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5 Smart Ways to Use Your Tax Refund

tax refundGetting a tax refund is one of the most exciting times of the financial year. Many people dread the April 15th tax deadline because it comes along with a large bill, but countless others look forward to filing their taxes and receiving the refund that they have coming their way.

If you are in line for a refund this tax year, you will probably find yourself filing early to get your hands on that money as soon as possible. But what are you going to do with it when it arrives? There are lots of ways to use a tax refund. Here are five ideas.

Save It!

This is the most obvious, and most practical path to take when you receive a check from the IRS.

The money that you get back as a refund is income that you likely weren’t planning on, meaning it shouldn’t be needed to make your budget for the month. Therefore, you can quickly put it away in your savings account and plan on using it sometime at a later date. Rates are in the dumps, but online banks, like Discover Bank, offer 1.10% on your savings so you can earn a little something on the tax refund.

This might not sound like an exciting path to take, but it certainly will be rewarding when you can look back years from now and see that the money is still waiting to be used.

Improve Your Home

A home improvement project around your house is another wise investment and a good way to use your tax refund. Not only will making improvements to your home improve your quality of living for the time being, it should also make your house more valuable when it comes time to sell.

This is a good middle ground option for tax refund money, because you will be able to enjoy it while also doing something that is beneficial for your future.

Go On Vacation

Getting off of the practical path, you could choose to use this money to go on a family vacation. The nice thing about using a tax refund for a vacation is that you won’t need to alter your normal budget in order to have a great trip.

Use the refund to pay for the vacation expenses, and keep your monthly budget on track as usual – it’s a win-win situation.

Attack Your Debt

If you are currently carrying any kind of high-interest debt such as large credit card balances, attacking that debt by applying your tax refund to it is a great idea.

Take your refund and put it toward your highest interest balances first, so that you can reduce the total amount of interest you have to pay each month. You can make your refund go even further by refinancing the debt, through Avant or Lending Club, to lower the rates and save even more money.

Wait and See

You don’t have to do anything with your tax refund right when you receive it.

If you don’t have any specific ideas as to what you would like to do with the money, the best course of action may be to simply put it into your bank account and see what comes up over the months ahead. You can be sure that more expenses will come up as life goes on, so having this money available to respond when needs arise is a great feeling.

 

Are you expecting a tax refund this year? If so, how do you plan to use it? Do you prefer to get a large refund or do you prefer to earn a little extra each month?

 

Photo courtesy of: Brett_Hondow

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John Schmoll is a Dad, husband and veteran of the financial services industry. He's passionate about helping people learn from his mistakes so that they can live lives free from the shackles of debt and empowered to make their money work for them. You can check out his other sites: Frugal Rules, for ways to improve your financial literacy; and Sprout Wealth for tips on different ways to make more money. John has been featured on Forbes, Lifehacker, Yahoo Finance and US News & World Report and more. If you're wanting to grow your blog, check out my blog coaching services to see how I can help you take your site to the next level.

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2 comments

  1. This is a great post especially for those expecting a refund. While I’m not expecting refund, I know a couple of people who are. What is saddening is that these people I know have an idea on what they need will do with the money, which doesn’t involve investing or saving money.

    What I really like about your post is the last bullet, that is, wait and see. Instead of spending on something that won’t provide long-term benefits, it’s better to park your money in your bank until a better option is identified.
    Allan @practicalsaver recently posted…How To Not Become A MillionaireMy Profile

  2. The last time I had tax refund, it was used for savings, but this time, I am using my tax refund for improving home. There’are so many things to do at home and I am starting with the kitchen improvement. I just hope that the tax refund would cover most expenses, if not all.

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