Hoping for a tax refund? What are you going to do with it?
It’s tempting to splurge it all on a big night out or a fancy new whatever, but there are smarter ways to spend your windfall. We have eight suggestions, including some you probably haven't thought of.
1. Send the money off to work
A diligent investor in the financial markets might easily achieve a comfortable retirement with monthly contributions, efficient tax planning and professional advice. But many of us never take the time to start.
Compound interest is a powerful tool to save money and earn an income from your portfolio. Opening your first investment account with a tax refund is a great way to get a head start.
If you want to put money into stocks, avoid picking individual ones until you have at least $1 million. It’s much better to play the market using mutual funds and exchange-traded funds to spread your risk.
2. Shake off some debt
The best use of a tax refund is often the simplest: Pay down your credit cards, student loans or other bills.
The best return on your money is often found in debt repayment. Do the math! A typical credit card can have you paying out at least 15% in interest per year.
It might not be the most exciting idea for your tax windfall, but you’ll thank yourself later. Paying less interest and not worrying about your debt is a win-win.
3. Sleep on it
Chances are you need a new bed, or maybe a new mattress. If the last time you replaced yours was a couple of presidents ago, you're due.
The National Sleep Foundation says you need a new mattress every seven to 10 years. We spend at least a third of our lives in bed, so it pays to invest in a comfortable spot to lay down your head.
The quality and affordability of mattresses have improved a lot in the last five years, thanks to increased competition. Mattresses can now be ordered online and sent to your door, but you may want to try them out in a showroom first.
4. Get ready for anything
Having a major expense fall into your lap can be a nightmare. But 1 in 4 of us has no emergency savings, surveys show.
If making monthly contributions to a rainy-day fund would be a struggle for you, a tax refund is a great way to jump-start a savings plan. You’ll thank yourself later.
Why stress over money when you can build a buffer? Just make sure to put the money into a savings account that’s available in a pinch and earning some interest while you wait.
5. Do some remodeling on your home
Your home may be the largest financial asset you'll ever own, and it can effectively become a major source of retirement savings. Using refund money to improve your home is a great way to improve your financial future.
Adding energy-efficient features and beautifying the outside or inside of your house can give you more enjoyment now and boost the home's resale value down the road.
Investments in the functionality or curb appeal of a home can wind up being worth far more than the money spent. At the very least, you’ll live in a beautiful and comfortable home for years to come.
6. Do some remodeling on yourself
Instead of blowing your refund on a new wardrobe or a fancy smartphone, consider making an investment in yourself and your future.
Spend some money on self-improvement: Take a class to learn a new skill or sign up for training to upgrade your professional credentials.
Using the money to better yourself might pay off in a better job, a bigger paycheck or a healthier you. So, the return on investing in yourself can be great.
7. Give your windfall away
Tax season is a good time to reflect on society and this grand experiment we call humanity. While it’s tempting to pocket your refund, it’s also a good opportunity to help a worthy cause.
Many organizations need funding to do their good work, and it often takes hundreds or thousands of small donations to make things happen.
Whether you give money to a friend in need or a local charity that supports a cause you love, your tax refund has the potential to do a lot of good.
8. Have fun! (You're allowed!)
Go ahead and live a little with your windfall. But before you hit the mall, think about better ways to spend the money, other than on stuff.
Do you really need more stuff? Seriously?
Experiences and the memories you create are usually more rewarding than purchases like clothing, jewelry and electronics. Throw a party, take a trip, or just go on a relaxing “staycation” close to home.