home Sweet Home
When it’s tax return time, it might be the perfect opportunity to make some home improvements. Repainting, installing new facilities or landscaping can improve your daily quality of life.
Keeping your house fresh and modernized is also a smart investment. It may increase the value of your home. For instance, replace old windows. Not only will it increase the worth of your home, but it may reduce your energy bills too.
Buying new appliances can also reduce your electricity bills. For example, an ancient refrigerator that’s draining your electricity. Replace it with something more energy efficient.
9. Give to the Needy
When contemplating what to do with a tax refund, it can be easy to think only about yourself. But instead, why not donate some of it?
When you’re on a tight budget, charity can slip far down your list of priorities. An above average tax return is the perfect opportunity to give to a cause that’s close to your heart.
10. Treat Yourself
Of course, there’s nothing wrong with splurging a little bit. You have worked hard all year after all.
To make the most of your tax refund, you can even use codes to get major discounts. Click here to learn how to use a code.
Whether you head out to a nice family dinner or treat yourself to some new gadgets, don’t feel guilty. It’s not wrong to enjoy a treat. But don’t get carried away and blow it all without doing something smart with it.
How to Spend Your Average Tax Refund
Whether you get an above average tax refund or a mediocre sum, use it wisely. If you do, you might be able to improve your financial situation and still have a little left over.
Paying taxes is never a walk in the park. What can you do to de-stress after tax season? Check out these seven fun ways.