It’s that dreaded tax season again. Time to gather all of your tax documents and spend hours trying to figure out Turbo Tax, or save yourself a headache and pay someone to do it for you. But as much of a hassle as it is to file your taxes each year, getting a decent tax refund always seems to lighten that burden.
The average tax refund has been around $3,000 in recent years, according to the IRS. That’s a decent reward for the pain of filing your taxes. But what do you plan on doing with an extra few thousand dollars?
10 financially smart ways to use your tax refund this year
While it may be tempting to spend it on a new wardrobe or put it towards a new car, the smart choice would be to put your tax refund into something that will give you a better return on your investment. Buying stuff will only decrease in value, investing your money will provide greater financial opportunities.
1.Pay down existing debt
This extra cash could be the lifeline you’ve been hoping for. Use this money to pay off existing credit card debt or loans. Paying off debt will help you avoid interest charges and will get you one step closer to financial freedom.
It is one of the smartest financial moves you can make with your tax refund. Make a plan to get out of debt and use your tax refund to help you achieve that goal.
2. Build your emergency fund
Ideally, you should have at least three to six months’ worth of income saved for a rainy day. But you have to start somewhere, and 43% of Americans plan on doing the same thing, according to a survey by GoBankingRates.
Using your tax refund to build up your emergency savings is a smart way to be prepared for whatever trial may come your way. And, let’s face it, life is never short on trials.
3. Put your money toward retirement
Most people aren’t maxing out their contributions to their retirement funds each year. So you could easily put your tax refund towards your 401K or Roth IRA. While you wouldn’t be able to see your return on this investment until you retire, a one-time contribution that earns an average of 7% per year could grow to be worth exponentially more by the time you’re done working.
That’s an impressive return on your investment. A little money saved today will go a long way towards creating a financially secure retirement tomorrow.
4. Make home improvements
Your house is likely your most valuable asset, so it makes sense to spend money to make improvements. But it’s also the place where you’ll raise your family, so an investment toward improvements on your home is also an investment toward your family.
As such, focus on meaningful home improvements that have a good return on investment.
5. Save for an upcoming expense
We all have big expenses looming just around the corner. How much longer will your car last or when will you need to upgrade? Is that washing machine leaking again? Have your children been begging to go on a vacation? Get ahead of the game now by saving for upcoming expenses in the future.
6. Build your child’s college education fund
Your children aren’t getting any younger, and they’ll be heading off to college before you know it. Start investing in a 529 plan now to help your children pay for college.
College is hard enough without having to worry about the financial burden of student loans. Give your kids a leg up in the world by helping them gain financial freedom as well. Putting your tax refund in a 529 plan will allow you to invest the money tax-free for qualified education expenses.
7. Pay it forward
If you feel like you don’t necessarily need your tax refund to improve your financial freedom, this might be a great opportunity to donate to a good cause. Donate to your favorite charity or increase your fast offerings.
You could also donate to one of the following funds on your tithing slip or online:
- General or ward missionary fund
- Humanitarian aid fund
- Book of Mormon fund
- Temple construction fund
- Perpetual education fund
- Temple patron assistance fund
Donating to charity might also help decrease next year’s taxes if end up itemizing your deductions.
8. Go on vacation
Use your tax refund to create memories with your loved ones. You can buy greater long-term happiness with fond memories than you can with more stuff. If your finances are in order, use your tax refund to broaden your cultural and intellectual education.
9. Invest in yourself
Use your tax refund to invest in your knowledge and abilities by learning a new skill or taking a college course. These can improve your career and aid in your quality of life. In fact, part of the purpose of this life is to gain knowledge.
And if a person gains more knowledge and intelligence in this life through his diligence and obedience than another, he will have so much the advantage in the world to come. – D&C 130: 19
10. Spread the love
If you’re like me, you may wish you could use your tax refund towards all of these great ideas. The best part about your tax refund is that it’s your money. You can split it as many ways as you’d like.
You could put half of your tax refund towards investments in the future like your retirement fund, emergency fund, big upcoming expenses, or a 529 plan. Then you could use the other half for investments you can enjoy now like a vacation, home improvements, paying off debt, charity donations, or investing in yourself.
Decide where your tax refund is needed most and enjoy the benefits of your investments.
Your tax refund will be here shortly if it hasn’t arrived already. Decide now how you’ll spend your tax refund wisely this year. Your future self will thank you for it.