Ahh everyone’s favorite T-word, taxes. Since we are in the middle of tax season, you’ve probably heard or seen advertisements about all the things you should go “buy now”. You know the ones I’m talking about, they tell you it’s time to take that tax refund and pay for the vacation you’ve been thinking about, or put money down for a new car you don’t need, or why not the iPhone X for just $1000? And if you do get a refund it can feel exciting to get some “extra” cash, so why not treat yo’ self?! I hear ya, but before you go make a large purchase, read on.
The gif above may be how it feels when that refund hits your checking account, but let’s remember what it actually means if you do get a refund. All getting a refund usually means is that you’ve paid the government too much in taxes during that year. It’s not extra money and you’ve basically just let the government borrow your hard-earned cash for free.
When I hear or see the ads telling you to go spend your refund on some big purchase you don’t need to make, I cringe a little every time. You wouldn’t go blow your next pay check on some large purchase that isn’t really necessary, right? So why do it with your tax refund?
What should you do if you get a refund?
If you do get a refund, it’s a great time to do something good with it! Something that will help you move towards reaching your financial goals. Below are some of the things that I’ve done myself with refunds in the past:
1. Pay off Debt
If you have credit cards with balances on them, consider using your refund to pay them down or off if possible. Paying down your credit cards can save you a lot of money on interest being paid and can also free up cash flow for you once you’re done making those minimum payments every month. You can also apply this to student loans, lines of credit, etc.
2. Create an Emergency Fund
Did you know that a financial security index survey conducted by Bankrate found that only 39% of Americans would be able to cover a $1000 emergency? An emergency can happen in all kinds of forms and become a financial burden quickly. Examples include: your car can break down, a medical emergency can come up, even an appliance that suddenly stops working in your house. It pays to save and be prepared, so consider using your refund to build your emergency fund if you don’t already have one.
3. Invest in Yourself
Is there something new you’ve been wanting to learn? Have you thought about a new certification or course that will help your career? Using your tax refund to pay for a new certification, more training, or even a conference related to your job can help you become more competitive and potentially even boost your income in the years to come. Consider making an investment in yourself that will pay you back after!
In what ways have you used your tax refund? Leave a comment below!
Disclosure: Nothing on this site should ever be considered to be advice, research, or an invitation to buy or sell any securities.