It’s tax time! Hopefully, you are getting some money back from Uncle Sam. I am happy to report that we are getting a nice chunk of change back. However, this coming year we will be in a different tax bracket and most likely will owe, so this is probably one of the last refunds we will see in a while.
According to the IRS, the average tax refund is $3,120. While it may sound fun to go on a tropical vacation or upgrade your furniture, it’s a better idea to invest that money back into yourself, save or pay off debt.
Here are four ideas on how to spend your tax refund.
Invest in yourself
This is my favorite way to use a tax refund and the one that will bring you the most joy and hopefully the most return on your money. Are you currently living your dream? What job would you consider your dream job? Maybe you can use your refund to go back to school or get advanced training in your area of expertise. Or, perhaps you want to start your own business. $3,000 is plenty of money to get your business up and running, and hopefully by this time next year, you’ll be working for yourself full time!
To me, the best way to invest in yourself is to start your own blog. I started blogging 1 1/2 years ago and am now making hundreds of dollars per month from it without hardly doing anything. You can see my income reports here and my weekly blogging duties here. Whether you want to be a professional blogger, freelance or run a small business, a blog is a necessity. With Bluehost, you can start your blog for just $3.49/month and your domain name is free for the first year! Use my link and I’ll also give you a copy of my book – The Beginner’s Guide to Blogging – for free as a thank you!
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Create an emergency fund
Do you have three to six months worth of living expenses saved up? If not, put as much of your refund toward savings as possible. You never know what can happen as far as losing a job or your health deteriorating. It is always best to have money saved up for a rainy day. Experts recommend three to six months living expenses, but I personally am aiming for one year. The majority of our refund this year went straight into savings.
Pay off credit card debt
Credit cards come with extremely high interest rates. If you’re not paying your balance off in full every month, you’re going to have a hard time eliminating your debt as it’s going to keep growing because of interest. No thanks!! If you’ve been struggling with credit card debt, use your refund to take care of it (or as much of it as you can) once and for all. We have been credit card debt free for almost five years now, and it feels phenomenal! Yes, we do still use credit cards (in fact, that’s all we use as of lately), but we pay off the balance every few days.
Contribute to a Roth IRA
Did you know that if you contribute extra money toward your IRA, it lowers your taxable income? *Keep in mind, the max you can contribute is $18,000. We actually put an additional $2,500 into an IRA account before filing our taxes to put us in a lower income bracket. This saved us tons of money and was part of the reason for our big refund check. Plus, it never hurts to save for retirement. In fact, if you’re currently not saving for your future, I highly recommend opening a Roth IRA through your local bank and contributing $100 per month in addition to your tax refund. If you can’t contribute $100, contribute $10. Every little bit helps and it gets you to form good habits.
What not to spend your refund on
Like I said above, I know it’s tempting to want to go on a vacation or “treat yourself.” If you do really want to splurge or take a dream vacation, at least try to save half of your refund (or use half to pay off debt). You may not be able to go to the Caribbean, but you’ll feel a lot better knowing you made a good financial decision and still enjoyed some of your money.
See these tips below from the U.S. Tax Center, and let me know in the comments what you plan on spending your tax refund on!
What do you plan on using your tax refund on this year?! Share in the comments!