What to do With Your Tax Refund

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what to do with your tax refundI know that getting a big tax refund can make you feel like you won the lotto, but that doesn’t mean you should throw it away. The money you were given back has always been yours. Consider it as though you are extending a sizable loan to the government, which you must now repay.

If you’re not sure what to do with your tax refund, here are some excellent ways to spend your cash.

What To Do With Your Tax Refund

Pay Off Debt

The first thing that you can do with your tax return refund is to pay off debt. I’m not a fan of debt at all. Some people can eliminate their debt fast, but most people aren’t. For many, it’s an up and down journey.

Debt can stop you from doing many things if you let it get out of control. Certain types of debt collect interest which makes the amounts higher to pay off over a period of time. Student loans and credit card debt are two examples. Unfortunately, I have both, but they are going down. Using your tax refund to pay off debt might be challenging at first (especially if you have a big refund), but it will be a great move in the long run. A couple of years ago, I used my refund to pay off a small loan. Sometimes you have to do different things to get rid of that debt.

If you want to use only some of your refund to pay off your debt, at least use half of it. Paying off some is better than doing nothing. This year, I used some of my refund to eliminate most of my credit card debt. I saved the rest.

Save

The second smart thing that you can do is to save some of your money. This is the perfect time to open an emergency account. If you already have one, add some of your refund to it. I deposited the other part of my taxes to my emergency account.

You would be surprised how many people don’t have an emergency or regular savings account. I worked at a bank for almost two years, and about 40% of my customers didn’t have a savings account. For the people that did have one, many of them didn’t have at least a hundred dollars in there. That was sad. It’s time to get a hold of your finances and get this account going. You can start your account with an online bank or go to your nearest credit union or bank. Below are two banks that I suggest.

If you are in the Atlanta area, check out Delta Community Credit Union. Unlike some banks, they have excellent customer service and treat you like a person. They aren’t trying to sell you products. They are there to help. You can get more information about Delta Community Credit Union here.

Invest

You can invest some of your tax refund money. You don’t have to invest your total refund. You can start with a small amount. I have invested money with Stockpile and Robinhood before. I use Robinhood to purchase shares a few times per year. I like their platform. It’s very easy to use for beginners. You must download the app to your phone, add some funds to your account, and start trading. Robinhood is also giving new users one share of free stock. Check them out here for more info.

If you want to avoid Robinhood, you can check out another app called Webull. It’s another stock trading platform.

I wrote an article that includes the best investment apps for beginners.

If you want to learn more about investing from people that are making it happen.

Teri Ijeoma teaches people how to trade. She has several courses that are available to help you become a pro when it comes to trading. For more information, check out Invest With Teri today.

Tela Holcomb is a six-figure stocks and options trader. She believes that anyone can learn stocks when it’s put in plain English. You can visit her site here.

Kevin Matthews II owns Building Bread, where he helps millennials set and achieve their financial goals. He has a few free classes that will help you with investing. You can view them here.

Contribute to an Emergency Fund

Many people do not have an emergency fund because they think they don’t need it, but that’s not true. The truth is that life is unpredictable, and anything can happen. This is why you need an emergency fund. A perfect example of something unforeseen was the COVID pandemic in 2020. It was an unexpected event that caused a lot of hardship for people, especially those who did not have emergency funds. In 2021, around 63 million Americans could not afford household expenses like food or rent due to the effects of the pandemic. An emergency fund would have helped in times like these. 

Sometimes we are swamped with so many expenses that we do not have enough to start an emergency fund. This is why a tax refund would be perfect to start up or contribute to an emergency fund. This will help to prepare you for an unexpected event. 

Start a Business

The next thing you can do with your refund is starting a small business with it. This one is not for everyone. I know plenty of folks who don’t want to be business owners. That’s perfectly fine. However, if you are considering starting a business, the opportunities can be endless, depending on your refund.

You can start some businesses with as little as five hundred dollars. Some examples are:

  • Lawn Cutting Service
  • Car Detail Service
  • EBay Store (I had to include this.)
  • Shopify or Esty

Save up for a Large Purchase

When your tax refund comes in, it could be a lot of money, and you could put this money to good use by saving up for a large purchase or project. If you’re one of the lucky ones with no debt, then that’s excellent news. You could easily put your money in a saving account with a high yield and begin to save up for a large purchase like a house or a car. Over time you could add some extra cash to it and watch it grow. 

If you want it to grow faster, you could invest in a business that you think has some potential, or you could put in a certificate of deposit and watch it grow into something tangible.

Contribute to a College Savings Plan

The price of a university education keeps rising, and your job alone might need help to fund one. This is why you need a savings plan for college, and a tax refund could help you fast-track that saving fund. It could ease the financial burden of funding a college education. Data shows that the annual tuition at private and public schools is on the rise, with about a 4% increase each year for private schools and a 1% increase yearly for public schools. Currently, a private institution costs around $39,723 annually, and a public institution costs about $10,423 for in-state students and around $22,900 for state students. This is quite expensive for the average American.

Of course, you can pay for your education using student loans, but that would mean another 2 to 3 years of debt. This is something a saving plan could solve for you.

Make Some Home Improvements

Your tax refund may not be large enough to get you a new home or car, but you can use it to make some little home improvements, something you’ve always wanted to do. You could do some home remodeling that will help you save money on repairs in the long run. 

For example, you could get a new appliance, like a fridge or a TV, or replace an old couch. You could even get some window blinds or paint your old walls. You could get new faucets or do a garden job in your home to make your home look good. It’s your money, after all. 

Take a Vacation

Depending on the amount of money you got on a tax refund, you can decide to go on a vacation or save up for one. Saving up for a vacation is a good idea, especially since you’ve been working hard and need some rest. Vacations cost a lot of money these days, so if you’re planning one for yourself, it could cost around $1000, but if you want to take your family on vacation, it will cost a lot more. 

If you don’t want to spend all your income on a family vacation, then a tax refund is the best way to do it. You could save up for a lovely time in Hawaii without breaking the bank.

Contribute to a Retirement Account

For most Americans, retirement seems like a distant future, which won’t come in a million years, so they hardly think about starting up a retirement account or saving for retirement, which isn’t good. Retirement is inevitable; the earlier you plan for it, the better. It’s time to ask yourself if you are on track with saving money for that time. 

You can use your tax refund to purchase a Roth or IRA, which puts money away to supplement your retirement account. In the last few years, people under age 50 have contributed around $6500, but if you’re over 50 years old, you can go up to $7,500. What better way to spend your money than saving for your future? It’s your money, after all. 

Train to Improve Job Skills

You could also spend your tax refund on paying for skill training. Skills are essential. They help you keep your job during a layoff, and you could earn more. 

If you were unsure what to do with your tax refund, I’m sure you now have an idea. This article went over several things. Review your options and make the right decision for you.

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Jason Butler is the owner of My Money Chronicles, a website where he discusses personal finance, side hustles, travel, and more. Jason is from Atlanta, Georgia. He graduated from Savannah State University with his BA in Marketing. Jason has been featured in Forbes, Discover, and Investopedia.