When that time of year arrives that you receive a nice large amount of refunded tax money, it can be tempting to immediately go on a shopping spree. It’s not often we are gifted with what we consider to be extra money, and it can feel nice to spoil ourselves. Before you go on that shopping spree, though, consider these ideas about ways to spend your tax refund that will make a difference for you in the long run.
Get Rid of Debt
If you are one of the many people who have a little or a lot of debt accumulated through credit cards or other ways, use this opportunity to pay some of it back. Although this may be one of the least exciting ways to spend your tax refund, it makes the most sense. Paying off your debt now will lighten your load in the future and reduce the money paid by you in the long term due to reduced interest on your loans. It will help your family budget long term.
Add to Your Emergency Fund
An emergency fund can never have too much money in it. You never know when you may need to fall back on it. Although you always hope to never need one, don’t wait around assuming that you won’t. If you have an emergency fund to add to, then add to it. If you haven’t started one, then a tax refund is a great place to begin.
Look Out for Your Future
Depending on what age you are, retirement may be the last thing on your mind. It’s not something you should delay, however. The years go by quicker than you imagine and one day you may look back and wish you had made different financial decisions.
Start contributing now to your retirement plan, and in the future, you will look back and be thankful for your wise planning. If you are relatively young, it’s an even better idea to start now. The sooner you begin contributing to your retirement fund, the longer it has time to grow. This gives the money you set aside now a substantially higher value than if you were to contribute it at a later date.
Your Children’s Future
Just as you need to plan for your own future, there’s also your children’s future to consider. A tax refund is a perfect opportunity to put money into a college fund for your child. This follows the same rule as your retirement fund, meaning the sooner you put the money into it, the longer it has to grow and the greater the final amount will be. A little amount now can add up to a lot later.
Have a Little Fun
Finally, give yourself permission to enjoy a bit of your refund. Take the family out to a movie, stay overnight at a local hotel, or buy yourself that new outfit you had in mind. If you have used most of your refund for the more important things in your life, you can enjoy the remainder without guilt. It is beneficial for us to enjoy some fun and is in fact good for one’s health.
What to Avoid
Credit Karma shared some more ideas of smarts ways to spend your tax refund. They also list some things you should avoid doing:
Impulsive purchases of unnecessary consumer goods: Such as expensive seasonal clothing or a new car, boat or electronic gadget. That 50-inch TV might not look so good when you don’t have enough money to pay your bills at the end of the month.
An expensive trip or dining out excessively: Create a budget that includes occasional treats, but don’t blow your tax refund on an unplanned vacation or expensive restaurant. Those things come and go, and don’t allow you to hold onto or grow the value of your tax refund.
A checking account that doesn’t earn interest: Saving your refund is a great idea, but it’s important to choose a savings vehicle that will make your money grow. Research your investment options and try out money apps for saving and investing.
Gambling your hard-earned cash: It’s understandable to want to try to double your tax refund at the casino, but remember that it’s very easy to lose it all.
Now that you have your tax refund, make a solid plan and put that money to good use. Making financially responsible decisions is a great feeling, even better than that shopping spree that originally flickered through your mind. Use the above ideas to give you some ideas on where to start and you will be thanking yourself long after this moment has passed.