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Most Popular Things to Do With Your Tax Refund — and How to Do It Smarter

Laurel Funk

This article originally appeared on GOBankingRates.com: Most Popular Things to Do With Your Tax Refund — and How to Do It Smarter

With tax season here, many people are looking forward to spending their big tax refund. A GOBankingRates survey revealed some interesting differences in how people plan to use their tax refund check — including key differences between men and women, age groups and income levels.

There is no right or wrong way to use a tax rebate. However, if you’re wondering how to take advantage of your tax return, there are ways to use that money to achieve long-term goals instead of short-term wants.

Here are some of the smartest things to do with your tax return.

Smart: Pay Off Your Mortgage

It’s tempting to pay down your mortgage — especially if you have considerable debt. But, keep in mind that mortgages can be considered “good debt.” Although it’s debt, your mortgage and any other debt that bolsters your overall net worth can be viewed as positive. Instead, use your rebate to pay off other forms of debt that are considered bad debt and carry high-interest rates, like credit cards.

Read: Good vs. Bad Debt — How to Tell the Difference

Smarter: Pay Off High-Interest Debt

Among women who were polled, the second most popular use of a tax refund is to pay off high-interest debt. That’s a smart plan, according to Jared Snider, a financial advisor at Exencial Wealth Advisors.

“For the average person, using a tax refund to pay down outstanding unsecured higher-interest debts, like credit card debts, is a great way to use the extra cash,” he said.

Roughly 26.39 percent of women said they plan to use the refunds to pay off debt, compared to about 20.5 percent of men. In fact, the number of women who plan to pay off debt is nearly as high as the percentage who plan to put money into savings — 27.55 percent.

Smart: Buy Something You’ve Been Putting Off

Whether it be a new refrigerator, air conditioner or computer, tax refunds offer a great opportunity to make the purchases you’ve been putting off because you’ve been short on cash. But, if it’s something you can truly hold off on buying, it might be wiser to save the money.

Smarter: Put the Money in Savings

Women and men are about equally likely to save their tax refunds, but that view varies somewhat among age groups. People age 55 and up, and millennials ages 18 to 34 are the most likely to save their refund, according to the GOBankingRates survey.

“I would look at using a tax refund to ensure that folks have an emergency fund for expenses,” said Snider. “At least three months’ [worth] is important.”

Read: 39 Ways to Save for Your Emergency Fund

Smart: Book a Vacation

After a hard year of work, many people are simply ready to settle down and take a nice vacation. Sometimes cash can be a little tight, though. That’s where a hefty tax rebate can come in handy.

The third most popular use of a tax return, according to the survey, is putting the money toward a vacation. A total of 10 percent of people surveyed chose this option. Setting a budget for vacation, and sticking to it, can help you make sure you don’t overspend and potentially go into debt.

Smarter: Learn Something New

Education is expensive, but a valuable asset. Whether it be starting your education, earning an upper-level degree or just taking a course to learn something new — that knowledge can potentially lead to a more profitable future.

Smart: Treat Yourself to a Nice Dinner

Except for birthdays and anniversaries, you might not have the luxury of enjoying a fancy dinner often. Your tax rebate is a great excuse to go on an extravagant date or try a new cuisine.

Make a Reservation: The Restaurant With the Best Scenic View in Your State

Smarter: Take a Cooking Class

Cooking is a fading art. Not only is it cheaper than dining out, but it’s also healthier. If you don’t know how to cook, consider using your tax rebate to take a cooking class. Learn the basics or experiment with unique dishes you might have never tried otherwise. What you learn in one cooking class can save you plenty of cash spent on delivery and take-out meals.

Smart: Make a Major Purchase

A big tax refund can also be used to help fund the down payment on a major life investment, for example, a house or a car. In the survey, five percent of those surveyed said they planned to put their refund toward a major purchase.

At 5.5 percent, millennials age 18 to 24 said they will use their tax rebate toward a large purchase, whereas those ages 55 to 64 were the least inclined at just 1.17 percent saying they’d put their refund towards a big purchase.

Smarter: Wait Until the Right Moment

If you can wait to make the major purchase, it’s wise to plan it during a strategic time of year. Take buying a new car — you might want to save your tax return and purchase it in December when new cars become cheapest during dealers’ end-of-the-year sales. In the meantime, stick your refund in a high-yield savings account so you can earn interest until you buy a car.

Must-Read: 30 Biggest Do’s and Don’ts When Buying a Car

Smart: Splurge on a Purchase

Another popular way to use a tax rebate is to splurge on some small luxury you have been wanting for a while. From a new TV to shoes or a purse, the little things in life can be so satisfying to purchase. Men were more likely than women to use their tax rebate this way, according to the survey.

Younger people, especially in the 18 to 24 age bracket, 5.5 percent, were more likely than people 65 and up, 2.74 percent, to splurge on a purchase with their refund. Finally, those with a lower income were much more likely to splurge on something for themselves than those in higher income brackets.

Interestingly, more men opt to use their tax return towards a splurge at 4.48 percent than women at 3.07 percent.

Smarter: Save Your Shopping Spree for Retail Holidays

It’s hard to be patient when your tax rebate is burning a gaping hole in your wallet but, saving your cash might just mean you will have an even greater shopping spree. Instead of spending your money now, plan your shopping for retail holidays like Black Friday, Cyber Monday, Labor Day or Memorial Day when deals are rampant.

