In 2017, the average tax refund was $2,763. If you’re one of the lucky ones expecting a refund, it’s tempting to splurge and spend that refund on something fun. But, here are five smart ways to use the refund to your advantage, alleviate stress and increase your sense of well-being.
- Reduce Debt – The average interest rate on new credit cards is just over 15%, and many credit card rates can be even higher. Paying down credit card debt is one of the smartest money management moves for your tax refund. Paying down other debt, such as a car or personal loan, is also smart. This may not be as fun as buying things, but owing less is a great feeling!
- Build an Emergency Fund – If you don’t have one yet, use your tax refund to start an emergency. Ideally, 3-6 months’ worth of income should be stashed in an emergency fund but something is better than nothing. Open an emergency savings account if you don’t have one, and sock away at least part of your tax refund. You’ll be glad you did when the car breaks down or an unexpected medical expense occurs.
- Invest – This isn’t limited to stocks & bonds, although it’s not a bad idea to enter the market. Investing in certificate accounts is a safe way to earn higher dividends. And even if you already have a 401(k) plan with your employer, you can start a separate IRA to diversify and create a secondary income stream. You could also contribute to a new business or invest in people by donating to charitable causes—which can also be tax deductible.
- Repair or Replace – It’s a great time to make small home improvements that will improve your quality of life. You could repaint a room or two, install a programmable thermostat, add new landscaping or replace inefficient appliances. These can increase the value of your home and could save you money too.
- Invest in Yourself – Once you’ve paid down the debt and built your savings, consider using some of your refund to invest in yourself. Maybe you want to learn a new skill relevant to your job or treat yourself to a new experience so you build memories to last a lifetime.
Sure, you’ve probably had your eye on a pair of shoes or a toy for when your tax refund arrives. There’s nothing wrong with a treat, but beyond that, make your tax refund work for you and your future through with some of these smart refund ideas.