If you’re expecting a tax refund, it may be tempting to blow it all on hats or a gold-plated gadget, but there is a better use. After all, this isn’t a bonus from your company; it’s your money that the government borrowed and they’re giving it back to you. Using these funds wisely can alleviate stress and increase your sense of well-being. Here are five smart ways to make the most of your refund.
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. Alternatively, you can contribute to a new business or you could invest in people by donating to charitable causes—which can also be tax deductible.
There is no feeling quite like being debt-free. Why not use the money to lower your credit card balances? Pay off the one with the highest interest rate first, and if you have some money left over, start working on the next. You can also get ahead on your auto loan, your student loans & your mortgage principal. This may not seem as fun as buying things, but owing less to others gives you more buying power.
Build an Emergency Fund
If you don’t have one yet, a tax refund can help jump start your rainy-day savings. Even $500 can help soften the blow of unexpected costs. If you already have an emergency fund, keep working to save three to six months of expenses. Having this cushion will help if you ever suffer from job loss or medical issues.
Repair & Replace
Complete the maintenance projects you’ve been putting off. Fix broken shingles on your roof. Replace your car’s worn tires. Go to the dentist and take care of the tooth that’s been bothering you. Replace an old, energy-inefficient fridge or a malfunctioning oven. At times, spending a little on preventative care now will help prevent bigger bills down the road.
There’s no harm in treating yourself with your tax refund when your other financial responsibilities are handled. However, many people find that purchasing things isn’t as satisfying as gaining experiences. Take your spouse out to a nice dinner. Enjoy a family vacation. Go somewhere fun with your friends. Create memories that will last, instead of buying that quadcopter drone with GPS—after all, it’s likely to break before the month’s over.