Smart: Treat Your Kids to Something They Need

Consider investing in clothes, books or electronics for your little ones — your tax rebate can go a long way to benefit your kids. Maybe finance a budding interest in music or art with classes, or invest in your child’s talents with a personal instructor. Or even better, fund their future.

Smarter: Save for Kids’ Education

One of the arguably better investment choices for kids today is planning ahead for their college education. Funding a 529 plan for a child’s education can be a good way to use tax return money in a smart, tax-efficient way, according to Snider.

In fact, Snider said that decision is one of the most common he has seen. “My clients typically use tax rebates for Roth contributions or funding 529 contributions. Though paying off car loans is also a popular choice,” he added.

Read: 529s, Stocks and 18 Other Smart Things to Do With Your Tax Refund

Smart: Invest in CDs

If you don’t need to use your tax return right away, low-risk investments are a smart option. One way to do this is through investing in certificates of deposit or CDs. Over a period of months or years, your cash will mature, or earn interest. Remember, you’re not allowed to touch the deposit until the term of the CD is complete. Also, keep in mind, that depending on the type of CD, you might need to pay tax on the interest.

Smarter: Fund a Roth IRA

If you have just gotten a tax refund, then there is a good chance that Uncle Sam and the IRS are already on your mind. While there is no way to avoid the reach of the taxman altogether, you can make smart tax choices that will build your nest egg.

One popular way to use a tax rebate and save on taxes is with a Roth IRA contribution. Directing a tax return into a Roth IRA, which is funded with post-tax money, can be a great option for starting to accumulate investing dollars without having to worry about paying taxes on the gains from those investments in retirement. A $2,700 investment in a Roth IRA at a seven percent annual rate of return will be worth more than $10,448 in just 20 years.

Related: Roth IRA Rules You Need to Know Before You Invest

Smart: Upgrade Your Furniture

Maybe you’ve had the same dingy couch since senior year of college and are in need of an upgrade. Or, you’ve had enough of that red wine stain on your carpet. Your tax refund is the perfect chance to refresh your home decor. Try searching for quality pieces to make your next furniture purchase a long-term investment.

Smarter: Renovate Your Home

Your refund check might not be large enough to buy you a new home, but you probably can upgrade your existing one. You can make tons of upgrades on a budget. For as little as $200 or so, you can repaint interior rooms, for $200 to $300 you can replace bathroom and kitchen faucets, or for $500 you can update light fixtures with newer ones, according to estimates on HomeAdvisor.com.

For those with a little more money to spend, outdoor landscaping — including shrubs, bushes and mulch — can be bought for less than $1,000. Perhaps best of all, in addition to making you feel better about your home, any of these upgrades can help if you decide to sell your house in the future. Just make sure you don’t make renovations that will actually hurt your home’s value.

Smart: Invest in a Business

Maybe you can fund a start-up or an established small business looking to grow; either way, investing in a business can be a creative way to use your tax rebate. Of course, make sure you perform your due diligence prior to your investment to make sure it’s a wise decision. If you don’t know where to invest, but still want to explore the possibility, use companies like Crowdfunder or SeedInvest to discover start-ups in search of investors.

Read: 6 Small Investment Ideas When You Have Less Than $500

Smarter: Start Your Dream Business

Seed money for a business idea can be hard to come by. Tap into that tax refund and start your dream. This can be especially effective for low-cost startups such as online businesses. Look into low-cost virtual storefronts, like Etsy.com, so you can spend more money on creating your perfect product.

Smart: Donate to a Charity

Perhaps you’re faring well financially — or, you feel the urge to do something altruistic. Charitable giving has been rising in popularity since the passage of the Tax Reform Act of 1976. Choose from charities supporting education, global health, the environment or animal preservation — just to name a few. Plus, it’s a tax deduction.

Related: How to Know If You Can Really Write Off That Donation

Smarter: Invest for the Future

Paying down debt and saving for the future are often cited as common ways to use a tax refund, but another good choice goes beyond just saving. Investing funds from a tax rebate can be a great way to start putting your capital to work while earning a return that is significantly higher than what you could accrue with a savings account.

For example, although investment returns vary over time, on average, stocks have historically earned 10.27 percent annually, according to data from the Federal Reserve Bank of St. Louis. For people looking for more safety, 10-year Treasury bonds have earned an average of 4.29 percent.

Learn: Stocks vs. Bonds — How to Choose the Best Investments for Your Money

Smart: Invest in Your Health

Without proper diet and exercise, you’re at risk for chronic disease, expensive medical bills or even premature death. Use that extra cash injection from your refund to pay for a year’s membership to a gym, a personal trainer or nutritionist. Investing in eating healthy doesn’t have to be expensive and it can improve every aspect of your life.

Smarter: Upgrade Your Insurance

Insurance is not always exciting, but when you need it, it’s of vital importance. From covering legal expenses in car accidents to helping protect your home from a flood, fire or hurricane, insurance can mean the difference between just a bad day and financial ruin.

If you have standard insurance policies, with a little extra dough from your tax return, you can upgrade those policies to provide more coverage in the event of a disaster. A comprehensive insurance policy might not be as much fun as a new TV, but it definitely can help provide more peace of mind.

Up Next: Here’s the First Thing You Should Do When You Get Your Tax Refund

Michael McDonald contributed to the reporting for this article.