Receiving a tax refund check can make a big difference towards improving your finances and achieving your financial goals, so it's a good idea to create a clear plan for what to do with your refund in advance of receiving it this way all that money doesn't just slip through your fingers unaccounted for.
Here are 6 things to do with your tax refund that can make a huge difference for the better when it comes to your finances. Depending on your unique financial circumstances, you may choose to do one or a combination of the suggestions I mention below:
1. Pay off your high interest debt
Your tax refund check can make a huge dent in your debt repayment process and help accelerate the timeline in which you are able to pay off your debt. Now wouldn't that be awesome? If you've been on the fence about whether to use your refund to pay off debt or not, go ahead and do it - you won't regret getting closer to your debt freedom.
2. Bulk up your emergency savings
Having a fully funded emergency account can contribute to your financial peace of mind and more importantly help you weather an unplanned circumstance or emergency e.g. your car breaks down, unforeseen medical expenses etc. Using your tax refund to bulk up your emergency savings can go a long way.
3. Invest in the stock market
Your tax refund could be a great way to get started with investing in the stock market if this is something you've been considering. You can either open up an account with a major brokerage firm or use a robo-advisor and start investing in things like index funds and ETFs. It's important to do your research before you start investing and at the very least have a basic understanding of how the stock market works. Here is one of my favorite investing books for beginners.
4. Catch up on your retirement savings
If you contribute to an IRA or another type of retirement savings, you can use your tax refund to increase your retirement savings if you haven't quite maxed out your contributions for the prior year (You have until the tax filing deadline in April of the following year to max out your contributions for the prior year).
A couple ways to do it: 1) You can pay your contributions directly to your IRA or 2) you can increase the automatic deductions your employer takes from your paycheck for a couple pay periods until it equals the amount of your tax refund.
5. Put money towards a short or mid-term goal
Thinking of starting a business? Saving to buy a house or car? Putting your tax refund towards your short or mid-term savings goal can help accelerate how quickly you are able to achieve your goal.
6. Invest in your personal development and/ or help others
Investing in yourself is always a sound investment especially if you invest in things to improve your knowledge or skill set. It could be courses or certifications to help you get a better paying job, help you do better at work or help you excel in business.
You can also consider giving to charity or to a worthy cause that you are passionate about - the process of giving back in itself has its own rewards!
It's all about putting your dollars to work for you and having a plan in advance will make the process so much easier - with a plan in place, you are less likely to blow your refund on frivolous or unplanned items.